Govt to guarantee power plant projects

Urip Hudiono and Ika Krismantari, The Jakarta Post, Jakarta

The government has agreed to fully guarantee the financing of new power plant projects that state power company PT PLN has offered to investors, in an attempt to put the delayed projects back on track.

Finance Minister Sri Mulyani Indrawati, however, asserted said the blanket guarantee would only cover projects under PLN's crash program to provide an additional 10,000 megawatts (MW) of power by the end of 2009.

"We have decided to provide a guarantee that better reflects the risks that PLN might bear in the projects. Since PLN is 100 percent state owned, and considering the importance of the projects, they will get a full guarantee," Sri Mulyani said Monday after a meeting with Coordinating Minister for the Economy Boediono and related officials.

"With such a guarantee, we will be involved with PLN's financing team. We are, of course, also expecting cheaper funding schemes, with lower risks as well, as a result of the government's involvement."

Sri Mulyani said details of the broader guarantee would correspond to each project's financing scheme, and would likely result in changes to an existing presidential decree and ministerial regulation that only provide a guarantee on credit export facilities to PLN and possible adverse affects from government tariff policies on the projects.

The government will also have to reserve funds for the full guarantee in the state budget, Sri Mulyani said, although such contingency liabilities to public funds will likely only arise when the projects have commenced.

The progress of several projects, part of the "10,000 MW" program, which is hoped to resolve Indonesia's acute power problems, has been hampered by investor doubt over guarantees for the projects.

PLN expects 85 percent of the program's US$8.7 billion total cost to come from investors -- most consortiums from China-- with the remaining coming from PLN's internal cash reserves and a bonds issuance.

Yogo Pratomo, head of the 10,000 MW program committee, said construction had begun on five of the 10 power plants projects located on Java island.

Construction of the 600 MW Suralaya Baru plant in Banten has reached 10 percent. Construction on the other four projects -- the 600 MW Labuan plant in Banten, the 900 MW Indramayu plant in West Java, the 600 MW Rembang plant in Central Java and the 600 MW Paiton Baru plant-- has reached 5 percent.

He said the engineering procurement and construction contracts for five other projects -- the 900 MW Teluk Naga plant in Banten, the 900 MW Pelabuhan Ratu plan in West Java, the 600 MW Tanjung Jati plant in Central Java, the 600 MW Tanjung Awar-awar plant in East Java and the 600 MW Pacitan plant in East Java-- had not been signed yet, pending negotiations between PLN and the bank consortiums.

PLN has receive approval from the government to pledge its assets to secure loans for the projects. But the lenders have demanded a full guarantee from the government.

Meanwhile, of another 25 power plants located outside Java, Yogo said the committee had tendered 15 projects, with winners named in eight of the projects. The other seven projects need to be renegotiated.

The remaining 10 projects are still in the tendering process, with the results expected in the next two months.

Of the total 10,000 MW power plant projects, 6,900 MW will be located in Java, and the remaining 3,100 MW will be outside Java.
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