Environmental Restoration Guarantee Fund: Indonesia's Financial Security Mechanism for Environmental Recovery Under PP 22/2021
Executive Summary
Government Regulation PP 22/2021 establishes a mandatory financial security mechanism requiring business operators to set aside funds dedicated to environmental restoration. Known as Dana Penjaminan untuk Pemulihan Fungsi Lingkungan Hidup (Environmental Restoration Guarantee Fund), this mechanism ensures that financial resources are available for pollution mitigation and environmental recovery when business activities cause environmental damage.
The fund serves two primary purposes: addressing pollution and damage emergencies as they occur, and restoring environmental functions after contamination events. All Environmental Approval holders must provide this fund, with the specific amount calculated based on factors including damage typology, affected environmental media, pollution severity, and the economic value of affected natural resources.
This regulatory framework recognizes that environmental damage can outlast business operations and that cleanup costs often exceed what operators can finance from current operations. By requiring upfront financial security, Indonesia creates a mechanism ensuring environmental liabilities are addressed regardless of the business operator's future financial condition.
Background & Context
Environmental contamination events frequently leave behind cleanup costs that business operators cannot or will not pay. Companies may become insolvent, dispute liability, or simply abandon contaminated sites. This leaves governments and communities bearing the financial burden of remediation. Indonesia's Environmental Restoration Guarantee Fund directly addresses this market failure by requiring financial security before environmental damage occurs.
The guarantee fund concept draws on international precedents including the United States' Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) which requires financial assurance for hazardous waste facilities, and similar requirements in European Union environmental liability frameworks. Indonesia has adapted these concepts to its own regulatory structure through PP 22/2021.
Under Indonesia's system, the guarantee fund integrates with the Environmental Approval (Persetujuan Lingkungan) process. The fund requirement appears in the approval document itself and carries forward into Business Licensing (Perizinan Berusaha). This integration ensures that fund requirements are considered from the earliest planning stages rather than imposed as an afterthought.
The regulation provides flexibility in how businesses meet their guarantee fund obligations while maintaining strict requirements on fund availability and authorized use. This balance reflects Indonesia's recognition that different businesses have different financial structures and risk profiles requiring tailored compliance approaches.
Key Provisions
Fund Purpose and Authorized Uses
Article 471 establishes the two authorized uses for environmental restoration guarantee funds, distinguishing between emergency response and long-term recovery activities.
Pasal 471 Ayat (1) - Two Fund Purposes:
Dana penjaminan untuk pemulihan fungsi Lingkungan Hidup digunakan untuk kegiatan:
a. penanggulangan Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup; dan/atau
b. pemulihan fungsi Lingkungan Hidup akibat Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup,
yang timbul akibat suatu Usaha dan/atau Kegiatan.
The fund serves two distinct functions: pollution and damage mitigation (penanggulangan), and environmental function recovery (pemulihan). Mitigation addresses immediate threats while recovery restores long-term environmental function. Both uses must relate to pollution or damage arising from the specific business activity covered by the fund.
Pasal 471 Ayat (3) - Mitigation Activities:
Penanggulangan Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup meliputi kegiatan:
a. pemberian informasi peringatan Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup kepada masyarakat;
b. penghentian sumber Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup;
c. pengisolasian Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup; dan/atau
d. upaya lain sesuai dengan perkembangan ilmu pengetahuan dan teknologi.
Mitigation activities include public warning information, stopping pollution sources, isolating contamination, and other measures according to current science and technology. The final provision allows for technological advances that may provide new mitigation approaches not specifically enumerated.
Mandatory Fund Provision
Article 472 establishes the fundamental obligation for Environmental Approval holders to provide guarantee funds.
Pasal 472 Ayat (1) - Mandatory Requirement:
Pemegang Persetujuan Lingkungan wajib menyediakan dana penjaminan untuk pemulihan fungsi Lingkungan Hidup sebagaimana dimaksud dalam Pasal 471.
This provision creates an unambiguous legal obligation. Every Environmental Approval holder must provide a guarantee fund. The obligation attaches to the approval itself rather than to specific facility types or risk levels.
Pasal 472 Ayat (3) - Government Bank Deposit:
Pelaku usaha pemegang Persetujuan Lingkungan menyediakan dana penjaminan untuk pemulihan fungsi Lingkungan Hidup untuk disimpan di bank pemerintah yang ditunjuk oleh Pemerintah.
The default arrangement requires funds to be deposited at a government-designated bank. This ensures fund security and government access in case funds must be deployed for environmental response without the operator's cooperation.
Self-Managed Fund Exception
Not all businesses must deposit funds with government banks. Article 472 provides exceptions for lower-risk activities.
Pasal 472 Ayat (4-5) - Self-Managed Fund Exception:
(4) Untuk jenis Usaha dan/atau Kegiatan tertentu, dana penjaminan dapat dikelola secara mandiri.
(5) Jenis Usaha dan/atau Kegiatan tertentu memiliki kriteria:
a. termasuk Usaha dan/atau Kegiatan risiko rendah dan menengah terhadap Lingkungan Hidup; dan/atau
b. tidak memanfaatkan sumber daya alam yang tahap perencanaannya akan mengubah bentang alam dan memiliki rencana pasca operasi.
Certain activities may manage funds internally rather than depositing with government banks. This exception applies to low and medium environmental risk activities, and to activities that do not alter landscape features and have post-operation plans. This exception reduces compliance burden for lower-risk businesses while maintaining the fundamental guarantee requirement.
Acceptable Fund Forms
Article 473 specifies the financial instruments that satisfy guarantee fund requirements.
Pasal 473 Ayat (1) - Four Fund Forms:
Dana penjaminan disediakan oleh Pelaku Usaha dalam bentuk:
a. deposito berjangka;
b. tabungan bersama;
c. bank garansi; dan/atau
d. lainnya sesuai dengan ketentuan peraturan perundang-undangan.
Businesses may use time deposits, joint savings accounts, bank guarantees, or other instruments permitted by regulations. This flexibility allows businesses to choose instruments that best fit their financial structures while maintaining the required security.
Pasal 473 Ayat (2) - Insurance Option:
Penyediaan dana penjaminan dapat dilakukan dalam bentuk polis asuransi atau instrumen keuangan lainnya yang diterbitkan oleh lembaga jasa keuangan milik pemerintah yang ditunjuk oleh Pemerintah.
Insurance policies represent an alternative compliance pathway. The insurer must be a government-designated financial service institution, ensuring adequate capitalization and regulatory oversight. Insurance can be more capital-efficient for businesses than segregating funds in dedicated accounts.
Fund Amount Calculation
Article 476 establishes the factors that determine how much a business must set aside.
Pasal 476 Ayat (1) - Seven Calculation Factors:
Besaran dana penjaminan ditentukan dengan memperhitungkan:
a. tipologi dampak dan/atau risiko Lingkungan Hidup yang akan terjadi;
b. media Lingkungan Hidup atau sumber daya alam yang akan mengalami Pencemaran dan/atau Kerusakan;
c. tingkat/derajat Pencemaran dan/atau Kerusakan yang akan terjadi;
d. lamanya Pencemaran dan/atau Kerusakan yang akan terjadi;
e. jenis kegiatan penanggulangan dan/atau pemulihan yang akan dilakukan;
f. teknologi penanggulangan dan/atau pemulihan; dan
g. nilai ekonomi sumber daya alam dan/atau Lingkungan Hidup.
The seven calculation factors ensure fund amounts reflect actual risk: impact typology, affected environmental media, pollution severity, damage duration, required mitigation and recovery activities, technology costs, and economic value of affected resources. This risk-based approach means higher-risk activities require larger funds.
Fund Usage and Government Authorization
Article 477 addresses how funds are accessed and what happens when funds prove insufficient.
Pasal 477 Ayat (1-2) - Government Authorization:
(1) Dana penjaminan hanya dapat digunakan oleh Pelaku Usaha berdasarkan keputusan dari Pemerintah atau Pemerintah Daerah sesuai dengan kewenangannya.
(2) Penggunaan dana penjaminan dapat dilakukan oleh pihak ketiga yang ditunjuk oleh Pemerintah atau Pemerintah Daerah.
Fund access requires government authorization. Businesses cannot unilaterally withdraw guarantee funds. This prevents funds from being diverted to other purposes. Government may also authorize third parties to conduct remediation using the funds, ensuring work proceeds even if the business operator is unwilling or unable to act.
Pasal 477 Ayat (4-5) - Shortfall and Replenishment:
(4) Pelaku Usaha wajib memenuhi kekurangan pembiayaan apabila dana penjaminan tidak mencukupi.
(5) Dalam hal dana penjaminan sudah digunakan, Pelaku Usaha wajib menyediakan kembali kecukupan dana penjaminan.
If guarantee funds prove insufficient for required response activities, the business operator must cover the shortfall. Additionally, after any fund use, operators must replenish the fund to maintain required levels. These provisions ensure ongoing financial security throughout the operational life of the activity.
Non-Liberation Clause
Article 478 prevents misunderstanding about the fund's relationship to ongoing environmental obligations.
Pasal 478 - Non-Liberation Clause:
Penyediaan dana penjaminan tidak membebaskan kewajiban Pelaku Usaha untuk melakukan pengendalian Pencemaran Lingkungan Hidup dan/atau Kerusakan Lingkungan Hidup akibat Usaha dan/atau Kegiatan.
Providing a guarantee fund does not excuse business operators from pollution control obligations. The fund is not a payment that permits pollution. Operators remain obligated to prevent pollution and damage through proper management and controls. The fund exists as a financial backstop, not a license to cause harm.
Implementation & Compliance
Environmental Approval holders must integrate guarantee fund requirements into their compliance programs from the approval stage. Article 475 specifies that fund obligations appear in both the Environmental Approval itself and the subsequent Business License. This dual documentation ensures fund requirements remain visible and enforceable throughout the regulatory process.
Determining the appropriate fund amount requires analysis of the seven factors specified in Article 476. Businesses should work with environmental consultants to assess their specific risk profiles, identify potential impact scenarios, and calculate appropriate fund levels. Regulators review these calculations during the approval process and may require adjustments based on their own risk assessments.
Fund form selection involves balancing capital efficiency against regulatory requirements. Time deposits and dedicated savings accounts provide direct fund access but tie up working capital. Bank guarantees and insurance policies may be more capital-efficient but require credit approval and policy qualification. Government-designated banks and insurers must be used for any instrument not self-managed under the low-risk exception.
Ongoing compliance requires maintaining fund levels throughout operation. Any fund use for mitigation or recovery activities triggers replenishment obligations. Businesses must monitor fund adequacy and adjust amounts if their operations change in ways that alter risk profiles. Regulatory inspections may review fund status as part of environmental compliance verification.
Conclusion
Indonesia's Environmental Restoration Guarantee Fund represents a significant advancement in environmental financial assurance. By requiring Environmental Approval holders to secure funds for potential pollution mitigation and environmental recovery, PP 22/2021 ensures that contamination costs do not fall on governments and communities when business operators cannot or will not pay.
The framework balances flexibility with security. Multiple fund forms accommodate different business structures while government bank deposits and insurance from designated institutions ensure fund availability when needed. Risk-based calculation ensures fund adequacy without imposing excessive burdens on lower-risk activities. As Indonesia continues developing its environmental regulatory framework, the guarantee fund mechanism provides an important tool for ensuring that environmental protection commitments are backed by financial resources.
Official Sources
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