The global transition toward clean and renewable energy has accelerated the growth of cross border energy projects. Wind power plants, solar photovoltaic installations, and large scale energy storage facilities are increasingly developed through international investment structures involving foreign companies, financiers, and technology providers.
From a legal standpoint, contracts governing such projects are substantially more complex than purely domestic agreements. They operate across multiple legal systems, regulatory regimes, and jurisdictions. In this context, legal certainty becomes a central concern. Without clear contractual mechanisms governing applicable law and dispute resolution, parties face heightened exposure to regulatory conflict, jurisdictional uncertainty, and prolonged disputes.
For policymakers, legal practitioners, and international investors, understanding how these clauses operate within the Indonesian legal framework is essential, particularly in high value clean energy projects that involve long term commitments and regulatory exposure.
Concept and Function of Choice of Law in International Energy Contracts
Choice of law refers to a contractual provision through which the parties designate the substantive law that governs the interpretation, performance, and enforcement of their agreement. This clause determines which national legal system defines contractual rights and obligations, standards of breach, available remedies, and liability allocation.
In international energy projects, it is common for parties to select a governing law that is regarded as commercially neutral and well developed, such as English law or Singapore law. This choice is often made even when the project assets are located in another jurisdiction. The rationale lies in the predictability of legal doctrine, the depth of commercial jurisprudence, and familiarity among international arbitrators and legal practitioners.
The importance of choice of law is particularly pronounced in cross border clean energy projects because national legal systems differ significantly in their regulation of energy infrastructure, environmental protection, licensing requirements, land use, and foreign investment. In the absence of an express choice of law clause, courts or arbitral tribunals must determine the applicable law through conflict of laws principles. Such determinations are frequently uncertain and may undermine commercial expectations formed at the contracting stage.
Choice of Forum and International Dispute Resolution Strategy
While choice of law determines which legal rules apply, choice of forum determines where disputes will be resolved. The selected forum may be a national court or, more commonly in international energy projects, an international arbitration institution.
Arbitration forums such as the International Chamber of Commerce and the Singapore International Arbitration Centre are frequently chosen due to their procedural neutrality, enforceability of awards under the New York Convention, and expertise in complex cross border disputes. Jurisdiction clauses may be exclusive or non exclusive, depending on the parties’ strategic objectives.
In many international commercial arrangements, including energy and digital infrastructure contracts, it is common to combine Singapore law with SIAC arbitration. This pairing demonstrates how choice of law and choice of forum operate together to shape procedural aspects such as language, arbitral seat, and tribunal composition, all of which carry significant practical and cost implications.
Strategic Importance of Governing Law and Forum Selection Clauses
From a risk management perspective, failure to specify governing law and forum exposes contracting parties to the possibility of parallel proceedings in multiple jurisdictions. This scenario increases legal costs, prolongs dispute resolution, and creates the risk of inconsistent decisions.
In large scale clean energy projects, governing law clauses also perform a predictive function. They allow parties and financiers to assess legal risk at the planning and financing stages. For this reason, neutral governing laws are frequently selected to reduce perceptions of jurisdictional bias and to enhance investor confidence.
In addition to choice of law and forum clauses, international energy contracts typically include:
- governing law clauses,
- jurisdiction or forum selection clauses,
- detailed arbitration clauses specifying the institution seat language and applicable rules,
- force majeure clauses addressing regulatory change pandemics or armed conflict,
- confidentiality clauses protecting sensitive information,
- limitation of liability or indemnity clauses that allocate risk.
These provisions function as core risk management tools rather than contractual formalities. Given the long term nature of clean energy projects and their exposure to political regulatory and market risks, the precision of contractual drafting directly affects project bankability and operational continuity.
Indonesian Legal Framework Governing International Energy Agreements
Indonesia regulates the participation of the state in international agreements through Law No. 24/2000 on International Treaties. This statute establishes the procedures for concluding and implementing international agreements at the national level, including ratification requirements for agreements affecting fundamental national interests.
Although Law No.24/2000 does not directly regulate private commercial contracts, it becomes relevant where international energy contracts are connected to Indonesia’s obligations under ratified international agreements, such as global climate change commitments. In such circumstances, private contractual arrangements must be interpreted in a manner consistent with Indonesia’s international legal obligations.
Sector specific regulation is provided by Article 10 of Law No. 30/ 2007 on Energy. This provision limits international cooperation in the energy sector to objectives related to national energy security, domestic energy availability, and national economic development. It further requires parliamentary approval where international energy agreements create broad public impacts, impose financial burdens on the state, or necessitate legislative change.
These provisions indicate that international energy contracts involving the Indonesian government or state owned enterprises may carry public law consequences alongside private commercial obligations.
Also read: How Foreign Investment and Green Financing Are Powering Indonesia’s Clean Energy Transition
Binding Responsibility and Legal Risk Allocation
For participants in international energy projects, understanding binding legal responsibility is essential. Contracts must clearly define the scope of obligations, performance standards, and legal consequences of non performance or breach.
Inadequate drafting may result in conflicts between private contractual obligations and public law duties arising under Indonesian legislation or international commitments. Such conflicts can jeopardize enforceability and expose parties to regulatory or constitutional challenges.
Well structured choice of law and choice of forum clauses help mitigate these risks by aligning contractual arrangements with applicable legal systems and dispute resolution mechanisms. When combined with coherent risk allocation provisions, these clauses support legal certainty and long term project sustainability.
Choice of law and choice of forum clauses constitute the legal foundation of international clean energy contracts. In cross border projects involving Indonesia, these clauses play a decisive role in ensuring contractual enforceability, regulatory coherence, and effective dispute resolution.
Legal certainty should not be viewed as an obstacle to investment. Rather, it is a prerequisite for sustainable clean energy development and durable cross border cooperation.***
Also read: Cross-Border Renewable Energy in ASEAN: Opportunities and Legal Strategies for Green Investment
Regulations:
- Undang-Undang Nomor 24 Tahun 2000 tentang Perjanjian Internasional (“UU 24/2000”).
- Undang-Undang Nomor 30 Tahun 2007 tentang Energi (“UU Energi”).
References:
- International Contracts: Cross-Border Considerations. The Campbell Law Group. (Diakses pada 29 Desember 2025 pukul 10.04 WIB).
- Pahami Choice of Law dan Choice of Forum Saat Melakukan Transaksi Lintas Batas. HukumOnline. (Diakses pada 29 Desember 2025 pukul 10.26 WIB).
- Klausul Penting dalam Kontrak Bisnis Internasional. HukumOnline. (Diakses pada 29 Desember 2025 pukul 11.03 WIB).