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Indonesia to require additional guarantees from concession holders

Sibayak, geothermal plant, Lampung/ Indonesia (source: arthaliwa.wordpress)
Alexander Richter 5 Mar 2014

The Indonesian government plans a new regulation that would require investors winning government tenders for geothermal concessions, to provide surety bonds as guarantees (of $10 million for each well) that they can carry out the projects.

Indonesian geothermal development is behind general expectations. Part of that have been issues with a planned geothermal legislation, feed in tariffs and protected forest issues. There has been though another element and that is that developers that secured a concession have not been able to raise the necessary financing to develop the project.

So the Indonesian government is now planning a regulation that will “require investors winning government tenders to build geothermal power plants to provide surety bonds as guarantees that they carry out the projects according to agreed plans, an Energy and Mineral Resources Ministry official said.

“Under the regulation, the winners will be required to provide a certain amount of money as a guarantee, depending on their exploration commitments,” the ministry’s geothermal director Tisnaldi said in Jakarta this week.

Tisnaldi said a regulation on the surety bond requirement was being prepared. The investors would have to provide a financial guarantee of US$10 million for each geothermal well they explored, he added. “The money will be put in an appointed bank and held for three years. They can withdraw their money gradually to fund exploration work, but they will lose their money if they don’t carry out exploration projects in three years,” Tisnaldi said.

The financial guarantee, which is commonly known as a surety bond, is part of the government’s attempts to optimize geothermal projects, some of which have been halted due to a lack of commitment from tender winners. “Based on our experience, many firms joined the tender only to secure permits and then they sold the permits to larger companies,” he said.

Tisnaldi said the government was also working to provide certainty to investors willing to invest in geothermal projects in the country.

“We’re now waiting for House of Representatives approval to revise certain articles in the Geothermal Law that are deemed obstacles for the development of geothermal projects,” he said.

Several revisions to be made include an article in the Geothermal Law that classifies geothermal field developments as part of mining activities. The removal of the article is needed to ensure the development of geothermal fields in forest conservation areas will not violate the Forestry Law prohibiting all mining activities in protected forests.

The government has said that unlike mining activities, the development of geothermal fields mostly located in protected forests will not cause harm as it would only affect a small land area.

President director of PT Pertamina Geothermal Energy, Rony Gunawan, said at the seminar that the revision of the law was a must.

“More than 50 percent of our geothermal reserves are located in protected forest areas, so how can we utilize all of our geothermal potential if we can’t develop them?” he said, adding that his firm had produced 402 megawatts (MW) of electricity from its geothermal wells.

Source: The Jakarta Post