In October 2025, Indonesian President Prabowo Subianto signed Presidential Regulation No. 109 of 2025. Aimed at addressing the national waste crisis and supporting the country’s energy transition, this regulation comprehensively restructures the rules governing waste-to-energy projects. This article focuses on the core points of the new policy, providing clear guidance for Chinese enterprises investing in Indonesia to participate in relevant projects.

1. Core Investment Legal Policies: The "Rigidity" of the $0.20/kWh Tariff and the "Flexibility" of Local Obligations

Pursuant to Presidential Regulation No. 109 of 2025 and its supplementary interpretations, Indonesia has implemented a fixed tariff of US$0.20 per kilowatt-hour (kWh) for waste-to-energy projects. This tariff applies to projects of all capacities and is explicitly stipulated to remain in effect for a period of 30 years, with no price adjustment formula or floating mechanism during the term. This "rigid" framework ensures strong revenue certainty for projects, but also means that investors' cash flows are entirely dependent on power generation output.

Notably, the new policy has abolished the traditional "tipping fee," completely decoupling project revenue from key factors that previously affected returns, such as waste supply volume and calorific value. As long as the project generates electricity normally, investors will receive revenue at the rate of US$0.20 per kWh regardless of whether the waste volume supplied by the local government meets the target or the waste's calorific value is as expected. Conversely, if power generation falls short due to factors beyond the investor's control, investors will face a direct loss of revenue with no possibility of offsetting it through tipping fees.

From a legal perspective, this tariff rate is explicitly stipulated in the Power Purchase Agreement (PJBL). The agreement clearly states that "the price is non-negotiable and there are no price adjustment clauses". Furthermore, PT PLN (Persero) (Indonesia's state-owned electricity company) is mandated as the sole off-taker and required to sign the agreement, further reinforcing the "rigid" nature of the tariff.

In addition, to ensure PT PLN's purchasing capacity, the central government provides full compensation for the additional costs incurred by PLN from purchasing power at this fixed tariff, including the power purchase cost and associated grid construction expenses. This not only guarantees the off-taker's ability to perform its contractual obligations but also indirectly safeguards investors' revenue.

1.2.1 Land Provision: Free Use, Risk-Bearing by the Investor

Presidential Regulation No. 109 of 2025 explicitly stipulates that local governments (Pemerintah Daerah) are obligated to provide state-owned land for "free use" to waste-to-energy projects (PSEL). No rent or related fees may be charged during the project's construction and entire operational period.

Land sources may include existing landfill sites (TPA), areas for the development and expansion of existing TPA sites, or new land specifically allocated for the project. If local governments encounter obstacles in land provision, they must resolve them in accordance with relevant laws and regulations governing land acquisition for public interest purposes to ensure timely land delivery.

However, the "flexible" risks cannot be overlooked: although local governments are responsible for providing land, the project developer (BUPP PSEL) shall bear all relevant legal risks and economic losses if the land is encumbered by mortgages, title disputes, litigation, or other potential issues.

The regulation does not explicitly stipulate a compensation mechanism for project delays or losses caused by local governments due to land title issues. Investors are required to conduct a thorough due diligence on land ownership in the early project stage and clearly define the local government's liability for breach of contract in the cooperation agreement to avoid being put in a passive position due to land-related problems.

1.2.2 Waste Supply: Minimum Quantity Commitment, but Revenue Risk Transfer

Local governments are required to guarantee a daily waste supply of no less than 1,000 tons to waste-to-energy projects. They must also budget for waste collection and transportation costs in the Regional Revenue and Expenditure Budget (APBD) to ensure a full supply chain from the source to the project site.

If a single regency or city cannot meet the 1,000-ton daily supply requirement, it may, under the coordination of the provincial government, jointly supply waste with neighboring regencies or cities through signed cooperation agreements. The details of such cooperation must comply with relevant laws and regulations.

However, the new policy's mechanism for addressing insufficient waste supply effectively shifts the risk to investors: if the local government fails to meet the supply target without reasonable justification, the developer may be exempt from fines, but must bear any revenue losses from reduced electricity sales caused by the shortfall.

The regulation does not require local governments to compensate investors for losses due to insufficient waste supply; it only clarifies that "insufficient waste supply does not constitute a breach by the developer." This means investors must fully account for waste supply volatility in project financial modeling, and also establish a waste supply assessment mechanism in agreements with local governments—such as rectification periods and compensation measures for consecutive days of supply shortfalls.

To accelerate project implementation, the new policy stipulates that all approval processes for waste-to-energy projects—including environmental impact assessment (Amdal), spatial planning, and business licenses—must be processed through the Online Single Submission (OSS) system, an electronic one-stop business licensing platform.

It explicitly sets a maximum 2-month time limit for environmental impact assessment approval, calculated from the date the OSS system confirms the completeness and correctness of the application documents. If the approval result is not issued within two months, the system will automatically issue the environmental permit, establishing a "silence implies consent" mechanism.

While this "accelerated" mechanism effectively shortens the approval cycle, hidden risks remain. A permit granted under "deemed approval" may be subject to administrative lawsuits filed by third parties (such as environmental organizations or local residents) on the grounds of "illegality in the approval process," potentially halting the project after construction has commenced.

For instance, if the local government fails to conduct required public consultations or if the environmental impact assessment report contains data omissions, the permit—even if automatically approved by the OSS system—may still face judicial challenges. Therefore, investors must ensure the completeness and compliance of all application materials and preserve electronic records of the entire approval process to avoid project delays caused by procedural issues.

For foreign-owned enterprises (PMA), the new policy has significantly lowered the entry barrier: the minimum paid-in capital requirement for foreign investors has been reduced from IDR 1 trillion to IDR 25 billion (approximately USD 150,000), greatly easing the initial financial pressure on foreign companies and helping attract more small and medium-sized foreign investors to participate in the projects.

However, in terms of financing, banks still require foreign-owned enterprises (PMA) to maintain an equity ratio of 25%–30%. This means that foreign investors must provide at least 25%–30% of the total project investment as equity capital, with the remaining portion financed through debt instruments such as bank loans.

This requirement aligns with the capital adequacy rules for "Risk-Based Business Licenses" under Government Regulation No. 28 of 2025, aiming to safeguard project financial stability and prevent defaults caused by excessive leverage.

In addition, foreign investors must complete the entire process—including company registration and license applications—via the OSS system. They must also comply with Indonesian regulations governing foreign shareholding limits and local employment requirements, such as mandatory joint ventures with local partners in certain sectors or hiring a specified percentage of local employees.

2. Policy Alignment and Implementation Guarantees

The new waste-to-energy policy is not standalone but coordinated with multiple existing Indonesian regulations. For example, in the licensing and approval process, it strictly follows the risk-based business licensing requirements under Government Regulation No. 28 of 2025, determining the required documents and approval procedures based on the project's risk level (most waste-to-energy projects are classified as medium-high/high risk).

In terms of environmental standards, projects must comply with the Law No. 32 of 2009 on Environmental Protection and its subsequent amendments regarding pollutant discharge and environmental monitoring. Standards for flue gas emissions, leachate treatment, and other indicators must meet EU-equivalent levels.

To ensure policy implementation, the new regulation clearly defines the supervisory responsibilities of multiple government agencies:

• Ministry of Environment and Forestry: Responsible for supervising the implementation of environmental protection measures during waste treatment and the fulfillment of environmental impact assessment (Amdal) requirements, and regularly assessing the project's impact on the surrounding environment.
• Ministry of Energy: Supervises power generation, grid connection, and tariff implementation to ensure accurate power generation statistics and timely electricity fee settlements.
• Ministry of Home Affairs: Oversees local governments' fulfillment of obligations such as land and waste supply, and coordinates with and holds accountable local governments for breaches of contract.
• Ministry of State-Owned Enterprises: Supervises the investment, cooperation, and performance of state-owned capital in the projects.

All agencies are required to share regulatory data through the OSS system to form a full-cycle regulatory closed loop. Meanwhile, project developers are mandated to submit regular waste management reports and business operation reports to ensure transparent and traceable project operations.

Source: DHH Research Institute

Author: Liu Junli (刘俊丽),  Partner of DHH, Email: liujunli@deheheng.com