New regulation continues support for development of Indonesian CCS industry

Indonesia’s Ministry of Energy and Mineral Resources (MEMR) recently introduced Ministerial Regulation No. 16 of 2024 (the New CCS Regulation) on Implementation of Carbon Capture and Storage (CCS) activities. 

With the goal of meeting national targets and achieving Net Zero Emissions by 2060, the New CCS Regulation emphasises the importance of CCS technology in emission reductions. It sets out a detailed framework for the preparation, determination and offering of Carbon Storage Licence Areas (Wilayah Izin Penyimpanan Karbon or WIPK), and for the issuance of Exploration and Storage Operation Permits.

Background

The New CCS Regulation is an implementing regulation of Presidential Regulation No. 14 of 2024 (Regulation 14/2024), which set out the broad regulatory framework for the conduct of CCS activities in Indonesia. Please see our February 2024 article on the CCS regulatory framework.

Similar to Regulation 14/2024, the New CCS Regulation focuses on CCS and does not expressly address Carbon Capture Utilisation and Storage (CCUS) activities.

The New CCS Regulation, being the first CCS regulation issued by the new Prabowo Government, reflects the continuing development of a clear regulatory framework for the investment in and promotion of CCS activities in Indonesia.

Preparation, determination and offering of WIPKS

The New CCS Regulation clarifies that the MEMR, through a newly established Carbon Storage Permit Offering Team with representatives from the relevant technical ministries, is responsible for the preparation, determination and offering of all new carbon storage licence areas (WIPKs). WIPKs can be offered by way of auction or limited selection process. A WIPK can be located in any open (non-concession) area, mining concession area, and/or upstream oil and gas working area. If the WIPK is located in an upstream oil and gas working area, the relevant production sharing contract (PSC) Contractor (upon its statement of interest to MEMR) may elect to implement the CCS activities based on a Cooperation Contract (such as a PSC) or under a business licensing scheme.

Auction

An auction process will be used if the relevant WIPK is prepared and solicited by the Indonesian Government.

Similar to the tender process for upstream oil and gas working areas, the auction process has five steps:

Step 1: Announcement: the MEMR officially announces the auction.

Step 2: Preparation of Bid Documents: the MEMR prepares and issues detailed bid documents (available for purchase by interested participants) outlining, among other things:

• the procedures and timeline for the auction process;
• geological synopsis and potential carbon storage reserves;
• availability of data (including basic data, processing data and/or interpretation data);
• information related to land use, infrastructure, and other geospatial information; and
• information on the WIPK and key provisions of the Exploration Permit (discussed further below).

Step 3: Submission of Participation Documents: participants submit their participation documents, including the following technical and financial documents:

• work plan and budget for six-year Injection Target Zone (zona target injeksi or ZTI) exploration period, which will include firm commitments in the form of (i) geological, geophysical, reservoir, and engineering activities, (ii) seismic data acquisition, and/or (iii) well drilling location plans;
• conceptual study of Carbon Storage development and alternative scenarios for selection of development concepts;
• impact studies on operations, safety and environment for any areas overlapping existing upstream oil and gas working areas or mining concessions;
• company’s relevant sector experience and investments in oil and gas, mining, geothermal and/or CCS projects; and
• a bid bond (in an amount of 100% of the compensation amount for the exploration licence awarded, as determined by the Government).

Step 4: Evaluation of Bids: participants’ bids are evaluated based on the following criteria:

• technical evaluation of ZTI exploration firm commitments;
• evaluation of participant’s financial capability to conduct ZTI exploration and Carbon Storage activities; and
• evaluation of participant’s: (i) experience in upstream oil, mining, geothermal, and/or CCS projects, (ii) technical capability in relation to the management of hazardous and toxic materials, and (iii) compliance with regulatory standards (for companies operating in Indonesia).

Step 5: Selection of Successful Bidder and Issuance of Permits: MEMR determines the winner of the auction or limited selection process based on an evaluation of the participation documents. The successful bidder then applies for the necessary exploration permits to proceed with their CCS activities.

Limited Selection

A limited selection process will be used if the WIPK is an unsolicited project proposed by a project proponent. The limited selection will include the initiating project proponent and a select group of potential participants pre-registered by MEMR as shortlisted CCS bidders.

The New CCS Regulation mandates the MEMR to initiate an annual registration process to select shortlisted CCS bidders with capabilities in oil and gas, mining, geothermal and/or CCS projects.
In general, the award process for limited selection is similar to that outlined above regarding auctions.

The project proponent will have the right to match the highest bid (in respect of the type and amount of investment commitment) submitted by other participants in the limited selection process.

CCS Permits

Exploration Permits 

The winner of an auction or limited selection process must apply (through the Online Single Submission (OSS) system managed by the Ministry of Investment and Downstream Industry) for the grant of an Exploration Permit within 12 months after the party is selected as the successful bidder. 

Once the Exploration Permit is granted and effective, its holder can conduct exploration activities within the designated WIPK, including geological surveys, seismic studies and drilling exploration wells. As for traditional oil and gas exploration PSCs, a party will be required to fulfil minimum work obligations each year during the term of the Exploration Permit. Exploration Permits are valid for an initial period of six years and are renewable once for a period of four years. 

Storage Operation Permits

After exploration activities, if an area within a WIPK has proven potential for commercial CCS capacity, then the Exploration Permit holder can apply for a Storage Operation Permit. To apply for their Storage Operation Permit, the entity must first submit and obtain approval for a ZTI Development and Operation Plan at least six months before the Exploration Permit expires. The Storage Operation Permit allows the permit holder to conduct carbon injection and storage activities for an initial term of 30 years, which can later be extended for an additional 20-year period for each extension.

Assets Used for CCS Activities

All assets and equipment used during exploration and carbon storage operation activities will belong to the holder of the Exploration Permit and Storage Operation Permit. However, upon expiry of the Exploration Permit and Storage Operation Permit, the Indonesian Government may require the Exploration Permit and/or Storage Operation Permit holder to relinquish and transfer ownership over the relevant assets and equipment to the Government.

Carbon storage agreements

Under the New CCS Regulation, MEMR approval must be obtained before the signing of any carbon storage agreement between the Storage Operation Permit holder and carbon emitter (or other party delivering the carbon for injection). For that purpose, the Storage Operation Permit holder must submit certain documents and information to the MEMR, including, among others:

• ZTI profile, which includes CCS capacity and contracted carbon storage capacity;
• profile of carbon emitter and details of its investments in Indonesia;
• source, specification and volume of carbon to be delivered, and details of delivery point;
• agreed storage fee (which will be subject to a royalty payable to the Indonesian Government); 
• economic model for carbon storage services; and
• copies of the negotiation and agreement documents for the carbon storage services. 

Conclusion

The New CCS Regulation aims to boost the investment appeal of and generate economic value from carbon capture, transportation, and storage processes at both national and regional levels, and is another step towards unlocking Indonesia’s potential as a significant carbon storage region.