Geothermal ruling gets cool response from INAGA

Geothermal ruling gets cool response from INAGA

JAKARTA (JP): The Indonesian Geothermal Association (INAGA)
responded coolly on Friday to a new geothermal regulation, saying
it did not provide enough incentives for investors to develop the
country's potential for geothermal power.

INAGA secretary general Riki F. Ibrahim told The Jakarta Post
that under the Presidential Decree No. 76/2000 issued on May 31,
2000, investors would not be attracted to the country's
geothermal resources as geothermal-based power would remain
uncompetitive when compared to power generated from other sources
of energy, including coal and gas.

"The role of geothermal power as a competitor to conventional
sources of energy is not highlighted in the presidential decree,"
Riki said.

Riki said the decree was focused on eliminating state oil and
gas company Pertamina's monopoly over the country's geothermal
resources.

But it failed to provide the necessary incentives to promote
the development of geothermal resources, Riki said.

Pertamina was granted a monopoly over the exploitation of
geothermal resources by the government in the early 1980s through
Presidential Decree No. 22/1981. Under this decree, private
companies were not allowed to generate power from geothermal
steam.

The government amended the decree 10 years later with
Presidential Decree No. 45/1991, which allowed Pertamina and its
contractors to explore and exploit geothermal resources as well
as generate electricity using geothermal steam and sell the power
to state electricity firm PLN or to other industries.

The new decree lifts the monopoly and transfers the management
and licensing rights to geothermal resources to the regions.

The new decree, however, raises the tax and nontax obligations
of investors, Riki said.

Under the new decree, geothermal investors have to pay taxes
to the government in compliance with Tax Law No. 10/1994.

However, investors with contracts signed prior to the issuance
of the decree are to follow the tax regulations set out in the
1991 presidential decree.

For instance, Tax Law No. 10/1994 sets income tax at 37
percent, as against 30 percent under the 1991 decree.

Geothermal investors with contracts prior to the issuance of
the new decree are not obliged to pay exploitation royalties, but
investors who receive contracts after the issuance of the decree
have to pay royalties.

Riki also said that the fact that the government was
continuing subsidies for the use of gas and fossil fuels would
also make geothermal-based power uncompetitive.

Riki admitted that power from geothermal steam was more
expensive than that from coal and gas.

He said this was because geothermal power plants have a lower
power generation capacity than coal or gas-fired ones. Investors
have to sell the power for more than coal and gas-generated power
to receive adequate returns on their investments.

He noted in the long run, however, that geothermal power
plants would bring greater benefits to the public because after
gaining enough returns on their investment, investors could
operate the power plants cheaply given the renewable nature of
geothermal steam.

Riki thus called on the government to promote the development
of the country's geothermal resources by allocating a portion of
the demand for national power to be filled by geothermal power.

Riki also proposed the government introduce a geothermal law
to replace the new decree, saying a law has a stronger legal
basis than a presidential decree.

Indonesia has potential geothermal resources capable of
providing up to 19,000 MW of the country's power needs -- one of
the world's largest. Only about 350 MW is used presently. (jsk)