Indonesia Law Channel

INVESTMENT LEGAL BRIEF
ENVIRONMENTAL IMPACT ANALYSIS (EIA) REQUIREMENTS FOR GEOTHERMAL ENERGY PROJECTS IN INDONESIA

Introduction
Indonesia holds one of the world’s largest geothermal resources, making it a priority sector for foreign direct investment (FDI) in renewable energy. However, geothermal projects are subject to strict environmental approval requirements, primarily through the Environmental Impact Assessment (EIA ) regime.
Under Indonesian law, EIA approval is a mandatory prerequisite for obtaining business licenses and proceeding with construction or operation of geothermal projects. Non-compliance may result in administrative sanctions, criminal liability, and project bankability risks.

Key Legal Question
What environmental approvals are required for geothermal projects in Indonesia, and what are the legal and investment implications?

Regulatory Framework
The EIA obligation for geothermal projects is governed by the following key regulations:

No Regulation Key Provisions
1 Law No. 32 of 2009 on Environmental Protection and Management Requires EIA for activities with significant environmental impact (Art. 22).
2 Law No. 21 of 2014 on Geothermal Energy Geothermal activities must comply with environmental protection laws.
3 Government Regulation No. 22 of 2021 Establishes environmental approval system, including EIA requirements.
4 Minister of Environment Regulation No. 4 of 2021 Lists business activities that must prepare EIA , including geothermal projects.

Is EIA Mandatory for Geothermal Projects?: “YES”
Geothermal projects are classified as activities with significant environmental impact, due to:
• Land clearing and infrastructure development
• Drilling operations
• Fluid discharge and reinjection
• Potential impact on ecosystems and water sources
• Possible activities in forest or conservation areas
Under Indonesian law: Any geothermal project must obtain EIA approval before securing its business license and commencing construction.

Position of EIA in the Investment Licensing Process
Indonesia uses a risk-based licensing system (OSS-RBA). For geothermal projects, the typical licensing sequence is:
1. Determination of Geothermal Working Area (WKP)
2. Geothermal License
3. Preparation of EIA
4. Environmental Approval
5. Business License issuance
6. Construction
7. Commercial Operation
Without environmental approval, the business license is legally invalid.

EIA Preparation and Approval Process
The EIA process generally involves:
Step 1 – Project Announcement: Public disclosure of the planned geothermal project.
Step 2 – Scoping (KA-ANDAL): Preparation of the environmental study framework.
Step 3 – Environmental Study: Preparation of Environmental Impact Analysis (EIA), Environmental Management Plan (EMaP), Environmental Monitoring Plan (EMoP)
Step 4 – Environmental Feasibility Review: Assessment by the Environmental Feasibility Team.
Step 5 – Environmental Approval Issuance: Government issues environmental approval, which becomes the basis for business licensing.

Investment and Bankability Considerations
For foreign investors and lenders, EIA is not only a legal requirement but also a financial prerequisite. International financiers such as: Asian Development Bank (ADB), World Bank / IFCJBIC, Commercial project finance lenders typically require: Environmental and Social Impact Assessment (ESIA) and Compliance with international environmental standards
Failure to obtain EIA may lead to: Financial close delays, Withdrawal of lenders, Project suspension, Reputational damage

Key Investor Takeaways
• EIA approval is mandatory for geothermal projects.
• It is a precondition for business licensing and construction
• Environmental approval is essential for project finance and bankability.
• Early environmental planning reduces regulatory and financing risks.

2 months ago | [YT] | 0