A lender financing a renewable energy plant in Indonesia is usually repaid from one source: the electricity the project sells to PT PLN (Persero) (“PLN”) under a power purchase agreement (“PPA”). Under project finance, the loan is serviced from the project’s own cash flow rather than the parent company’s balance sheet, so it depends on the PPA. Lenders commonly ask for step-in rights, meaning the right to take over control of the project if the project company defaults. In Indonesia, however, these rights cannot be drafted as freely as in other jurisdictions, because Minister of Energy and Mineral Resources Regulation Number 5 of 2025 on Guidelines for Power Purchase Agreements from Power Plants Utilising Renewable Energy Sources (“MEMR Regulation 5/2025”) already sets their limits. It implements Article 21 paragraph (4) of Presidential Regulation Number 112 of 2022 on Acceleration of Renewable Energy Development for Electricity Supply, took effect upon promulgation (Article 53), and revoked Minister of Energy and Mineral Resources Regulation Number 10 of 2017 and its amendments (Article 52). A PPA signed before it took effect remains in force until it expires (Article 48 paragraph (1)), which means the constraints a lender faces depend on when the PPA was signed.

The central provision is Article 26. Paragraph (1) prohibits any transfer of the project company’s shares until the plant reaches its commercial operation date (“COD”). Paragraph (2) allows two exceptions before COD: a transfer to an affiliate more than 90% directly owned by the sponsor, and a transfer to lenders as step-in rights if the project company defaults, provided this does not reduce the sponsor’s qualifications. On its wording, step-in is addressed only for the pre-COD period and only for default, so other situations, such as a financial ratio breach short of a formal default, are not automatically protected. Any such transfer also requires PLN’s prior written approval (paragraph (4)) and must be reported to the Minister, with copies to the Director General of Electricity and the Director General of New, Renewable Energy and Energy Conservation (paragraph (5)). Step-in is not a right lenders can exercise on their own. For geothermal plants, Article 27 refers share transfers to the geothermal laws and regulations. Article 26 paragraph (3) allows the sponsor to be a foreign legal entity, meaning a foreign sponsor is not excluded as such, although its qualifications must still be preserved.

Timing is a further risk for lenders. Under Article 25 paragraph (1), a PPA ends on several grounds, including termination for default, failure to secure financing, and bankruptcy or liquidation of the project company. Article 25 paragraph (2) allows PLN to terminate for default once liquidated damages (pre-agreed amounts payable for specified breaches) reach their maximum. If lenders wait too long, the PPA may end first, leaving assets that no longer generate the expected cash flow. Because Article 25 paragraph (3) leaves the mechanism and consequences of termination to the PPA, that is where the room for negotiation lies, together with a direct agreement among the lenders, the project company and PLN, particularly on the cure period and the procedure for appointing a replacement before PLN terminates.

Lenders also take security over project assets, each under its own regime. For land, Article 4 paragraph (1) of Law Number 4 of 1996 on Security Rights over Land and Land-Related Objects (“Security Rights Law”) allows Ownership Rights (Hak Milik), Cultivation Rights (Hak Guna Usaha) and Building Use Rights (Hak Guna Bangunan) to be encumbered with a land security right (Hak Tanggungan, Indonesia’s registered land mortgage), and paragraph (2) adds certain Rights of Use (Hak Pakai) over state land. The first-ranking holder may sell the collateral on its own authority upon default (Article 6), and the security follows the collateral into any holder’s hands (Article 7). Receivables owed by PLN are secured by fiduciary security (jaminan fidusia), under which ownership is transferred to the creditor as collateral while the debtor keeps using the asset. Under Law Number 42 of 1999 on Fiduciary Security (“Fiduciary Security Law”), the deed must be a notarial deed in Indonesian (Article 5 paragraph (1)) and the security must be registered (Article 11 paragraph (1)). The certificate has the same enforceability as a final court judgment (Article 15 paragraph (2)), and enforcement may proceed through executory title (titel eksekutorial), public auction or private sale (Article 29 paragraph (1)), the latter only one month after written notice and an announcement in at least two newspapers (Article 29 paragraph (2)).

Even so, security over land and receivables may not be enough to keep the project viable. Enforcement produces cash from asset sales, whereas on a default lenders often need the project to keep running with its PPA. That requires taking over the project company’s shares, appointing a replacement operator and keeping the PPA in place, which in practice turns on PLN’s approval, including under Article 26 paragraph (4) for the share transfer. MEMR Regulation 5/2025 does not expressly address transfers after COD, so post-COD arrangements are likely left to the PPA and the direct agreement. A financing package should start with the PPA rather than the credit agreement. The clauses on termination, assignment of rights and refinancing, which a PPA must contain under Article 4 paragraph (1) letters j, k and q, should be reviewed at the start of negotiations. Article 35 also permits refinancing between the project company and lenders, on condition that PLN is informed.

A PPA must be in Indonesian (Article 36 paragraph (1)), as must a fiduciary deed (Article 5 paragraph (1) of the Fiduciary Security Law), so financing documents modelled only on foreign templates may not meet Indonesia’s formal requirements. Foreign lenders and sponsors should align the step-in structure, direct agreement and security package with these rules from the outset. If the gap is noticed only after a default, the rights in the credit agreement may not be exercisable in time, and the project may lose its revenue from the PPA.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti