Substantive Commercial and Civil Law: Contracts, Liability, and Performance in Indonesian Energy Projects

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

In brief

Indonesian energy contracts are governed by general civil and commercial law, supplemented by sector-specific rules and industry-standard forms. This part explains how energy contracts are interpreted, when a party is in default or commits an unlawful act, when force majeure excuses performance, how nuisance claims work, and how parties may limit remedies by agreement, including strict liability for environmental harm. The Cooperation Contract and the Electricity Purchase and Sale Agreement are covered in Part General (see link to Part General: Energy Development and the Role of Government in Indonesia) and are only cross-referred to here, while procurement rules for upstream oil and gas are summarised below.

Industry-standard forms

In principle, energy contracts are governed by general civil and commercial law. For procurement in upstream oil and gas activities, SKK Migas published Surat SKK Migas No. SRT-0406/SKKIH1000/2025/S7 dated 3 November 2025 on the Consolidated Book PTK-007 Book Two Revision 05 and the Procurement Implementation Guidance, as last amended on 5 August 2025. The underlying procurement guidelines themselves are the Pedoman Tata Kerja No. PTK-007/SKKIA0000/2023/S9 Revision 05, Book Two, on Pedoman Pelaksanaan Pengadaan Barang/Jasa, enacted by Keputusan Kepala SKK Migas No. KEP-0042/SKKIA0000/2023/S9 and last amended by Keputusan Kepala SKK Migas No. KEP-0082/SKKIA0000/2025/S9 dated 1 August 2025. Another commonly used industry-standard form contract is the FIDIC Conditions of Contract for Construction.

Contract interpretation

Contractual interpretation is governed by Indonesian Civil Law. A contract must fulfil four cumulative requirements: the parties must consent to the contract; the parties must have capacity to enter a contract; the contract must have a certain object; and the contract must have a lawful cause.

Where a contract is open to more than one interpretation, Indonesian Civil Law applies the following interpretation rules:

the interpretation chosen must be the one that allows the contract to be enforceable rather than one that does not allow implementation;
the interpretation chosen must be the one most compatible with, or in accordance with, the nature of the agreement;
the agreement must be interpreted according to what is customary in the country or place where the agreement was made;
matters customarily agreed upon are deemed to be tacitly included in the agreement;
the agreement cannot be interpreted part by part, but must be interpreted as a whole; and
an agreement must be interpreted to the detriment of the person who has asked for something to be agreed upon, and for the benefit of the person who has bound themselves to it.

Default and unlawful acts

Civil liability may arise from default and from unlawful acts. Under Article 1239 of the Indonesian Civil Code (ICC), in the event of default, the defaulting party must provide indemnification in the form of costs, losses, and interest. Default takes four forms: failure to fulfil the agreed-upon obligation; failure to fulfil the obligation in the agreed-upon manner; failure to fulfil the obligation within the agreed-upon time frame; and conducting an act prohibited by the agreement.

Under Article 1365 of the ICC, a person who commits an unlawful act and causes loss to another person due to their fault must compensate for the loss. The ICC adopts fault-based liability for unlawful acts. An unlawful act is committed where four elements are met: the act is unlawful; there must be an error; there must be harm caused; and there is a causal relationship between the action and the loss.

Force majeure and performance excuses

The ICC recognises the concept of force majeure in Articles 1244 and 1245. Article 1244 requires the debtor to compensate costs, damages, and interest unless the debtor proves that non-performance or late performance was caused by an unforeseen event for which the debtor is not responsible and in respect of which the debtor did not act in bad faith. Article 1245 provides that the debtor need not compensate for costs, damages, or interest if force majeure or coincidence prevented the debtor from giving or performing an obligation, or if, because of these reasons, the debtor committed a prohibited act.

The ICC provisions do not detail which events count as force majeure. According to case law, events categorised as force majeure include: risk of war; loss of the object of the agreement caused by lightning strikes, fires, and seizures during war; government policies; and accidents at sea and on land. Whether a given situation constitutes force majeure is determined case by case. Similarly, whether COVID-19 constitutes force majeure must also be determined case by case. The ICC does not recognise the concept of hardship or rebus sic stantibus.

Nuisance

There is no specific legal framework concerning nuisance and energy development. However, Law No. 32 of 2009 on Environmental Protection and Management (the Environmental Law) provides that anyone who causes nuisance (vibration, noise, and odour) faces a criminal penalty of a maximum of three years and a fine of a maximum of 3 billion rupiah. The penalties can be imposed if administrative sanctions have been imposed and not complied with, or if the violation has been committed more than once. A claim for compensation can also be made by third parties, the government, public officials, environmental organisations, and any disadvantaged community group by filing unlawful act lawsuits.

Limiting remedies, compensation, and strict liability

Indonesian law does not prohibit any type of limitation of remedies. In principle, parties are generally free to enter into an agreement, including limiting the type of remedies and excluding liabilities, in so far as it is agreed by the parties, is not unlawful, and is in good faith.

In the event of default, Article 1239 in conjunction with Article 1246 of the ICC provides that compensation must be given in the form of:

cost (expenses expressly incurred by the party);
damage (loss due to damage to, or loss of, goods or property belonging to one party caused by the negligence of the other party); and
interest (the profits that should have been obtained or expected by one party if the other party had not been negligent in implementing the agreement).

Strict liability can apply in environmental claims. The Environmental Law provides that every person whose actions, business, or activities use hazardous and toxic waste, produce or manage hazardous and toxic waste, or pose a serious threat to the environment is strictly responsible for the losses that occur, without the need to prove any element of fault.

For advice on energy contracts, liability, or performance issues in Indonesia, contact Anggraeni and Partners at connect@ap-lawsolution.net.