Indonesia revises regulation on funding facilities for geothermal development

In late April 2022, the Indonesian has revised important regulation on funding facilities for geothermal development in Indonesia. Since 2017, the Government through the Ministry of Finance has provided fiscal facilities in the form of the Geothermal Sector Infrastructure Financing Fund (PISP) ??based on the Minister of Finance Regulation number 62/PMK.08/2017 concerning Management of Geothermal Sector Infrastructure Financing Funds in Company Companies (Persero) PT Sarana Multi Infrastruktur.

The PISP fund, which is a revolving fund, aims to encourage optimization of the utilization of geothermal potential in Indonesia, which is the second largest in the world. The PISP fund facility is expected to be one of the solutions to the high risks and costs in the exploration stage which have been hampering the participation of business entities in the development of geothermal power.

In order to strengthen the governance of the PISP fund facility, the Ministry of Finance has amended PMK number 62/PMK.08/2017 through the issuance of PMK number 80/PMK.08/2022 regarding Geothermal Development Support through the Use of Geothermal Sector Infrastructure Financing Funds in Company Companies ( Persero) PT Sarana Multi Infrastruktur. This new PMK is intended to improve the quality of PISP Fund management in various aspects so that it can be utilized effectively and fulfills the principles of accountability, transparency, planning, and sustainability.

Several aspects that have been improved in PMK number 80/PMK.08/2022 include:

1. Strengthening the PISP Fund as a funding and financing platform that can synergize various domestic and international funding sources in various types of instruments, and channel them for financing geothermal development projects;
2. Expanding the scope of PISP Fund facilities not only for Government Drilling and SOE Drilling/Public Window, but also including Private Drilling/Private Window to encourage the involvement of private developers;
3. Expansion of the types of risk carried out by de-risking to include Exploration Risk, Political Risk, and Gap Risk;
4. Strengthening coordination between the Ministry of Finance, Ministry of Energy and Mineral Resources, and other relevant agencies in the context of geothermal development in Indonesia, particularly through the Joint Committee forum which plays a role in supervising and making strategic policies related to the management of PISP Funds;
   Strengthening the roles and synergies of PT SMI, PT GDE, and PT PII as fiscal agencies of the Ministry of Finance in managing PISP funds, implementing technical activities to support geothermal development, as well as risk assurance; and
5. Increased collaboration with domestic and international institutions in order to improve financial capacity and quality of PISP Fund management.
6. The issuance of PMK number 80/PMK.08/2022 provides a more flexible option for the government and business entities in carrying out geothermal exploration activities in a more massive, effective and measurable manner. Collaboration between domestic and international stakeholders can also be improved, particularly in increasing the financial capacity and quality of PISP Fund management as well as encouraging the implementation of blended financing/creative financing schemes in financing geothermal infrastructure to reduce the burden on the State Budget and fiscal risks.

More broadly, the strengthening of the governance of the PISP fund facility is also intended to increase the contribution in realizing national energy security and independence through the achievement of the national energy mix target, particularly from geothermal. This also strengthens the government’s commitment to climate change mitigation, which is a global agenda, in line with the priorities of the Indonesian Presidency in the 2022 G20.