Energy Development and the Role of Government in Indonesia

Originally published in Lexology Panoramic: Energy Disputes 2026.

By Setyawati Fitrianggraeni, S.H., LL.M., FCIArb., FAIADR, Reynalda Basya Ilyas, Aga Kristiana Silaen, Marcel Raharja, and Irvena A Dewanto

Indonesia’s energy development is governed by a combination of state ownership, sector regulation, and general contract law. The Legislative Body is drafting laws on new and renewable energy, and a series of recent regulations already affects how energy projects are developed, financed, and disputed. This part explains where energy development is heading, which rules apply, and what role the government plays in owning and developing energy resources.

Areas of energy development

The most important development is the drafting of laws on new and renewable energy. When enacted, those laws will change national energy policy and, by a domino effect, the energy business sector, including energy consumption. Alongside that legislative work, several recently issued regulations already influence the sector:

• Government Regulation No. 33 of 2023 on Energy Conservation. Central and regional governments are expected to implement energy conservation activities, and stakeholders in the regions are expected to innovate with programmes that preserve energy resources, increase energy efficiency, and manage energy use.
• Presidential Regulation No. 11 of 2023 on Additional Concurrent Government Affairs in the Field of Energy and Mineral Resources in the Subfield of New Renewable Energy. The central government seeks to strengthen the role and authority of regional governments in these affairs, so that regions can be more flexible and innovative in accelerating the national renewable energy target.
• MEMR Regulation No. 2 of 2023 on the implementation of carbon capture and storage (CCS) and carbon capture, utilisation, and storage (CCUS) in upstream oil and gas business activities.
• MEMR Regulation No. 16 of 2024 on carbon storage activities in carbon storage permit areas for the purpose of carbon capture and storage.
• MEMR Regulation No. 13 of 2024 on gross split production sharing contracts (replacing MEMR Regulation No. 8 of 2017). The revised gross split framework improves the contractor base split, allows flexibility between gross split and cost-recovery production sharing systems, and reduces bureaucracy while improving economics for technically complex or deepwater assets. SKK Migas retains significant discretion in approval and monitoring.
• Presidential Regulation No. 110 of 2025 on the Implementation of Carbon Economic Value Instruments and National Greenhouse Gas Emission Control (which replaced Presidential Regulation No. 98 of 2021). This sets out a clear and comprehensive mechanism for carbon trading in Indonesia, for domestic and foreign actors alike.
• Law No. 16 of 2025 on the Fourth Amendment to Law No. 19 of 2003 on State-Owned Enterprises (SOEs). Article 4B of that law provides that profits or losses incurred by an SOE constitute the profits or losses of the SOE itself. This reform creates meaningful opportunities for joint venture and farm-in structures involving SOEs, particularly Pertamina group entities. It reduces anti-corruption exposure in commercial transactions and improves the bankability of SOE-linked upstream projects, although SKK Migas oversight and public accountability remain relevant.
• Law No. 20 of 2025 on the Criminal Procedure Code (Kitab Undang-Undang Hukum Acara Pidana). This is commercially material for long-term production sharing contract investments because the introduction of the Deferred Prosecution Agreement (Perjanjian Penundaan Penuntutan) for corporate defendants (Article 328) allows enforcement outcomes to be structured around remediation and compliance without suspending operations, so enforcement risk can be priced and governed rather than remaining binary. This supports financing, insurance, and joint venture stability, particularly for supermajors with long asset lives.

The energy mix and the transition

Historically, most energy in Indonesia has come from fossil sources, principally coal and crude oil. Recent abrupt social, political, economic, and environmental changes, together with the global energy crisis and a surge in global gas prices, have shifted demand toward coal exports. Industrial energy use increased by 9 per cent in 2023. Coal remained dominant at 56.9 per cent of industrial energy use, renewables accounted for 6.52 per cent, and industrial-sector emissions were roughly 460 million tonnes of carbon dioxide equivalent, while ongoing fossil fuel subsidies hinder progress on decarbonisation. The government is investing in hydrogen, carbon capture and storage, and energy efficiency to meet emissions targets.

International support for the transition is significant. At the G20 summit, the Just Energy Transition Partnership (JETP) coalition committed to mobilising US$20 billion over the next three to five years to accelerate emissions reduction in the energy sector. The partnership aims to cap power-sector emissions at 290 million tonnes of carbon dioxide equivalent in 2030 and reach net-zero emissions in the power sector by 2050, including accelerating the deployment of renewable energy so that renewable energy comprises at least 34 per cent of all power generation by 2030 and the early retirement of coal power plants.

Indonesia has great renewable energy potential and has begun to develop power plants from renewable sources. Geothermal power plants, hydroelectric dams, and solar power plants are already operational, alongside wind and other renewable sources.

Contract frameworks for energy projects

In principle, energy contracts are governed by general civil and commercial law. Upstream oil and gas business activities are carried out through a Cooperation Contract as stipulated under Law No. 22 of 2001 on Oil and Gas. The Cooperation Contract can take the form of a production sharing contract with a cost recovery mechanism, a gross split production sharing contract, or another form of Cooperation Contract.

For electricity, the required points of agreement in an Electricity Purchase and Sale Agreement between PT PLN (Persero) as buyer and the business entity as seller are set out in separate MEMR regulations. For power plants using non-renewable energy sources, the required points were historically set out in MEMR Regulation No. 10 of 2017 on Pokok-Pokok Dalam Perjanjian Jual Beli Tenaga Listrik, as amended by MEMR Regulation No. 49 of 2017 and MEMR Regulation No. 10 of 2018 and partially revoked by MEMR Regulation No. 48 of 2017 (share-transfer provisions). For plants using renewable energy sources, they are set out in MEMR Regulation No. 5 of 2025 on Pedoman Perjanjian Jual Beli Tenaga Listrik dari Pembangkit Tenaga Listrik yang Memanfaatkan Sumber Energi Terbarukan. Project developers should confirm which set applies to their plant before signing, because the required points differ. The detailed treatment of industry-standard contract forms, contractual interpretation, and liability is set out in Part 3 of this guide (see Part 3: Substantive Commercial and Civil Law).

The role of government: ownership and policy

The government’s role in the ownership of energy resources is mandated by Article 33, paragraphs (2), (3) and (5), of the 1945 Indonesian Constitution. Those provisions state that important production branches for the state, and branches affecting the lives of many people, are controlled by the state; that the earth, water, and natural resources are controlled by the state and used for the greatest prosperity of the people; and that further provisions on implementing the article are regulated by law.

The implementing regulations that give effect to Article 33 include:

• Law No. 22 of 2001 on Oil and Gas, as amended by Law No. 6 of 2023.
• Law No. 30 of 2007 on Energy.
• Law No. 4 of 2009 on Mineral and Coal Mining, as amended by Law No. 3 of 2020.
• Law No. 30 of 2009 on Electricity, as amended by Law No. 6 of 2023.
• Law No. 21 of 2014 on Geothermal Energy, as amended by Law No. 6 of 2023.

In practice, this means the state controls energy resources and sets the policy framework, while development is carried out by business entities under contracts and licences issued within that framework. The agencies that administer this system, and the rights of new entrants to access infrastructure, are covered in Part 5 of this guide (see Part 5: Regulatory). The full guide contents are listed on the hub page (see Hub: Energy Disputes in Indonesia).

Contact

For advice on energy development, regulation, or disputes in Indonesia, contact Anggraeni and Partners at connect@ap-lawsolution.net.