IPP and Corruption in Indonesia
Fabby Tumiwa
Institute for Essential Services Reform
14th IACC
Workshop CLEAN ENERGY
13 November 2010
Key Message
• Independent Power Producers (IPPs) projects (renewable and nonrenewable) is expected to contribute significantly in electricity
provision in Indonesia.
• IPP project is usually complex, usually contract is granted through
MoU/appointment between contractor and government or stateowned utilities without transparent and accountable competitive
bidding process, price disclosure, therefore it is prone to corruption.
• Regulatory malfunction and/or poor guidance in developing IPP
project create opportunities for corruption of IPPs projects.
• A standard transparent and accountable processes, standard
contract , and strong regulatory body to evaluate IPP projects is
required to ensure the integrity and corruption-free IPP Project.
Case Study
PLN Renegotiation with 25 stalled IPPs
• 25 PPA contracts were signed before 2007
• Delay in constructions and commissioning, contractor/owner
request for revision in PPAs.
• Options: Renegotiation vs. Bail-out/Termination
• Renegotiation carry out by the PLN’s team, involved various
government agencies: GoI Finance and Development Auditing Body
(BPKP), GoI Procurement Agency, Attorney General Office (AGO), to
review the renegotiation result.
• Renegotiation of 2 PPAs is completed in Sept 2010, price escalates
30-40% than original PPAs, range of PPA: $ 0,07 – 0,085 per kWh
• Question:
– Does renegotiation is the best option for PLN? How decision was
made? What was the basis for this decision?
– Does involvement of various government agency improve the integrity
of the project, and deter corruption?
Regulatory Challenges
• Regulatory institution (Directorate General of
Electricity-MEMR) does not function as regulatory
body.
• Transparency in decision making process by the
MEMR.
• Poor regulation to govern the cost structure of IPPs,
e.g: how much RoR is allowable for IPP’s investors?
• Weak guidelines on granting direct award for RE plant,
PP utilizing marginal gas, mine-mouth power, excess
power, electricity supply crisis area (MEMR Regulation
No. 1/2006)
Improving Governance of IPP Projects
• Strengthening regulatory institution to have
effective function to oversee the electricity sector
(SoE, IPP, others)
• Standard procedural and process on IPP Projects:
– Defining exact power capacity Government want to
purchase from IPP
– Standard PPA contract, covering main risks, clear
guidelines and, review and/or dispute mechanism
– Competitive bidding process is a must