Regulatory framework for hydropower development in Indonesia, Philippines & Vietnam

1. Supported by the European Commission through the EC – ASEAN Energy Facility Regulatory framework for hydropower development in Indonesia, Philippines & Vietnam Dr. Tuan NGUYEN, IED Dissemination and Training workshop, Hanoi December 19-20, 2005 IFRERA

2. 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

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

4. 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

5. 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

6. 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 (<15% 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.

7. 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).

8. 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

9. Vietnam – Conclusions • Complexity of the process, but the growth in private investment in SHP is considerable • Unlike before, private participation is now welcomed in energy sector • A new ground foundation for RE is laying out, although the mechanism on how to implement and move forward are yet to be defined.

10. 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 • PT.PLN (Persero) : National power utility. Only Authorized Electricity Business Institution

11. 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

12. Indonesia – Power sector regulations 2 • Some particular points of P.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 such businesses • The government set the tariff. Local authority has right to set tariff for private electricity. 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)

13. 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.

14. 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.

15. 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. Long term contract is possible for firm capacity generation plant. • Main actors : PLN and MEMR (DGEEU)

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

17. Philippines – Power sector regulations • 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 • 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 27 203 • DOE’s Circulars • ERC’s Issuances

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

19. 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 exception (10% VAT from sale to nat. network

20. Philippines – Conclusions • EPIRA provided the framework for Ren.En. 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…)