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Indonesia’s Constitutional Court (MK) recently rendered MK Decision No. 39/PU-XXI/2023 (MK 39/2023) adjudicating, among others, Article 10 (2) of Law No. 30 of 2009 on Electricity ( “Electricity Law”) and the key takeaways are as follows:

1. Legality of Unbundling Activities
   Unbundling business activities refers to the separation of integrated business activities by a single private company of, among others, (i) electricity generation, (ii) electricity transmission, (iii) electricity distribution, and (iv) electricity sales.
   MK has addressed this issue in 2015 under Decision No. 111/PUU-XII/2015 (“MK 111/2015”). In principle, MK 39/2023 reaffirms MK 111/2015’s stance that unbundling electricity business activities without state control is illegal; hence, the word “may” in Article 10(2) of the Electricity Law is declared unconstitutional and lacks binding force.
   Due to of MK 39/2023, contextually, Article 10 (2) should now be read differently, below is the comparison for illustration purpose.

   Prior to MK 39/2023	After MK 39/2023
   The supply of electricity for public interests as referred to in paragraph (1) may be conducted in an integrated manner.	The supply of electricity for public interest as referred to in paragraph (1) is conducted in an integrated manner.

   
   

2. Effect to businesses
   MK 39/2023 raises the question of whether the ongoing independent power producer (IPP) business scheme in Indonesia remains viable, as the IPP business scheme is inherently an unbundling activity.
   From the text of MK 39/2023, the argument that the IPP business scheme is still feasible has legal merit, based on the following considerations:
   1. The Constitutional Court (MK) does not explicitly prohibit the IPP business scheme;
   2. There is no indication that the IPP business scheme will automatically result in the Government losing control over the electricity supply for the public – both MK rulings on Electricity Law emphasize the importance of maintaining Government control over the electricity sector in Indonesia; and
   3. Article 11(1) of Electricity Law explicitly allows electricity generation businesses for public purposes to be carried out by private entities.

The Government has issued an official press release advising businesses to await further policies that will be adopted in the near future. We will continue to monitor this matter closely and provide updates as they become available.