The Ministry of Justice and Human Rights has just issued Government Regulation No. 3 of 2005 on Amendments to Government Regulation No. 10 of 1989 on the Supply and Exploitation of Electricity (the “Regulation”). In its Preamble, the Regulation clearly stipulates the underlying reason behind its enactment, namely, to enhance the provision of electric energy to the public and to implement regional autonomy in electricity sector.

However, in addition to such reasons, it is believed that the primary objective of the Regulation is to provide more access to foreign investment in electricity sector. The Constitutional Court (“CC”) has previously invalidated Law Number 20 Year 2002 concerning Electricity. Law Number 20 liberalized the electricity sector by enabling broad private participation in electricity and ended the monopoly of state-owned electricity company PT. PLN. However, the CC considered that the laissez-faire approach under Law Number 20 is not consistent with Article 33 of the 1945 Constitution and therefore needs to be annulled (please click the link below this article for a discussion on the invalidation of Electricity Law).

After the invalidation of Law Number 20, electricity sector is regulated by the previous law, Law Number 15 Year 1985 on Electricity. Its implementing provision had been GR No. 10 of 1989 on the Supply and Exploitation of Electricity. GR No. 10 had been very strict with regard to foreign investment, centralistic in its approach and therefore leaves no room for regional autonomy. While waiting the new electricity law being drafted, the only possible means for the government to somehow liberalize electricity sector and decentralize its policy making process is by issuing a Government Regulation, which is GR No. 3 of 2005.

The Regulation amends GR No. 10 Year 1989 in several ways. First, its Article 2, now states that the supply and exploitation of electricity will be based on the provisions of the General National Electricity Plan and that the Central or Regional Government has an obligation to provide the necessary electricity infrastructure for those that cannot afford it as well as in remote areas and villages with limited or no electricity supply.

Secondly, the Government also decentralizes the licensing procedures in electricity by allowing the regent/mayor/governor depending in its authority to issue licenses for private companies wishing to undertake electricity exploitation. The report and planning from the private companies must also be submitted to regional government. Supervision and revocation of such licenses is also authorized to the local governments.

Before the amendment, cooperation conducted by private parties undertaking electricity sectors to a third-party can only be conducted under the Minister’s approval. Under the existing Regulation, such approval is decentralized into regional governments.

Although the Regulation may open opportunities for private participation in electricity business, such participation will not be very broad as the core provision in electricity sector is still regulated under Law number 15 Year 1985 which set stringent approach with respect to private participation. Moreover, the monopoly of state-owned PT PLN prevails under the existing law. (mma)