Indonesia introduces government investment guarantees for geothermal projects
Lahendong Unit 2 plant Sulawesi, Indonesia (source: aecom.com)
Alexander Richter
25 Aug 2011
Indonesia introduces finance minister decree on geothermal investment guarantees for geothermal power projects in the country.
A long time in the making and demanded by investors, a new decree on government guarantees is to help with development of geothermal power plants as part of the ambitious power generation plans by the country.
“The government through finance ministry eventually released a decree to provide formal guarantee for geothermal power projects, to accelerate 10,000 MW phase II project.
In fact, the Finance Minister Decree (PMK) about geothermal investment guarantee was signed by Finance Minister Agus D.W. Martowardojo on August 22, substituting FMD No.77/2011 on feasibility business insurance of PLN.
However, it hasn’t met decree numbering protocol until formally announced by the Vice President yesterday, amid the meeting to discuss accelerated development of 10,000 MW stage II project.
Head of the Presidential Working Unit for Supervision and Control of Development (UKP4) Kuntoro Mangkusubroto, Deputy Finance Minister Anny Ratnawaty, Director of PT Perusahaan Listrik Negara (Persero) Dahlan Iskan attended the meeting.
“Investors have been waiting and they have great interest to build geothermal power plants,” said the Vice President Boediono.
The new decree provides more detail on categorizing geothermal projects undertaken by the developer or investor to meet government’s condition, feasibility study, purchasing agreements and bank financing.
In the new decree, investors are also required to immediately seek funding or financial close for a maximum of 48 months or 4 years. If they fail on getting financial support in 4 years, the guarantee will be automatically revoked.
Budiono said the decree answers investor concern about PLN’s financial ability to complete all of its obligations on power purchase agreement with private power plants.
Commenting on the decree, Dahlan Iskan said the investors has eagerly awaited it, as 40% of total 10,000 MW power project stage II or 4,000 MW is geothermal-based power plant.
“So far, geothermal development is not running well because investors always ask for guarantee from the government. Now, as it has been provided, I hope there will be signing of delayed-agreement between PLN and geothermal investors soon,” he said.
Once the rule is out, Dahlan said, PLN will hold talks with investors to finalize the contract. Two geothermal project investors ready to sign the contract are Rajabasa project in Lampung and Muaralabuh project in West Sumatra.
“Geothermal investors don’t need to worry no more about the payment, because it will be guaranteed by government,” he asserted.
Meanwhile, Upstream Director of PT Pertamina (Persero) Mohammed Husen strongly supports the emergence of the regulation. However, the main issue in geothermal investment is about PLN’s geothermal purchasing price.
“Until now, geothermal investment face a bit problem because the price is still not attractive. Therefore, investors are always looking for low cost funds, such as from Japan Bank for International Cooperation [JBIC],” he said.
If the price is attractive, Husen added, Pertamina will be more confident to look for fund with a commercial interest
Geothermal developers and PLN are expected to meet again to discuss buying and selling price of electricity in the near future. The government has actually set the price of geothermal electricity at US$0.97 per kwh.
Chairman of the Association of Geothermal Indonesia Abadi Poernomo added investors also need guarantee for the geothermal business continuity after exploration activities.
“This means that electricity is expected to be bought,” Abadi, the Director of PT Pertamina Geothermal Energi, said.
Meanwhile, Chief Operating Officer of Power Mining and Downstream PT Medco Power Indonesia Budi Basuki welcome the decree as developer requires it to apply bank loan facility, financing geothermal projects.
“The decree will make us easier to find financing as lenders always ask for government guarantee,” he said.”
Source: Bisnis Indonesia
