Indonesia requires more approvals in power firms' shareholding changes

Even alterations in board members must be reported for approval.

On 14 July, Baker McKenzie said that the Minister of Energy and Mineral Resources issued Regulation No. 42 of 2017 on Supervision on Business Activities in Energy and Mineral Resources Sector (Reg. 42), which seeks to regulate two corporate actions of IPP companies (namely holders of electricity generation licences, known by their Indonesian acronym IUPTL) and IPB holders, namely: transfers of shares in IPP companies and IPB holders; and changes in board members in those companies.

Any transfer of shares in an IUPTL holder (ie, a license for the supply of electricity for public interest, which is the license that an IPP requires to carry on
business) or an IPB holder requires approval by the Minister of Energy and Mineral Resources.

Here's more from Baker McKenzie:

In the case of an IUPTL holder, a transfer can only be carried out if the power plant has reached commercial operations and if the transfer is being made to an entity that is more than 90% owned by the transferring sponsor.

Reg. 42 also states that for the affiliate transfer option, the affiliate must be a direct 90% owned subsidiary of the transferring sponsor. The regulation provides an extensive list of documents that must be submitted with the request for approval, including an explanation of the reason for the share transfer, approval by the buyer of power (ie, PLN, in a typical IPP project) as well as past tax returns, and financial statements of the transferee.

The Minister is required to issue approval or rejection within 14 business days (for power projects) or 10 business days (for geothermal projects). There are no "deemed approval" mechanisms if no response is received within the prescribed period. In practice, therefore, the 14-business-day period may be more of a guideline than a rule.

For IPB holders, Reg. 42 only states that the transfer of shares must be done in accordance with prevailing laws and regulations (namely the relatively unclear provision of the 2014 Geothermal Law) with prior approval from the Minister of Energy and Mineral Resources.

For the purpose of obtaining the approval, Reg. 42 requires the IPB holder to submit similar documents to those required for a change of shareholder in an IUPTL holder, with the additional of evidence of payment of the latest deadrents, production fees and production bonus (if the company has already achieved commercial operation).

Accordingly, the fact that Reg. 42 does provide a mechanism for Minister approval, and this list of requirements that needs to be fulfilled does relate to documents relevant to a private (ie, non-stock market) transfer, this does support the view that the correct interpretation of the 2014 Geothermal Law is to allow for private (ie, non-stock market) transfers.

Curiously, although the 2014 Geothermal Law clearly contemplates a transfer of shares through the stock market, Reg. 42 does not contain a mechanism for dealing with approvals of share transfers in a publicly listed IPB holder (ie, it would be unworkable if the Minister were required to approve a change in daily trading of shares in a listed company that held an IPB).

It would appear that for geothermal companies that hold both an IPB and an IUPTL wanting to change shareholders, there is a need to make two applications for approval.

Change of board of directors / commissioners Holders of IUPTLs must first obtain the approval of the Minister of Energy and Mineral Resources before making any changes to their board of directors or commissioners.

As with the share transfer approval process, there is a requirement for submission of a number of administrative documents, including the recommendation of the buyer of power (ie, PLN for a typical IPP) and the past income tax returns of the incoming Director/Commissioner. Again, the Minister must notify its approval or rejection within 14 business days.

For IPB holders, similar approval is required, except that the approval process is slightly shorter, ie, 10 business days; there is no requirement on the recommendation from the buyer of power; the company must provide specific details on the reason for such change in board members.