Supported by the European Commission through the EC

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

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 Innovation Energie Développement 2

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

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 Innovation Energie Développement 4

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 (Mo. I), 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 Innovation Energie Développement 5

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 Mo. I and separate regulatory from Mo. I – The government set targets of RE for each period and incentive policies. Innovation Energie Développement 6

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). Innovation Energie Développement 7

Vietnam – Investment regulations General procedure : § A. B. C. D. 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 Innovation Energie Développement 8

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. Innovation Energie Développement 9

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 offgrid, invest. & EIA approval BAPPETAL (Market supervisory Board) : regulations in competition areas PT. PLN (Persero) : National power utility. Only Authorized Electricity Business Institution Innovation Energie Développement 10

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 Innovation Energie Développement 11

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) Innovation Energie Développement 12

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. Innovation Energie Développement 13

Indonesia – Envi. & water regulation § EIA is needed in two steps : PPA application and project implementation. § For small (<100 MW), 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/k. Wh electricity produced. Innovation Energie Développement 14

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) Innovation Energie Développement 15

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

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 27 203 § 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 Innovation Energie Développement 17

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. Innovation Energie Développement 18

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 Innovation Energie Développement 19

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…) Innovation Energie Développement 20