Presidential Regulation 55/2019: A Glimpse into the Future of Electric Vehicles in Indonesia

 

Bagus Aditya SH, LL.M[1]

So far, 2019 has not been the best of years for those who worry about the effects of climate change upon Indonesia, as various state-backed infrastructure projects are currently pushing the country’s emissions to ever-higher levels. Moreover, a haze crisis has once again erupted in Riau and across other areas of the country due to the spread of widespread forest and land fires throughout the region. The long-term prospects do not look great either, with PLN’s latest electricity procurement plan (RUPTL) for the 2019 - 2028 period still firmly dependent upon coal. Fortunately, one piece of good news has emerged in recent weeks: it looks like Indonesia is finally getting serious about electric vehicles (EVs).

The issuance of Presidential Regulation Number 55 of 2019 on the Fast-Track Program for Battery-Powered Electric Vehicles for Road Transportation (Presidential Regulation 55/2019) is currently the primary piece of legislation which addresses EVs in Indonesia. The new regulation covers, among other areas, government incentives and local content requirements, as well as laying out the groundwork for future implementing regulations which will deal with the mass production of EVs.

From a cost perspective, EVs remain considerably more expensive than their gasoline-powered counterparts. Indeed, within the Indonesian marketplace, where gasoline cars such as the Toyota Agya and the Daihatsu Ayla can be bought for price tags as low as around IDR 100 million (±USD 7,000), the price differences are plain to see, while the majority of Indonesians naturally wish to drive cars that they can afford.

However, Presidential Regulation 55/2019 addresses several facilities which are being aimed at boosting the EV sector. In terms of fiscal incentives, the relevant ministers or regional governments are now able to grant import-duty incentives for EVs and their primary components for certain time periods, while incentives which address the luxury-goods sales tax, as well as the manufacture of charging systems and free parking in several urban areas also feature.

The new regulation also grants the authority to regional governments to provide non-fiscal incentives, such as exemptions from any limitations which are placed upon the use of certain roads. In Jakarta, this can be construed a free pass during the odd-even number plate system which is implemented during rush hours or even allowing EVs to enter the TransJakarta busway lane.

However, in order for EVs to operate properly, crucial supporting infrastructure is necessary, particularly charging infrastructure. Charging EVs is a little more challenging than charging mobile phones at home. However, fast-charging features make electric cars a more attractive proposition and reassure potential EV drivers that their vehicles will not be off the road for long periods. Currently, a number of different rapid car-charging standards are in use internationally, and each comes with a different name and can be used for different types of car.

Firstly, there is Chademo, which was originally developed in Japan and which has subsequently been adopted by Nissan, Mitsubishi and Fuji Heavy Industries (the manufacturer of Subaru vehicles). Toyota joined the system later on as a fifth executive member.

Secondly, there is the Combined Charging Standard (CCS). This standard was designed and adopted by a consortium of European and American automobile manufacturers as their chosen standard. CCS is favored by BMW, Mercedes-Benz (the maker of Daimler), Ford and the Volkswagen group, which includes Audi and Porsche.

Thirdly, there is Tesla supercharger tech, which is essentially only available for Tesla cars. However, the Tesla supercharger network is still the king of rapid charging for electric cars when it comes to reliability and coverage.

CCS and Tesla supercharger seem to be leading the way in most parts of the world, although legislation is undoubtedly needed in order to implement charging-system standards. In terms of the Indonesian auto industry, the leading document which offers a clue as to what EV charging system will be adopted here is PLN’s RUPTL. This document suggests that Indonesia will ultimately adopt the CCS system.

The question also remains as to who will be responsible for the financing of EV infrastructure. Presidential Regulation 55/2019 stipulates that charging stations may be provided by State-Owned Enterprises or by private companies. However, at the moment, the situation is that the government has mandated that PLN should procure charging stations, on the condition that the state electricity company may cooperate with private companies. Electricity tariffs for vehicle charging will then be determined by the Minister of Energy and Mineral Resources.

Another challenge that needs to be addressed is the building of a viable EV industry in Indonesia. Presidential Regulation 55/2019 is based on the principle that, at some point in the future, EVs and their components must be produced in Indonesia. The new framework aims to bring down production costs by reducing imports of EV parts. Moreover, Article 8 of Presidential Regulation 55/2019 sets tough targets for EV parts localization norms. Specifically, between 2019 and 2023, four-wheeled EV companies and component companies are required to comply with a 35% minimum local content obligation.

During the 2019 to 2023 period, Indonesia will be in a nascent stage as regards the development of its EV industry. The common problem where EV manufacturing is concerned is that high vehicle prices lead to low sales, low demand for parts and ultimately no investment viability or incentive for manufacturers to invest in local production. Solving this problem will require serious support from the government. Article 17 of Presidential Regulation 55/2019 suggests that incentives will be linked to the localization of parts. This could be a problem in the early stages of the local industry, as component suppliers are not prepared to manufacture components for low volumes of EV. Furthermore, suppliers still need time to process safety tests and to undertake vehicle testing.

Another challenge that it is important to highlight is the current lack of electricity grid coordination (specifically transmission and distribution networks). EVs and power grids generally have a love-hate relationship. At the large scale, plugging cars into charging stations could, in theory, overload components and lead to network failures. Providing fast-charging could also mean that a higher burden will be placed upon PLN’s electricity grid. However, if this issue is managed properly, then PLN revenues resulting from electricity sales could be boosted significantly.

Switching to cars which are based on a fundamentally new tech platform is going to be a hard sell, even though such vehicles might offer benefits in the long run. This means that car companies will not attract many incentives when attempting to build EVs, which is where regulation comes in.

Something is missing in the new regulatory framework, however. Specifically, no clear direction as regards the elimination or reduction of the use of gasoline and diesel cars is set out under Presidential Regulation 55/2019. The new regulation only mentions briefly that the central government may gradually restrain the utilization of gasoline cars. The regulation does not impose any EV quotas and neither does it mandate any EV sales for automakers. It is also noticeable that the regulation does not set any deadline for the total phase-out of gasoline and diesel cars and their replacement with electric ones.

According to a Bloomberg New Energy Finance study, EV prices could match those of equivalent internal combustion engine vehicles by 2024. Moreover, according to a recent Boston Consulting Group study, consumer demand for EVs is set to rise between 2025 and 2030. However, several variables, such as requirements for automakers which are looking to produce and sell EVs, will ultimately affect the growth of the EV market.

The EV is clearly the way of the future. The required technologies already exist and will, at some point in the future, replace large numbers of conventional internal combustion engines. I am therefore looking forward to more pro-EV regulations which will fully implement Presidential Regulation 55/2019.

 

[1] The author is a lawyer at the Lubis Ganie Surowidjojo Law Firm (the opinions expressed are solely my own and do not express the views or opinions of my employer).

 

Bagus Aditya SH, LL.M[1]

So far, 2019 has not been the best of years for those who worry about the effects of climate change upon Indonesia, as various state-backed infrastructure projects are currently pushing the country’s emissions to ever-higher levels. Moreover, a haze crisis has once again erupted in Riau and across other areas of the country due to the spread of widespread forest and land fires throughout the region. The long-term prospects do not look great either, with PLN’s latest electricity procurement plan (RUPTL) for the 2019 - 2028 period still firmly dependent upon coal. Fortunately, one piece of good news has emerged in recent weeks: it looks like Indonesia is finally getting serious about electric vehicles (EVs).

The issuance of Presidential Regulation Number 55 of 2019 on the Fast-Track Program for Battery-Powered Electric Vehicles for Road Transportation (Presidential Regulation 55/2019) is currently the primary piece of legislation which addresses EVs in Indonesia. The new regulation covers, among other areas, government incentives and local content requirements, as well as laying out the groundwork for future implementing regulations which will deal with the mass production of EVs.

From a cost perspective, EVs remain considerably more expensive than their gasoline-powered counterparts. Indeed, within the Indonesian marketplace, where gasoline cars such as the Toyota Agya and the Daihatsu Ayla can be bought for price tags as low as around IDR 100 million (±USD 7,000), the price differences are plain to see, while the majority of Indonesians naturally wish to drive cars that they can afford.

However, Presidential Regulation 55/2019 addresses several facilities which are being aimed at boosting the EV sector. In terms of fiscal incentives, the relevant ministers or regional governments are now able to grant import-duty incentives for EVs and their primary components for certain time periods, while incentives which address the luxury-goods sales tax, as well as the manufacture of charging systems and free parking in several urban areas also feature.

The new regulation also grants the authority to regional governments to provide non-fiscal incentives, such as exemptions from any limitations which are placed upon the use of certain roads. In Jakarta, this can be construed a free pass during the odd-even number plate system which is implemented during rush hours or even allowing EVs to enter the TransJakarta busway lane.

However, in order for EVs to operate properly, crucial supporting infrastructure is necessary, particularly charging infrastructure. Charging EVs is a little more challenging than charging mobile phones at home. However, fast-charging features make electric cars a more attractive proposition and reassure potential EV drivers that their vehicles will not be off the road for long periods. Currently, a number of different rapid car-charging standards are in use internationally, and each comes with a different name and can be used for different types of car.

Firstly, there is Chademo, which was originally developed in Japan and which has subsequently been adopted by Nissan, Mitsubishi and Fuji Heavy Industries (the manufacturer of Subaru vehicles). Toyota joined the system later on as a fifth executive member.

Secondly, there is the Combined Charging Standard (CCS). This standard was designed and adopted by a consortium of European and American automobile manufacturers as their chosen standard. CCS is favored by BMW, Mercedes-Benz (the maker of Daimler), Ford and the Volkswagen group, which includes Audi and Porsche.

Thirdly, there is Tesla supercharger tech, which is essentially only available for Tesla cars. However, the Tesla supercharger network is still the king of rapid charging for electric cars when it comes to reliability and coverage.

CCS and Tesla supercharger seem to be leading the way in most parts of the world, although legislation is undoubtedly needed in order to implement charging-system standards. In terms of the Indonesian auto industry, the leading document which offers a clue as to what EV charging system will be adopted here is PLN’s RUPTL. This document suggests that Indonesia will ultimately adopt the CCS system.

The question also remains as to who will be responsible for the financing of EV infrastructure. Presidential Regulation 55/2019 stipulates that charging stations may be provided by State-Owned Enterprises or by private companies. However, at the moment, the situation is that the government has mandated that PLN should procure charging stations, on the condition that the state electricity company may cooperate with private companies. Electricity tariffs for vehicle charging will then be determined by the Minister of Energy and Mineral Resources.

Another challenge that needs to be addressed is the building of a viable EV industry in Indonesia. Presidential Regulation 55/2019 is based on the principle that, at some point in the future, EVs and their components must be produced in Indonesia. The new framework aims to bring down production costs by reducing imports of EV parts. Moreover, Article 8 of Presidential Regulation 55/2019 sets tough targets for EV parts localization norms. Specifically, between 2019 and 2023, four-wheeled EV companies and component companies are required to comply with a 35% minimum local content obligation.

During the 2019 to 2023 period, Indonesia will be in a nascent stage as regards the development of its EV industry. The common problem where EV manufacturing is concerned is that high vehicle prices lead to low sales, low demand for parts and ultimately no investment viability or incentive for manufacturers to invest in local production. Solving this problem will require serious support from the government. Article 17 of Presidential Regulation 55/2019 suggests that incentives will be linked to the localization of parts. This could be a problem in the early stages of the local industry, as component suppliers are not prepared to manufacture components for low volumes of EV. Furthermore, suppliers still need time to process safety tests and to undertake vehicle testing.

Another challenge that it is important to highlight is the current lack of electricity grid coordination (specifically transmission and distribution networks). EVs and power grids generally have a love-hate relationship. At the large scale, plugging cars into charging stations could, in theory, overload components and lead to network failures. Providing fast-charging could also mean that a higher burden will be placed upon PLN’s electricity grid. However, if this issue is managed properly, then PLN revenues resulting from electricity sales could be boosted significantly.

Switching to cars which are based on a fundamentally new tech platform is going to be a hard sell, even though such vehicles might offer benefits in the long run. This means that car companies will not attract many incentives when attempting to build EVs, which is where regulation comes in.

Something is missing in the new regulatory framework, however. Specifically, no clear direction as regards the elimination or reduction of the use of gasoline and diesel cars is set out under Presidential Regulation 55/2019. The new regulation only mentions briefly that the central government may gradually restrain the utilization of gasoline cars. The regulation does not impose any EV quotas and neither does it mandate any EV sales for automakers. It is also noticeable that the regulation does not set any deadline for the total phase-out of gasoline and diesel cars and their replacement with electric ones.

According to a Bloomberg New Energy Finance study, EV prices could match those of equivalent internal combustion engine vehicles by 2024. Moreover, according to a recent Boston Consulting Group study, consumer demand for EVs is set to rise between 2025 and 2030. However, several variables, such as requirements for automakers which are looking to produce and sell EVs, will ultimately affect the growth of the EV market.

The EV is clearly the way of the future. The required technologies already exist and will, at some point in the future, replace large numbers of conventional internal combustion engines. I am therefore looking forward to more pro-EV regulations which will fully implement Presidential Regulation 55/2019.

 

[1] The author is a lawyer at the Lubis Ganie Surowidjojo Law Firm (the opinions expressed are solely my own and do not express the views or opinions of my employer).

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