Push for dissolving dispute holding up plant development in North Sumatra

Alexander Richter 20 May 2009

A price dispute holds up development of a US$800 million geothermal power plant in Indonesia jointly planned by Medco Energi, Ormat Technologies and Itochu Corp.

As reported by Reuters, there is now political pressure in Indonesia for PT Medco Energi Internasional Indonesia’s energy ministry said on Wednesday it has asked energy firm PT Medco Energi Internasional to resolve a price dispute and build a $800 million geothermal power plant in North Sumatra province.

“We want this project to be built quickly because it is very important for Indonesia,” J. Purwono, director general of electricity at the ministry, told reporters, adding, “we badly need more power plants.”

Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN) awarded a contract in 2006 to a consortium of Medco, Ormat Technologies (ORA.N), and Itochu Corp. (8001.T) to build a 330-megawatt geothermal power plant in Sarulla, North Sumatra.

Purwono said Medco and PLN are negotiating the price of electricity from the Sarulla project. But another official at the energy ministry said that negotiations on the electricity price have stalled, holding up the project.

“PLN cannot buy electricity from the Sarulla project at too high a price, as demanded by Medco,” said the official, who declined to be quoted by name.

Indonesia is tapping alternative sources of energy to meet rising power demand and cut consumption of expensive crude oil as its own reserves dwindle. The vast archipelago, with hundreds of active and extinct volcanoes, has the potential to produce an estimated 27,000 MW of electricity from geothermal sources.

However, that potential remains largely untapped because the high cost of geothermal energy makes the price of electricity generated this way expensive.

PLN, the monopoly power supplier in Indonesia, has 25,000 MW of generating capacity but daily output is far less because most of its plants are old and inefficient.”

Source: Reuters