Power sector concerned over Indonesia’s controversial Omnibus Law

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Recently Indonesia’s House of Representatives passed the Omnibus law, hailed by President Joko Widodo as the answer to improving the country’s investment landscape by embracing the concept of ‘Green Growth’. The law will have a direct impact on the electricity sector however, opinions on whether the law will help or hinder investment are quite divided.

The Omnibus Law is a comprehensive law aimed at transforming the Indonesian economy by simplifying business licensing, easing foreign investment restrictions and streamlining corporate tax regulations.

Many believe the law will address some of the regulatory challenges hindering growth, will prevent a recession and according to Nadia Soraya, partner at HHP Law Firm (member firm of Baker Mckenzie), would be an improvement ensuring a more stable regulatory landscape.

In a recent webinar concerning investment in Indonesia’s energy sector, Soraya commented: “The Omnibus Law… has been well received by the stock market. It will reduce regulatory red tape, something investors were looking forward to.”

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However, the law has raised many concerns that the ‘Green Growth’ and post-pandemic recovery is anything but green and that the legal articles could actually sabotage the environment, worker’s rights and the future sustainability of agribusiness.

Staff writer Pamela Largue discusses the Omnibus Law and wonders about the implications.

Negative reaction to bill

The reaction to the bill, passed on Monday 5 October 2020, has been mainly negative, by both individuals and industry alike. Consultations were held with industry representatives, providing an opportunity to voice opposition and concern, however, very little feedback see.

The International Trade Union Confederation (ITUC) has denounced the bill stating that it provides a path to the privatisation of the electricity sector.

Sharan Burrow, ITUC General Secretary, said in a company statement: “This far-reaching and complex law is an assault on the UN Sustainable Development Goals (SDGs) by the Indonesian government. It will greatly increase poverty and lead to environmental destruction to appease multinational companies.

Webcast recording: Supporting Indonesia’s Energy Sector Growth Through Domestic & International Investment

“Obliterating labour rights, stripping away environmental protections, privatising electricity and other provisions in the law, including on education, will have a devastating impact on families and households, impede transition to renewable energy and increase electricity prices.”

ITUC has called upon government to withdraw the law.

According to the global trade union, Public Services International (PSI), electricity sector unions have united to strongly oppose the law. General secretary of Persatuan Pegawai PT Indonesia Power, Andy Wijaya, highlighted in a virtual press conference in July that the new law created problems for the electricity sub-cluster and changed 35 articles in Law No. 30 of 2009 on Electricity.

“It can be said that the legislator has revived the zombie articles and then put those articles into the Omnibus Law Employment Creation Draft Bill and that is unconstitutional,” Wijaya asserted in a PSI release.

He referred to problems with the law’s definitions that result in power plants not needing a permit from the government. “It means that everybody capable of building a power plant and doing electricity transmission is free to do so.”

“The result will be that Indonesia will have an oversupply of electricity and the oversupply will be charged to the people and finally the electricity rate will hike,” said Wijaya.

The Omnibus law is further criticized for removing parliament’s right to determine the electricity rate for consumers and limiting parliament’s rights to determine National Electricity General Plan.

General chairman of the SP PLN Persero, Muhammad Abrar Ali expressed concern over removing the legislative function of the parliament. “The legislative function is related to interpellation right, inquiry right, and the right to express opinion in order to ensure the government will not abuse its authority in governing the electricity,” said Abrar.

“Electricity is a nation’s strategic asset. It is not just a matter of economy, but also defense,” he added.

The concern is not just within the country. According to the Financial Times, ahead of the vote, 35 global investors with $4.1 trillion in assets under management sent the Indonesian government a letter expressing concern about the new law, stating that the deregulation could have an adverse effect on investor confidence.

The message from the general public expresses concern over exploitation and an even greater divide between the country’s haves and have nots.

The Omnibus Law amends 79 laws and more than 1,200 articles, all with the intention of making it easier to do business, ultimately resulting in greater foreign investment and the development of new projects.

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