The Indonesian government has taken a significant step in promoting domestic participation in the energy sector with the recent enactment of Minister of Energy and Mineral Resources Regulation No. 11 of 2024 on Utilisation of Domestic Products for the Construction of Electrical Infrastructure (“Regulation”). This new Regulation sets the new local content requirements for the energy sector as the previous regulation on local content, Minister of Industry Regulation No. 54 of 2012, has been revoked.
Exemption to the Local Content Requirements
Under the Regulation, power projects may secure an exemption from the local content requirement if they are funded by offshore loans/grants from multilateral or bilateral creditors. This exemption recognises the complexities of international financing and aims to strike a balance between encouraging domestic participation and enabling project viability.
To qualify for the exemption, two key conditions must be met:
Offshore loan/grant agreement
- The agreement must explicitly waive the local content threshold outlined in the Regulation.
- Alternatively, the agreement may stipulate a specific local content threshold that the project company must comply with.
Financing
At least 50% of the total project financing must come from multilateral or bilateral creditors (development banks or financial institutions) through:
- Offshore loans/grants to the government.
- On lending of offshore loans/grants to the government; or
- Direct offshore loans/grants to the project company.
The exemption allows internationally funded projects to proceed, while still contributing to Indonesia’s infrastructure development goals. Moreover, it encourages the participation of both local and foreign investment in Indonesia’s power sector.
Relaxation of the Local Content Requirements
The Regulation also introduces a significant relaxation of local content rules specifically for solar power plants. This relaxation, valid until 30 June 2025, aims to accelerate solar energy adoption while fostering domestic manufacturing capabilities.
To qualify for this relaxation, solar power projects must meet the following criteria:
- Power Purchase Agreement (PPA): The PPAs must be signed by 31 December 2024.
- Commercial operation: The project must commence commercial operations by 30 June 2026, as outlined in the Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik or RUPTL).
- Solar module assembly: The solar modules must be either:
Assembled domestically; or
Imported by a foreign solar module company committed to investing in domestic solar module production and complying with the local content requirements. The production of solar modules must be completed by 31 December 2025.
The Coordinating Minister of Maritime Affairs and Investment will play a crucial role in identifying eligible solar projects through coordination meetings with the relevant stakeholders. Like the exemption, this relaxation provides a chance for solar projects to benefit from both international experience and local growth.
Lower Cumulative Local Content Threshold
The Regulation stipulates that the local content threshold will be decided by the Minister of Energy and Mineral Resources. Accordingly, the Minister has issued Decision No. 191.K/EK.01/MEM.E/2024 on Minimum Local Content Value of Combined Goods and Services in Electricity Infrastructure Development Project (“Decision”). The thresholds are derived from various existing, commercially operational, and verified power plants.