Dissemination and Training workshop, Jakarta March 22-23, 2005 Supported by the European Commission through the EC – ASEAN Energy Facility Regulatory framework for hydropower development in Indonesia, Philippines & Vietnam IFRERA Dissemination and Training workshop, Jakarta March 22-23, 2005

Task’s specific objectives A part of the IFRERA project financed by EU under EAEF Review and analyse the frameworks: Legal Regulatory Fiscal Formulate recommendations, innovative schemes to sustain the implementation of hydropower projects by the private sector Ultimately contribute towards poverty alleviation and wider utilisation of RE

VIETNAM INDONESIA PHILIPPINES Presentation plan Institutional framework in power sector Power sector regulations Natural resources and Envi. Regulations Investment regulations Conclusions VIETNAM INDONESIA PHILIPPINES

Vietnam – Institutional stakeholders Ministry of Industry : overall energy planning and policy EVN : state-owned monopole power utility MPI : licences for all business in power sector MOSTE (MONRE) : RE R&D, EIA and appraising investment MARD : water resources management & rural dev. Provincial People Committee (PPC) and its departments at local level

Vietnam – Power sector regulations Degree No.80 up to 2001 and No.45 Private only in Generation, with exception for isolated networks Electricity tariff is set by the Government (MoI), except isolated network For rural electrification, there is a clear distinction grid extension : EVN is responsible, but LV will be funded from local sources isolated network for rural electrification : Government supports and provides incentives and specifies tariff ceiling

Vietnam – Power sector regulations (2) Electricity law adopted in mid 2005 to Attract investors Ensure the equality, fairness and antimonopoly Protect legal rights & benefits of consumers Main provisions of this Law : Various forms of investment & ownership Licence is required but can be granted for org., indiv. in all power sector activities No monopoly (<25% the total load capacity of the country) Tariff must include full costs, get return and benefits Clear defined role for MoI and separate regulatory from MoI The government set targets of RE for each period and incentive policies.

ERAV The Electricity Regulatory Authority of Vietnam (ERAV) was established in October 2005. Establishing the Master Plan for Power Sector development; advising the Minister of Industry on power market structure and industry restructuring policy, Designing the power market & regulate the competition among the power market participants issuing and enforcing licenses to power sector entities; Tariff setting; Elaborating PPA of the single buyer; Ensuring the procurement of adequate new generation and transmission capacity ; Monitoring functions

Roadmap for Power Market development in VN 2005 2009 2015 2016 2022 2024 Generation competitive market Wholesale competitive market Retail market Preparing for Single Buyer wholesale market Preparing for retail Internal generation Generation competitive market _ Single Buyer Wholesale Wholesale market and Pilot retail market Retail competitive Single Buyer and Pilot wholesale

Vietnam – Natural resources & envi regulations Law on envi. protection 1993, on water resource 1998 and other decrees : protect the envi and compensate for damage to land & property All hydropower projects are required to submit an EIA Category 1 : MONRE and DONRE and/or PPC. A special council formed to advice the Minister. Category 2 (off-grid) : DONRE after the advice from PPC Natural resource tax (2%) applies to the use of water for generation of electricity, except the electricity not transmitted into the national grid (tax exception).

Vietnam – Investment regulations General procedure : Pre-investment study Investment approval F/S Acquire an investment licence Acquire the approval to construct Level of state intervention, length and complexity depend on : Ownership of funding Scale of project costs

Vietnam – Conclusions Complexity of the process, but the growth in private investment in SHP is considerable Existing legal framework was designed to accommodate large power projects but not small-scale projects like renewable energy schemes Unlike before, private participation is now welcomed in energy sector PPA with a single buyer (EVN) is the biggest issue (at least up to 2009). A new ground foundation for RE is laying out, although the mechanism on how to implement and move forward are yet to be defined.

Indonesia – Institutional stakeholders MEMR (DGEEU) : overall energy planning and policy, issuing permits, standards, regulation in non-competition areas BAROKEN (National energy coordination body) : general energy policy setting and coordination Ministry of Cooperative MOC : supporting PT.PLN to implement R.Elect. MF : provide incentive package for investors MTI : Permit for electrical products BAPPENAS (national dev. planning body): involve in energy planning, monitor planned prog. Provincial / District : regulations in non-competition areas that is off-grid, invest. & EIA approval BAPPETAL (Market supervisory Board) : regulations in competition areas (under the law 20/2002) PT.PLN (Persero) : National power utility. Only Authorized Electricity Business Institution

Relationship between key players in power industry

Indonesia – Power sector regulations Old electricity law 15/1985 was replaced by the New electricity Law 20/2002  make power sector more competitive The new elect. Law was annulled on 15 Dec. 2004  The government (PLN) should manage the power sector, not private (article 33 of the constitution 1945). As the consequence, power sector is governed by the old electricity law, and the government regulation 3/2005 and other MD

Indonesia – Power sector regulations 2 Some particular points of power sector regulations No competition is mentioned Government is obliged to provide infrastructure for underprivileged community Private involvement is possible and local government has the right to give permits to businesses license, not generation license The government set the tariff. Local authority has right to set tariff for private electricity (under the law 20/2002). Tariff should reflect the economy of power generation & economic condition of the people There is only one Electricity Authority and it is the representative of the government (PT.PLN)

Indonesia – Investment regulation Regulated by decision No. 57/SK/2004 – Investment Coordination Board (BKPM) The size of investment is determining the procedure with steps: Set up company Apply for tax registration code number Apply for PPA Apply for license to generate power for public service Registering the investment to the Invest. Board EIA Construction phase Operation phase Base on these steps, the following institutions should be contacted : Lawyer office, tax office, EIA consultant and board, PLN office, DGEEU and/or Region head office, BKPM.

Indonesia – Envi. & water regulation EIA is needed in two steps : PPA application and project implementation. For small (<100MW), Impacts mitigation actions & Mitigation monitoring actions are required. Scale of the project will determine the scale of surveys For mini hydropower, EIA will be done by provincial level EIA board The applicant of PPA must attach a license to use water, issued by local government, with water tax to pay (minimum 5 IDR/kWh electricity produced) depends on the local regulation.

Indonesia – Conclusions Actually the guidelines are scattered in many regulations Buying guarantee is for 1 year by PLN with possible to extended to at least 5 y. For medium size buying guarantee is 10 years ( from 1 MW up 10 MW) Long term contract is possible for firm capacity generation plant. Main actors : PLN and MEMR (DGEEU)

Philippines – institutional stakeholders Rural Electrification OTHER GOV’T. AGENCIES Financing and project implementation, permission, LGU… NEA Project identification and monitoring SPUG Project implementation and Petition of Universal Charge for Missionary Electrification PRIVATE SECTOR Financing and Project Implementation and Operation DUs Project Implementation and Operation ERC : Rate Design, Licensing and Determination of Univ.Charge-Missionary Electrification DOE Policy Direction-goal Setting and Program management and Coordination

Philippines – Power sector regulations EPIRA (Electric Power Industry Reform Act, known as Republic Act 9136 was signed into law June 28 2001 The Implementation rules & regulations (IRR) on Feb 27 2003 DOE’s Circulars ERC’s Issuances Encourage competition in generation & supply Trans & Dist remain regulated business Distribution Utilities (DU) are classified into PIOUs (private Investor-Owned Utilities), EC (Elect. Cooperatives), LGUOUs ( Local Government Unit-Owned Utilities). Protect public interest Establish a strong independent regulatory body (ERC)

Philippines – Water & ECC regulations Environmental Compliance Certificate (ECC) is issued by DENR – EMB (Envi. Management Bureau) For mini hydro (<6 MW), only Initial Environmental Examination is required Project description Baseline environment conditions Impact & risk assessment Environmental management plan For hydropower >6 MW & 20 m m^3 of water impoundment, an Envi. Impact Statement (EIS) is required, much more complex Water right permit requires certain basic documentary, not too complex.

Philippines – Investment regulations Each year investment priorities plan is issued which gives fiscal incentives, non-fiscal incentives. For SHP: Special tax rate 2% of revenue Tax holiday 7 ys Tax & duty free for machinery import Tax credit on domestic capital equipment VAT exemption (10% VAT from sale to nat. network)

Philippines – Conclusions EPIRA provided the framework for Renewable Energy and participation of the private sector. Innovative mechanism for RE (hydropower) : can enter to Qualified Third Party to provide elec. service to remote area out of DU Manage & operate EC through Investment man. Contracts Collaborate with 14 ECs in the first wave of NPC-SPUG areas Government’s thrust to attain “energy independence” utilizing indigenous resources (hydro, geothermal, wind…) : RE bill