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Unclear taxation obstacle to timely completion of Sarulla project

Unclear taxation obstacle to timely completion of Sarulla project Muara, Lake Toba, Tapanuli Utara, North Sumatra, Indonesia (source: flickr/ Max Grabert, creative commons)
Alexander Richter 9 Jan 2013

Unclear taxation on the asset transfer for the Sarulla project in Indonesia is delaying the timely completion of the project and a start of operation in 2015.

The Sarulla Geothermal Power project in North Tapanuli expected to come online with a capacity of 100 MW in 2015 is facing some obstacles due to unclear taxation issues. This is due to the difficulties of the Sarulla consortium not being able to pledge the assets to secure their loans, as they are still recognized as Pertamina Geothermal properties. The reason is that the upstream and downstream assets have been split with the upstream assets managed by Pertamina.

“In regard of the taxation, PT Pertamina Geothermal Energy (PGE) expected that the asset transfer is not subjected by tax or in the other word it is given a tax incentive or tax exempt. Every transfer of assets, needs to be tax exempt. “That is the only problem left, and whenever it is finalized, the SKB can already be signed,” he continued.

Djadjang confirmed, the settlement is not a matter of whether incentives will be provided by the Ministry of Finance or not. However, the Government will decide in accordance with applicable laws. “We will adapt the law.”

The Medco Power CEO Fazil E Alfitri hopes the target may backtrack to the beginning of 2015 to the first 100 MW. “I still hope that the JOC and three ministerial decree to be signed at the end of this month. Since virtually all of the issues that need to be done live is decided by the government,” he said.

Fazil said the drilling process will continue to run even if the SKB three ministers, comprises the Minister of Energy and Mineral Resources, Minister for State Owned Enterprises, and Ministry of Finance regarding Sarulla Geothermal Power Project has not signed yet.

The Government wants the 330 MW in capacity project can be completed soon. The SKB would eventually clarify the ownership of assets in the geothermal working areas. However, the signing of the decree would have to wait the completion of the contract cooperation amendment (joint operating contract/JOC).

In the Decree, Sarulla assets will be divided into two, the upstream and downstream assets. The State assets in the upstream of Sarulla geothermal are managed by PT Pertamina (Persero), while the downstream assets adjusted for the contract with the developer of geothermal energy.

The SKB also give permission to the developer to make the assets as collateral for loans. The length of time the assets are pledged as collateral for future funding.

As reported earlier, Sarulla Geothermal Power Plant should be operated by Sarulla Operated Limited (SOL) since last 2007. However, up to now the preparation is still on paper since the Sarulla consortium can’t pledge the assets to secure their loans.

The assets are still recognized as PGE properties, while actually the Consortium is the institution that disburse the funds for the project finalization. This US$1.4 billion-worth project funding composition comprises around 30% from internal while the rest is by Japan Bank for International Cooperation (JBIC).

PLN bidding resulted a consortium participated by, Medco Power which controls some 37.5%, Kyushu Electric (Japan) around 25%, Itochu Corporation (Japan) at 25%, and the remaining of 12.5% is owned by Ormat International Inc. (USA).”

Source: Bisnis.com