Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
INDONESIA - ANNEX 3
1.
Introduction
This Annex sets out our findings in relation to the current status of implementation of
the IPP Principles in Indonesia.
In relation to each Principle the current status of implementation is described. Where
possible and appropriate, we have identified potential barriers or impediments to
improved implementation of the Principles.
These findings reflect research carried out in the period January – April 2000.
The sensitive nature of IPPs in Indonesia at present created significant difficulties in
obtaining information regarding the terms and conditions of either existing or proposed
IPPs in Indonesia.
2.
Background
2.1 Recent developments in the Indonesian electricity sector
After many years of strong economic growth and expansion, Indonesia has
suffered substantial losses as a result of the Asian economic crisis. From
1991-1995, the country’s GDP growth rate rose an average of 8% per year. But in
1998, Indonesia’s GDP rate became negative at –13.5%. The IMF has
recommended that Indonesia implement economic reform including the creation
of greater transparency in the issuing of government loans and subsidies, and
enforcing laws and regulations in the area of government procurement. The
government has announced several reform initiatives since receiving IMF
assistance, including the planned privatisation of several sectors of the economy.
Indonesia has an installed capacity estimated at 21.3 GW, with 82% coming from
thermal sources, 15% from hydro sources, and 3% from geothermal sources.
Electricity is supplied by the vertically integrated monopoly Perusahaan Listrik
Negara (PLN), the state owned energy corporation. PLN is responsible for the
majority of Indonesia’s generation, and is the monopoly provider of transmission,
distribution and supply of electricity. It is the sole buyer and seller of electricity in
the power market, currently purchasing approximately 80% of the power
produced by IPPs.
The sharp decline in the GDP of Indonesia and devaluation of the Rupiah has
significantly affected the financial standing of PLN. The fact that 60% of the
PLN’s costs (ie. fuel purchases and debt payments) are denominated in US dollars
while revenues (subsidised tariffs) are earned in Rupiah has increased PLN’s debt
significantly. The Rupiah has been significantly devalued due to the financial
crisis. Additionally, the inclusion of take-or-pay provisions in PPAs has meant
payment obligations to IPPs (in US dollars) remain even though demand has
decreased significantly.
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2.2 The role of IPPs in Indonesia
Prior to the occurrence of the Asian financial crisis, Indonesia had plans for rapid
expansion of power generation, to be achieved through opening up its power
market to IPPs. IPPs provided a solution to the serious shortage of electricity
experienced in Indonesia between 1989 and 1991 due to the rapid growth of
industry. The bulk of the parties in large IPPs projects were international energy
companies (foreign investors) partnered with family and associates of former
President Suharto. In early 1997, there were 39 IPP projects (totalling 30,072 MW)
under way. A number of these projects had successfully secured debt financing
and in the case of one project, capital markets refinancing.
As a result of the Asian financial crisis, a number of IPP projects have been
cancelled or “put on hold” and those projects which have secured debt financing
or have been constructed or partly constructed are perceived to be in difficulty.
Given the over-capacity in the Indonesian power sector, further investment in new
IPPs is unlikely in the near future.
There are now approximately 26 IPP projects that have been signed, involving
about US$18 billion in investments and totalling 24,751 MW. A list of
operational IPPs in Indonesia is provided in Appendix A. A table of the keys risks
associated with IPP projects is provided in Appendix B.
All 26 IPPs have entered into Power Production Agreements (PPAs). PLN is
counter party to all the PPAs. Characteristics of the PPAs include:
•
tariff structure and tariff paths;
•
denomination of prices in $US (prices range from 5.7 cents to 8.4 cents per
kWh);
•
take or pay obligations on PLN (For example under Paiton Energy’s PPA,
PLN is obliged to pay Paiton $598 million per year if it does not use power
supplies);
•
applicable law - generally governed by Indonesian law;
•
arbitration clauses for disputes - dispute resolution clauses may refer
parties to an international arbitration; and
•
force majeure provisions.
As a result of PLN’s losses in 1998 and 1999 it has been incapable of making
payments to IPPs. Initially the government failed to support PLN, forcing PLN to
fail in meeting its payment obligations to some IPPs. This resulted in some IPPs
resorting to arbitration in an attempt to recover payments. While the government
has now ensured that payments are being made it is generally accepted by
industry sources that a renegotiation of nearly all of the PPAs will take place as
this is essential for the successful restructure of PLN, the government credibility
with foreign investors and the resolution of budgetary shortfalls of the
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Government (arising from these and other subsidies in the energy sector). This
issue is currently an extremely sensitive political issue.
Case Study on Indonesian PPAs: The CalEnergy Dispute
Himpurna California Energy (HCE) in conjunction with Patuha Power (PPL) brought
an action against PLN for a breach of the Energy Sales Contract in 1999. The breach
involved PLN failing to fulfil their obligations under the contract to pay the IPP for
electricity supplied and for breach under the PPA over two 400MW projects. The
initial arbitration between the parties was conducted in Jakarta, under the United
Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.
Chairing the arbitration was an international attorney, and the panel included an
Australian business person and an Indonesian judge. In a unanimous decision by the
panel HCE was awarded $391,711,652 and PPL $180,570,322.
PLN failed to make the repayment resulting in HCE and PPL demanding repayment
pursuant to the sovereign performance undertakings issued by the Minister of Finance
on behalf of the Republic of Indonesia. When the Indonesian government refused to
make the repayment HCE and PPL took further international action in September
1999. As a result the panel made the following interim awards:
•
the Republic of Indonesia defaulted under the Terms of Appointment and the
UNCITRAL rules that the parties agreed would govern the arbitration;
•
the tribunal continues to have jurisdiction over the dispute notwithstanding
Indonesian court orders purporting to enjoin the arbitration and has
jurisdiction to issue final awards in this matter; and
•
certain Indonesian court orders purporting to prevent the arbitration constitute
a denial of justice in violation of generally recognised principles of
international law.
An international arbitration panel ruled that PLN had to pay MidAmerican Energy,
formally CalEnergy, US$572.3 million for breaching the PPA over two 400 MW
projects.
One of the major challenges facing the promotion of private sector
development in Indonesia is the perception that transactions in the past have
not resulted from arm’s length dealings or had due regard to the principles of
transparency, non-discrimination and fair competition.
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3.
Institutional and Regulatory Structures
3.1 Principle 1 – Energy sector policies
3.1.1 Energy sector policies formulated to create a stable framework for power
sector development
(a)
Clear, published and consistent energy sector policies
Indonesian energy sector policies have been set out in a number of laws,
Presidential Decrees, regulations and policy documents. Many of the energy
sector policies were introduced as part of the Indonesian government’s
initiative to promote IPP projects. Each is clearly stated and published, but
never in a completely formal way (other than by means of formal decree).
The main documents setting out the government’s broad approach to energy
sector development are described in Appendix C.
The objectives of energy sector policies in Indonesia are clear: to attract
private sector investment in power production.
At a micro level there is little clear consistency with other sector policies.
While there have been attempts to encourage investment in all sectors, the
electricity industry is the most advanced.
(b)
Environmental policy objectives
Publication and clarity of environmental policies
Current government policy suggests that environmental issues will be given
greater priority in the future.
Indonesia has made significant progress in energy conservation in the past
20 years, both in the area of institutional development and in program
implementation. Indonesia launched its first national energy conservation
program in early 1980 with a national awareness campaign. In 1982, under
Presidential Instruction No. 9, all government ministries and agencies were
directed to undertake energy conservation measures. At the end of 1983, the
second phase of Indonesia’s energy conservation program was initiated with
in-depth audits of energy-intensive industries.
In 1987, with financial assistance from the World Bank, PT. Konservasi
Energi Abadi (KOMEBA), Indonesia’s National Energy Conservation
Company was established. KONEBA made significant accomplishments,
including detailed energy audits of over 30 large industrial facilities, energy
conservation planning activities, data base development, training,
information dissemination, and the procurement and installation of energy
saving equipment. By 1990, KONEBA was operating at a profit on a
cash-flow basis. However, during the mid-90s KONEBA was unable to
maintain self-financing operation.
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In September, 1991, President Soeharto issued a Presidential Decree on
Energy Conservation (Decree No. 43), directing that a broad program in
energy conservation be undertaken aimed at efficient use of energy and
environmental sustainability.
The Ministerial Energy Coordination Board (Bakoren) issues general
policy guidelines on energy matters. The Technical Committee on Energy
(PTE) reports to Bakoren and provides an active forum for consideration of
energy-related policy and technical issues. The Permanent Working Group
on Energy (PWGE) conducts analysis of energy supply and use on a
quarterly basis, serves as a forum for exchange of data and information, and
prepares technical reports for PTE.
In June 1990, a permanent National Committee on Energy Conservation
which also reports to PTE was established with the responsibilities of
formulating energy efficiency-related laws, regulations and guidelines,
implementing campaigns and taking other actions to promote energy
efficiency.
Within the Ministry of Mines and Energy, the Directorate General for
Electric Power and New Energy (DGENE) has developed substantial
capability to conduct energy planning and analysis in electricity, energy
conservation and renewable energy. In the late 1980’s, DGENE worked
with the US AID-funded ASEAN Building Energy Conservation Program to
conduct energy audits and surveys.
Fair application of environmental policies
The environmental policies are applied fairly to all sector participants, as
they are required under the PPA to follow a number of environmental
requirements and procedures. The requirements deal with air emissions,
water discharges and noise. Additionally the PPA sets out the environmental
procedures that IPPs are required to follow for the development of power
generators. It is stated that the AMDAL is the responsible body along with
the Ministry of Mines and Energy (See Appendix E for an outline of the
environmental approvals required).
Placing energy efficiency and conservation options on an equal basis with
supply-side options, such as through all-source bidding programs
PLN’s efforts to limit captive power production have been unsuccessful due
to Indonesian government fuel subsidies that encourage the use of
diesel-generated power. To some extent there has been a move to more
environmental friendly forms of energy: geothermal, combined cycle and
nuclear. However, the development of environmentally sensitive generation
has been tempered against the need for large load generation that is
perceived to be dependent upon domestic coal.
(c)
Established legislative framework
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There is an extensive legislative regime governing the electricity industry in
Indonesia. This regime clearly establishes the respective roles and functions
of the government, the industry (principally PLN) and the private sector.
The primary laws and regulations applicable to the electricity industry and
defining the role of the government in the sector are set out in Appendix C.
(d)
Regulatory bodies
There is no independent regulatory body in Indonesia. The Indonesian
electricity industry is regulated principally by the Ministry of Mines and
Energy. The Ministry is not independent of direct government control and
while a separate entity, is not independent from government owned business
(ie. PLN).
PLN also exercises a number of regulatory functions. PLN is significantly
influenced by the government. Amongst other things, the government
appoints the members of the PLN board, and heavily subsidises the
activities of PLN.
(e)
Internal consistency among regulatory structures
The process for obtaining a PPA is predominantly coordinated by the
Indonesian Ministry for Energy, but there are also a number of permits
required from other ministries. Material approvals and regulation are dealt
with at the central government level. The approvals required at the local
level are, in practice, generally forthcoming once the central government
has allowed the project. Local approvals are required in respect of e.g.
construction licenses.
Appendices D and E provide a detailed description of all permits and
approvals required for IPPs.
Traditionally, there has been a significant degree of coordination between
central and local approvals. This may change as a result of the recent
passage of the Decentralisation Law pursuant to which local governments
are to receive a greater degree of fiscal authority and independence.
(f)
Transparency of regulations
Regulations are made by Presidential Decree. The process for making
regulations is neither clear nor transparent, nor is it subject to independent
review.
(g)
Equal regulatory treatment of utilities and business sector
While regulated under the same regime, PLN and IPPs are treated
differently. Important issues affecting the relative regulatory treatment of
PLN and the business sector are:
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(h)
•
at present there is no competitive electricity market operating in
Indonesia. As a consequence IPPs have no choice but to sell
electricity to PLN, as set out in the individual PPAs;
•
notwithstanding the internal separation of certain generation and
transmission functions of PLN (see below), PLN remains vertically
integrated; and
•
PLN is government-owned and heavily subsidised by the Indonesian
government.
Conclusions
It appears that the main difficulties being encountered in Indonesia with the
implementation of this aspect of Principle 1 are:
•
overcoming lack of transparency in the system of government and
law-making;
•
the financial difficulties of PLN;
•
achieving practical implementation of sector policies.
3.1.2 Energy sector policies formulated to facilitate competition
(a)
Current status of policies for power sector reform and restructuring
Restructuring and privatisation of PLN
As part of the reform of the Indonesian electricity industry, PLN is to be
privatised. Steps towards privatisation have been taken by the Indonesian
government such as the separation of PLN into PT PLN Pembangkitan
Tenaga Listrik Java Bali I and II, and the commencement of the
restructuring process pursuant to Presidential Decree 139/1998 (see
Appendix C). Under this Decree the government has established a
committee to advise on the restructuring and rehabilitation of PLN. That
committee has established working groups to examine the following issues:
•
improvement of PLN’s finances;
•
renegotiation of the PPAs with IPPs;
•
renegotiation of other long-term contracts; and
•
improvement of PLN’s operational efficiency.
However, the restructuring and privatisation process has been very slow and
PLN remains essentially vertically integrated and state owned.
Establishment of competitive market
The government has also obtained two loans from the Asian Development
Bank to assist with establishing a competitive market for electricity. The
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first loan, granted to the Ministry of Finance for US$380 million, is to assist
the establishment of a competitive electricity market in the Java-Bali region
(market will include multiple buyers and multiple sellers), increase private
sector participation and strengthen the regulatory environment. The second
loan, granted to Directorate General of Electricity and Energy Development,
is for US$20 million and is to assist with establishing market rules, financial
settlement procedures, developing computer software, providing support for
the development of regulatory capabilities and strengthening consumer
participation in a competitive electricity market.
As far as we are aware no concrete steps have been taken to implement the
introduction of competitive markets.
Current status of policies
The reform process in Indonesia has halted due to difficulties arising from
the Asian financial crisis, and in particular the financial difficulties faced by
PLN. No clear indication has been given as to the way forward.
(b)
Separation between generation and transmission functions
Currently, PLN holds a monopoly over transmission and distribution of
electricity.
Notwithstanding the separation of PLN into PT PLN
Pembangkitan Tenaga Listrik Java Bali I and II, and the existence of the
IPPs, PLN remains responsible for the production of the majority of power
in Indonesia. There is thus no effective separation of generation from
transmission.
There is no stated or transparent policy regarding separation between
transmission and generation. It is not clear how this aspect of the sector
will develop, for example whether PLN will be restructured and individual
generating companies (Genco’s) will be split off, and whether such entities
will be privatised.
(c)
Complementary development of transmission grids
No development of the transmission grid and distribution system is
currently being undertaken. This is a major issue because power stations
are being built while no transmission lines are being constructed.
As electricity sector reform in Indonesia is very much in its infancy, it is
difficult to determine the policy approach that the Indonesian government
will take in allowing the private sector to be involved in the transmission
sector. The Indonesian government’s major stated concern at present is to
ensure that electricity is available at a reasonable price to the public.
There have been proposals to allow private sector investment in the
transmission sector, and thereby promote the development of transmission
lines. However it seems that none of these proposals have been
progressed.
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(d)
Autonomy, accountability and commercial operation of public utilities
PLN has been corporatised, and some internal separation has taken place
between generation and transmission businesses.
Given the large debts it currently faces, it is questionable whether PLN is
run on commercial lines. This is difficult to verify as PLN does not publish
accounts. Further, PLN’s financial operations remain largely a matter of
government policy. It appears that there is a significant subsidisation of
domestic tariffs. In general, wholesale tariffs payable to IPPs probably do
not reflect the efficient costs of production
(e)
Competitive market in generation and supply
Generation
Notwithstanding the existence of the IPPs, there does not appear to be any
significant competition at the generation level. All of the IPPs have been
executed pursuant to unsolicited tenders, thus the prices and other terms and
conditions of PPAs are not the result of an effective competitive tendering
process. Further, there is no competition between the IPPs in their supply
and delivery of electricity to PLN. The current policy on this issue is
unclear.
Supply
IPPs are entitled to supply local industry, as occurs for example with
auto-generation facilities. However, as IPPs are not entitled to access the
PLN transmission and distribution grids, all electricity is supplied to
consumers by the PLN. It is noted that in September 1998 the government
had announced that it proposed to allow IPPs to be able to sell directly to
customers. It is understood that this proposal has not been implemented and
that there are no concrete plans for its implementation in the near future.
Accordingly, it can be concluded that there is no policy in place to facilitate
the development of a competitive market for electricity supply.
(f)
Cross-border interconnection
Discussion has occurred about whether to progress the development of
interconnection projects. Some argue that small IPPs (eg. on the islands)
may be more cost-effective and less complicated than an interconnection
project. For example, land acquisition is a major problem for
interconnection project because there are no compulsory acquisition laws in
Indonesia. Whether it is feasible to develop interconnection will depend on
the sources of fuel and electricity market (ie. demand). Interconnection
projects that have previously been considered are set out in Appendix F.
(g)
Conclusions
The major difficulties in achieving a competitive electricity market in
Indonesia are twofold:
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(i) the financial position of the PLN. Prior to the Asian financial crisis
Indonesia had planned to expand the power generation industry,
through opening up the power market to IPPs. However, since that
point the state owned utility PLN has had difficulty paying for the
electricity it agreed to purchase under the PPAs. As a consequence,
further expansion has been delayed or halted until the situation can be
resolved.
(ii) the perception that in the past decisions have been made on the basis of
discrimatory criteria that do not reflect transparent pro-competitive
policies.
3.2 Principle 2: Commercial viability of electricity utilities
(a)
Commercial wholesale tariffs
Prices received by IPPs for electricity they generate are determined by
negotiation between the IPP and PLN. These are set out in the PPAs and are
denominated in $US. It is understood that prices range from 5.7 cents to 8.4
cents per kWh. These prices are intended to reflect the cost of capital at the
time the PPAs were entered into. However, when compared, for example,
with the rates applicable in Thailand (around US2 cents per kWh) they
appear to be very high, and it must be doubtful whether they reflect truly
arm’s length negotiations or the efficient costs of supply.
(b)
Fuel supply market
The PPAs provide that fuel supply is the responsibility of the IPP. As far as
we are aware there are no restrictions in the PPAs on the scope of the IPP to
source its fuel competitively. However, under the Presidential Decree No.
16/1994 there is emphasis on local content which is twofold: 1) a
requirement to use “domestic products to the maximum”; 2) a requirement
that contracts within specific value bands must be tendered to local
suppliers or contractors.
The prices paid by IPPs for fuel inputs (generally coal or gas) are
determined by commercial negotiation, or failing negotiation by a ‘basket’
price. The price agreed to is generally denominated in US dollars (cf. PLN
purchases coal for its own plants from domestic mines under medium term
Rupiah denominated contracts) and is adjusted annually or by the Ministry
of Mines and Energy.
(c)
Access issues and treatment under tax regime
Access to Sites
We understand that PLN is able to gain access to sites for the development
of generation facilities on more favourable terms that IPPs.
Access to fuel markets
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IPPs may determine from which market they obtain their fuel, as set out in
the PPAs. However, as noted above, there are certain local content
requirements with which all sector participants must comply. These would
appear to apply to both PLN and IPPs indiscriminately.
Treatment under Tax regime
IPPs’ treatment under the tax regime is different to PLN’s as PLN is a state
owned utility.
(d)
Foreign ownership and control of IPPs
Foreign investment in Indonesia is regulated by the Foreign Investment Law
(Act No. 1/1967 amended by Act No. 11/1970 – the “FCIL”), decrees of the
President and Chairman of the Capital Investment Coordinating Board (the
“BKPM”), the New Share Ownership Regulation (20/1994 – “Regulation
20”) and its implementing regulation (Decree No. 15/SK/94). The effect of
this legislation is to create a partially-regulated investment environment.
Foreign interests are permitted throughout Indonesia, however there are
certain regulations that prohibit foreign interests from investing in
designated sectors of the economy without securing the participation of
Indonesian investors as joint venture partners.
Pursuant to Article 6 of the Foreign Investment Act (Law No. 1 of 1967),
the production, transmission and distribution of electric power to the public
may not be fully controlled by a foreign entity. As a result, all IPPs have
local partners, generally with around a 10-15% interest in the IPP project.
(e)
Conclusions
Major difficulties experienced with the implementation of this Principle
include:
•
the lack of real transparency;
•
in the past the vast majority of approvals for power projects have been
unsolicited and appear to have been based upon personal interests rather
than objective, non-discriminatory criteria.
•
lack of industry restructuring to ensure that the private sector can have
access to the transmission and distribution sector.
3.3 Principle 3: Regulatory framework and process for IPP approvals
(a)
Consistent regulations and approval processes
Appendices D and E outline the various permits and approvals required
under Indonesian law. The most significant approvals required in Indonesia
are as follows:
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•
approval by PKLN/Bank Indonesia of foreign currency loans and the
documentation;
•
foreign investment approval by the Investment Coordinating Board; and
• approval by the Ministry of Mines and Energy of the Tariff and PPA.
There is no central coordinating body in Indonesia to assist IPPs with the
obtaining the necessary regulatory approvals for IPP projects. It is therefore
necessary for each IPP to secure regulatory approvals at various levels.
(b)
Clear, published and transparent approvals process
There are many difficulties with the approval processes in Indonesia. In the
past, the approval process has been characterised by degrees of delay,
uncertainty and lack of transparency. As a result there has been large
duplication of effort and large administrative and development costs.
The approval and decision making process for an IPP (as at April 1997) has
been divided between unsolicited and solicited bids, most being
“unsolicited”.
There are no published guidelines as to the permits required for a power
project. However, a set list of approval requirements is contained in the
standard form PPA that has unofficially become the form of
permit/approvals required for the financing of projects in that jurisdiction.
Consideration has not been given to incorporating in the tender processes
mechanisms for granting pre-approvals of projects put out to bid because
the bulk of projects in Indonesia have been done on an unsolicited basis as
opposed to a tender/competitive basis.
(c)
Conclusions
The main difficulties in achieving the objective of a streamlined approval
mechanism in Indonesia largely derive from the development of the IPP
process in Indonesia. Given that it is largely developed on an unsolicited
basis, as opposed to a competitive basis, there has never been any formal
development of mechanisms to assist IPP developers in facilitating projects.
Instead, there was development of “ad hoc” assistance and, by the financing
of these projects, the setting up of criteria required for successful financing.
4.
Tender/Bid Processes and Evaluation Criteria
4.1 Principles 4, 5, 6 and & Tender/Bid processes and evaluation criteria
(a)
Tendering approach and evaluation
The process for the establishment of a private power development project is
set out in Appendix G. In summary:
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•
a PPA is negotiated between the State Owned Electricity
Corporation (PLN) and the project sponsor;
•
a PPA must obtain approval for investment from the Board of
Investment and price approval from the Minister of Mines and
Energy prior to being signed by the PLN and Project sponsor; and
•
implementation of the PPA requires approval from the Off-shore
Commercial Borrowing team (PKLN).
All but one of the 26 IPP power projects signed by the Indonesian
government have been awarded on an unsolicited bid basis, rather than a
solicited basis (See: Appendix A for a discussion of solicited and
unsolicited projects). Thus, there has not been a great deal of “tendering” of
IPPs in Indonesia.
It is unclear what information is given to prospective bidders of IPP projects
as there have been a limited number of solicited projects. There are no
published evaluation criteria, however there is a list of permits and
approvals required under Indonesian law in relation to power plant projects
(see Appendices D and E).
A pre-qualification process is only in place for solicited (competitive tender)
projects. As stated, all but one of the projects to date have been placed on
an unsolicited tender basis.
(b)
Conclusions
Given that most IPPs have been awarded on an unsolicited basis, there is
little evidence of the details of bid processes in Indonesia. Aspects of the
assessment process have been drawn up, but a complete framework is not in
place and therefore current procedures fall short of the requirements of this
Principle.
5.
Power Purchase Agreements (PPAs) and Associated Tariff
Structures
5.1 Principle 9: Retail tariffs
(a)
Nature and structure of retail tariffs
The price of electricity in Indonesia is set in Rupiahs and controlled by the
government. Two separate tariffs are used to determine the selling price of
electricity:
(i)
Basic/Uniform Electricity Tariff
This is determined pursuant to Presidential Decree No. 68/1994 and
based on the recommendation of the Minister of Mines and Energy.
(ii)
Periodic Electricity Tariff
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This is determined by the Minister of Mines and Energy. It can be
adjusted every 3 months for changes in the:
•
price of electricity purchased by PLN;
•
US dollar exchange rate to Rupiah;
•
CPI, both for foreign and local currencies;
•
fuel price; and
•
tax regime and other government regulation (eg.environmental
provision).
The calculation of prices can be broken down into the following
components:
(i) Capacity charge component - calculated using financial model and
based on the following factors:
•
Capital cost consisting of cost for Engineering Construction,
Testing and Commissioning test;
•
Development Cost, Working Capital and Land Procurement;
•
Term and Condition of Loan, Financing Sources, Interest and
other Financial Cost;
•
Debt/Equity Ratio;
•
Return on Equity;
•
Availability Factor;
•
Disbursement Schedule of Loan and Equity;
•
Taxes and Depreciation based on current regulation; and
•
Contract Capacity and Contract Term.
(ii) Fixed operation and maintenance charge
(iii) Energy charge component - The extent of pass-through of this
component depends on:
•
quantity and type of fuel;
•
specific heat rate (for coal fired); and
•
fuel price.
(iv) Variable operation and maintenance charge.
The price for the supply of electricity to domestic consumers is heavily
subsidised by the government to ensure that it is at an affordable level
for the community, consumers paying approximately 2 cents per kW/h.
Owing to the lack of financial information about PLN there is little
transparency regarding these subsidies.
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Retail tariffs probably do not reflect the economic costs of supply.
They are used to support the high electricity prices payable (in $US) to
IPPs pursuant to their PPAs (see above).
(b)
Conclusions
The major difficulty at present is influence on retail prices of the structure
and implementation of the wholesale prices pursuant to PPAs. The
resolution of this issue depends on how the government decides to resolve
the restructuring of PLN and the renegotiations with IPPs.
5.2 Principle 10: Transition to competitive markets
(a)
PPA tariff structures that promote competition
The “standard form” Indonesian PPA does not provide a mechanism for a
transition to a more competitive market structure.
The tariff structure used is a two-part tariffs system:
(i) Capacity Payment
This payment represents payment for net dependable capacity of the
Power Station and consists of Component A and B.
Component A
Capital Cost Recovery Charge
A fee designed to cover Project fixed costs including
debt service, and provide a return on investment to
Shareholders.
Component B
Fixed O&M Cost Recovery Charge
An agreed Rp/kW for Part 1 (Rupiah costs)
An agreed Rp/kW for Part 2 (non-rupiah Costs).
(ii) Energy Payment
This fee represents payment for kWhs of electrical energy generated by
the Power Station and consists of Component C and D.
Component C
Energy Component Rate
This fee covers the cost of fuel required by the
Company to generate units of electrical energy.
Component D
Variable O&M Cost Recovery Charge
This is a fee designed to cover Project variable
operating and maintenance costs.
In addition, the charge includes:
•
Supplemental Payments
14
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
These payments shall be payable for fuel if a minimum off-take is not
achieved.
•
Transmission line charges
The electricity price will also include Component E being the capacity
payment for the transmission line. The fee is a capacity cost recovery
charge designed to cover fixed costs for the transmission line.
If the traditional PPAs remain in their current form, it will be extremely
difficult to privatise the PLN because of the high electricity prices it is
required to pay to IPPs under the PPAs. It will also make it difficult for
privately owned transmission and/or generation companies to enter the
market (ie. the high electricity prices may make it prohibitive to enter the
market). Thus, it is essential to the development of a competitive market for
prices under current PPAs to be renegotiated.
(b)
Conclusions
None of the existing Indonesian PPAs contain mechanisms allowing for a
transition to a more competitive market structure. There do not appear to be
any policies to facilitate the inclusion of such mechanisms.
.
5.3 Principle 11: Allocation of risks
(a)
Risk allocation under PPAs
An indicative table summarising the allocation of the various risks
associated with an IPP project between the parties is provided in Appendix
B.
In summary, the following risks are borne by the government/PLN:
•
market risk (ie, price shifts due to changes in market structure);
•
foreign exchange risk (IPPs paid in $US);
•
changes in fuel prices (ie. PLN is also a generator);
•
changes in the law; and
•
political risk.
IPPs also assume some of the risk of changes in fuel prices, the law and the
political situation. These risks are dealt with by initially adjusting the tariff
and if more extreme measures are required (and available) by claiming force
majeure (Note: claiming force majeure for a failure breach of contract by
PLN (ie. failure to make payments) may result in a buy-out of the IPP).
(b)
Conclusions
At present the government and PLN bear the predominant risks through
take-or-pay provisions in the PPA and payment being in US dollars.
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
However, due to the political and financial situation in Indonesia the
government and PLN have not been able to fulfil their obligations. As a
consequence, the IPPs have been forced to renegotiate their PPAs to ensure
that they receive payment and can continue their operations. Essentially, the
IPPs have been forced to absorb some of the risk as PLN and the
government cannot pay the negotiated price. The other alternative to
renegotiation is arbitration. However, as the CalEnergy example highlights
arbitration does not necessarily result in a satisfactory outcome.
6.
Financing and its implications
6.1 Principle 12: Regulatory, taxation and foreign exchange regimes
(a)
Transparency of taxation regime
A complicated, but well defined, taxation regime has been developed to
encourage and assist with IPP projects. Certain double tax treaties can be
utilised for projects to minimise taxation liability and certain exemptions are
granted to IPPs from customs duty and import tax in particular.
(b)
Conversion of local currency to foreign currency
The PPA provides for assistance in the conversion of local currency to
foreign currency. Essentially, it is incumbent upon the IPP to seek to
convert the currency. If this is not possible, then entering into the relevant
FX contract is supported by PLN. However, in practice, this process does
not work particularly well given the currency difficulties in Indonesia.
(c)
Availability and transferability of foreign exchange
There are no foreign exchange restrictions as such in Indonesia. Indonesia
controls foreign exchange through Presidential Decree No. 59 of 1972
which states that any transaction creating any liability in foreign currency is
required to be reported to Bank Indonesia and to the Ministry of Finance.
No prior approvals of the Ministry of Finance are required for offshore
credit for foreign investment companies unless the state owns a percentage
of the company. However, there have been large restrictions on the
availability of foreign exchange, purely due to a scarcity of US dollars, in
particular, in Indonesia. Whilst there are no restrictions upon the ability to
transfer such amounts overseas, there are structural restrictions (such as the
approval of US dollar currency loans by the Indonesia Central Bank).
Payments to IPPs pursuant to a PPA are denominated in US dollars. In this
way, the amounts payable under the PPAs are protected from exchange rate
changes. Protection is also provided through the adjustment of the relevant
portions of the tariff that are denominated in US dollars.
(d)
Financial information on power purchasers and other parties
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As discussed above, there is very little information publically available
regarding the finances of PLN.
IPPs are not subject to any formal financial disclosure requirements.
However, they do issue annual reports.
(e)
Conclusions
The main difficulties with implementation of this Principle in Indonesia are:
•
In practice, there has been great difficulty in the recent Asian currency
crisis in the mechanism provided for in the PPA as amounts payable
have been in US dollars. PLN, in particular, set an exchange rate which
did not reflect the actual exchange rate at the time of negotiating the
PPAs. For instance, the rate of exchange was set at approximately 2,450
Rupiah/to US$1 when the actual rate of conversion was something more
akin to 8,000/to US$1.
•
As can be seen by the recent move by PLN to renegotiate all PPAs and
the recent arbitration between parties to PPA, the major difficulty is the
provision for payment in US dollars, as the region is facing financial
hardship.
6.2 Principle 13: Security over project assets
(a)
Legal framework for creating security over project assets
There is a legal framework for creating security over project assets in favour
of lenders in Indonesia. The structure is largely derived from Dutch civil
law and is very convoluted and inefficient. As a result, assets are commonly
transferred offshore to a jurisdiction where security can be obtained. For an
outline of the Indonesian security documentation required for a power plant
project see Appendix H.
The types of security available for IPPs in Indonesia are as follows:
(i)
Hypothec (Indonesian mortgage over land)
(ii)
Hypothecs can cover buildings and fixtures placed on the land after
creation and must be in notarial form and registered to give priority.
Under the scheme, the hypothecs usually contains the power of
attorney to sell. This allows the creditor to proceed with a sale of the
property upon default by the borrower. Without the power of attorney,
the creditor must obtain a court order to sell the property.
Personal/Corporate guarantee
Personal guarantees are regulated by articles 1820 to 1850 of the
Indonesian Civil code and generally work in favour of the guarantor.
Essentially, they require that the lender must first exhaust all remedies
against the borrower before going against the guarantor.
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
(iii) Fiduciary Transfer of ownership
Fiduciary assignment is established by the assignment to the assignee
of the legal title to the assets. This allows the assignor to retain
physical possession of such assets. In the event of the assignor
defaulting, the assignee is entitled to sell the assets at a public action.
(iv) Assignment of Rights against Indonesian Borrower
In Indonesian there is no restriction on assignment. The only practical
problem arises in relation to registered hypothecs; in which case, any
assignment of a lender’s rights under the hypothec should be effected
by the new lender submitting a request in notarial form to the
Agrarian Office. The request should include a copy of the assignment
and requests that the new bank be substituted in the hypothec for the
bank selling its participation. In practice, this procedure is not
accepted by the Agrarian Office and it requires that a new hypothec be
registered with the assignee being included as a party thereto rather
than the assignor. This is the only information regarding assignment
and security.
Indonesia has an established procedure dealing with bankruptcy. This
procedure is set out under the law on bankruptcy promulgated in 1906, and
is regulated separately from the Commercial Code. Under the Bankruptcy
Law the creditors are ranked as follows:
(i) claims for judicial expenses related to enforcement and other efforts to
save the assets;
(ii) taxes;
(iii) claims secured with hypothecation and pledge;
(iv) claims for costs and expenses for the preservation of the assets; and
(v) unsecured creditors.
(b)
Conclusions
There are significant difficulties in creating an effective security package in
Indonesia, largely due to the inadequacy of the legal system. In practice, it
has also been difficult to convince the relevant State entities, in particular
the PLN, as to the acknowledgment of security or to grant step-in rights. A
“standard form” Direct Agreement was established under Paiton I. However,
PLN showed no willingness to move away from this structure for future
deals or to consider changes to this document.
6.3 Principle 14: Bankability of IPPs
(a)
Project structure providing a determined income stream
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The income stream (to be) generated by an IPP project is protected by the
following aspects of the PPA:
Term
The PPAs are long-term fixed rate agreements that are capped for a set
period and then have a step down in price.
Responsibilities during construction
Cost overruns or time delays are the biggest risks during construction.
Business interruption insurance is taken out to protect against time delays.
In addition, responsibility of connecting the IPP to the grid rests with the
State and a capacity fee will be imposed on PLN if connection does not
occur within the required time frame.
(i) Company’s Responsibilities under the PPA
•
arranging for the design, engineering, supply, construction,
testing and commissioning of the Project, including the Special
Facilities, in accordance with the design and equipment
parameters set out in the PPA;
•
the acquisition of the Site for Power Station and Special
Facilities;
•
applying for, and obtaining, all consents and GOI authorisations
required to be in the Company name contemplated by the
Project Documents including the Environmental Impact
Assessment;
•
applying for all work permits, visas and other permits required
by Project personnel;
•
protecting and securing the Site; and
•
consulting with, and obtaining the approval of, PLN with
respect to Special Facilities and the design, construction and
installation of the Special Facilities in accordance with the
parameters set out in the PPA.
(ii) PLN’s Responsibilities under the PPA
•
assisting the Company to obtain all consents, GOI authorisation
and permits required for the Power Station and Special
Facilities;
•
applying for, and obtaining, all consents and GOI authorisations
required to be in PLN’s name for the Project;
•
arranging for the operation and maintenance of the special
Facilities; and
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
•
supplying power and energy required by the Company during
the testing and commissioning of the Special Facilities, the
Units and Power Plant.
Terms of purchase
Take-or-pay provisions protect the IPP against the failure of PLN to
purchase electricity from the IPP.
Penalties for non-delivery of power
Two forms of penalty are available under the PPA for non-delivery of
power: a reduction in the capacity charge or, in more extreme circumstances,
termination of the PPA.
Force majeure
General force majeure is covered by insurance. If force majeure is of a
political nature, then PLN is still obligated to ensure the maintenance of the
IPP’s income stream.
(b)
Creditworthiness and track record of all parties
PLN, the sole IPP power purchaser, was perceived as having little or no
credit worthiness at the time of the significant IPP development in Indonesia
in 1994/1996. As the Asian currency crisis illustrated, PLN showed an
inability to meet its debt obligations to the IPPs. The support provided by
the State to PLN was minimal and consisted of a “letter of support” from the
Ministry of Finance noting that it would ensure PLN met its obligations.
The form of the letter as support falls far short of a full guarantee.
PLN’s track record of meeting debt obligations and showing a consistent
level of profitability is poor (ie. PLN has failed to fulfil payment obligations
to a number of IPPs and in 1998 PLN reported losses of $US1.1 billion and
estimated its total domestic and external debt to be approximately $US9
billion).
Few steps appear to have been taken in the past by the Indonesian
government to ensure local companies in IPP projects have proven track
records. The local companies selected to participate as joint venture partners
in Indonesian IPPs generally had contact with the Suharto family and their
“proven track record” was on the whole related to political expediency. This
said, there is a requirement for local participation in any project in Indonesia
(which is usually around 15%).
A local requirement does exist, with the basis for it being found in
Presidential Decree No. 16/1994 (22 March 1994). However the Decree
does not contain any specific percentage(s). Additional to this it is
suggested that there is an informal requirement of 25% local content for
government turnkey contracts (this information is dated 9/11/94).
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
There are no government guarantees of PLN’s obligations under the PPA.
Instead, a letter of support (by the Indonesian Government), which is
regarded as weak, is utilised. During the Paiton I Power Project, PLN
showed no willingness to move away from the letter of support approach for
subsequent power projects.
(c)
Support from international lending agencies
The bulk of the IPPs in Indonesia rely upon export credit agencies and
multi-lateral lending agencies for financing. This support, on the whole,
takes the form of revision of either subsidised financing or, more
importantly, political risk guarantees. Political risk guarantees, are, for
instance, provide by USEXIM (the United States export credit agency) and
ERG (the Swiss export credit agency). Generally, these guarantees are in
line with OECD guidelines and provide a level of support for debt on the
project (approximately 85%). To date no political risk guarantee has been
called upon by any financier.
(d)
Commercial and political risk insurance
The commercial insurance market available in Indonesia is very limited.
The bulk of IPPs reinsure offshore in either the US or European markets.
However, there are requirements to have a primary insurance policy onshore.
Due to this requirement one of the following structures is used to reinsure
offshore:
(i) reinsurance with cut through arrangements.
(ii) identical policies onshore and offshore.
The latter requires the insurance provider to have both a domestic and an
offshore office and is regarded by financiers as a preferable method. It
effectively means that financiers/sponsors have two policies in identical
terms that they can claim against. Each policy provides a provision that a
claimant may only claim upon one of the two policies. In practice, it is
always intended that a claimant would only ever claim off the offshore
insurances.
(e)
Conclusions
The major difficulties that are currently experienced with the
implementation of this Principle, and are likely to be experienced in the
future, are:
•
the perceived lack of creditworthiness of PLN;
•
the relative lack of government support for the obligations of PLN;
•
perceived lack of transparency in the process of renegotiation of the
PPAs.
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
6.4 Principle 15: Development of domestic capital
(a)
IPP financing techniques
The bulk of the IPPs developed in Indonesia have utilised a combination of
multi-lateral and bilateral financing. Generally, because of the inherent
political risk in Indonesia (even before the Asian currency crisis), IPPs in
Indonesia required a combination of export credit agency subsidised or
guaranteed financing and/or multi-lateral agencies financing all political
risk support (such as the IFC or CDC). By way of example, the following
table sets out the financing sources utilised for some “landmark” IPPs in
Indonesia:
Project
Sources of Debt of Financing
Paiton I
USEXIM
Tanjung Jati B
JEXIM, IFC
Sengkang
ERG
The following points are worth noting:
•
there has been very little domestic debt or capital markets financing
used in IPPs in Indonesia.
•
all financing has been utilised in US dollars.
The support granted by export credit agencies has been either in the form of
subsidised financing or, more commonly, in the provision of political risk
guarantees supporting commercial debt financing.
(b)
Policies to encourage the development of domestic capital markets
The domestic capital markets in Indonesia are reasonably immature. There
are little or no domestic capital funds available for equity investment in
electricity projects. However, offshore investment funds are used. Domestic
markets have not been used for IPP financing in Indonesia. However, in the
case of Paiton I, offshore bond market (a 144A capital markets issue) was
utilised.
Domestic capital is tight in Indonesia and has generally had former
President Suharto’s family attached to it. IPPs have generally used (foreign)
assisted domestic equity investors.
We are not aware of any policies explicitly designed to promote the
development of domestic capital markets.
(c)
Conclusions
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Domestic capital markets are reasonably immature. One of the major
obstacles facing the promotion of such markets is the development of legal
institutions to support them.
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EWG20/10.3-Att A-Ann 3
Appendix A
IPP projects in Indonesia
Project
Paiton
Energy
Parties
PT Paiton Energy Company. Consortium members:
Technology
Coal fired
Location
Probolinggo,
East Java
Capacity
(MW)
1,230
Status
PPA entered into in February 1994.
•
Edison Mission Energy, General Electric
(12.5%);
•
US8.5 cents/kWh for first 6 years;
•
Mitsui (32.5%)
•
US8.3 cents/kWh from 7th to 11th year; and
•
PT Batu Hitam Perkasa (local firm 33.3%
owned by Hashim Djojohadikusumo; the
brother in law of Titek Prabowo, a
daughter of the former president Suharto)
(15%)
•
US5.5 cents from 13th to 30th year.
PPA commits Paiton to buying energy at:
(Note As at October 1999, PLN sold power to the public at
approximately 2.6 cents per kWH).
Project cost $2.5 billion.
Plant came on line in May 1999 (first IPP to be completed),
but is yet to generate electricity for PLN.
Paiton claims that PLN has failed to pay the “capacity charge”
due under the take or pay clause.
In October 1999, PLN filed suit against Paiton, seeking to
void the PPA on grounds that the PPA was corrupt and
illegitimate.
In December 1999, the Indonesian government stepped in and
ordered PLN to drop the suit. (The government feared general
loss of investor confidence if such a large obligation was
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Project
Parties
Location
Technology
Capacity
(MW)
Status
cancelled).
Tanjung
Jati B
Hopewell Holdings (Aust) (80%) and
a local firm with links to family of former President
Suharto
Coal-fired
thermal
/
Jepara,
Central Java
1320
Project company’s investment = HK$1.8 billion.
Construction halted in September 1998 and force majeure
declared by IPP.
Interim agreement reached between PLN and shareholders of
Tanjung Jati B, in September 1999, to buy the plant for
US$1.15 billion through a soft yen loan. [Indication of foreign
investors abandoning IPPs]
Sengkang
Energy Equity Corporation (Perth, Australia) and
El Paso Energy International
Gas-fired
combined cycle
South
Sulawesi
135
Connected to grid.
Tariff of US 6.7 cents per kWh.
Interim agreement reached.
PT
Cikarang
Listrindo
Cikarang
Listrindo
Gunung
Salak
(Unocal)
Steam
Owned by former President Suharto’s cousin
Sudwikatmono
Bekasi
204
West Java
Geothermal
West Java
165
Tariff of US 8.4 cents per Kwh for first 14 years and US 4.9
cents per kWh for following 15 years.
Cikang
Listrindo
PLN suspended power purchases from Cikarang in June 1998.
Paiton I
1,230
Paiton II
1,220
Dieng
Geotherma
l
400
Wayang
Connected to grid.
[Connected to grid July 1998]
Tariff of over US 8 cents per Kwh
Geothermal
220
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Project
Parties
Technology
Location
Capacity
(MW)
Status
Windu
Salim
Group
100% Indonesian owned
Cikampek
Region, West
Java
Karaha
Geothermal
Java
220
Postponed
Sarula
Geothermal
North Sumatra
300
Postponed
Darajat 1,
2
Geothermal
West Java
270
Postponed
Palembang
Timur
Combined cycle
South Sumatra
130
Postponed
Patuha
Geothermal
West Java
80
Reviewed
Asahan 1
Hydro
North Sumatra
60
Reviewed
Tanjung
Jati A
Coal
Central Java
1320
Reviewed
Tanjung
Jati C
Coal
Central Java
1320
Reviewed
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Appendix B
Risk allocation for IPP projects
Risk
Remedy
Bearer
CONSTRUCTION PERIOD
Cost Overrun
Included in the Fixed Price of Component “A” (capacity charge) of the tariff
Developer
Delay in Completion
Penalties to the EPC Contractor
Developer/EPC
Contractor
Failure of Plant to meet Performance Specifications Tests as result of
fault by EPC Contractor
Penalties to the TPC Contractor
Developer/EPC
Contractor
Land acquisition
Government provides reference land cost for project cost estimation, to be
included in the Fixed Price of component “A”
Developer
Increase Financing Cost
Formulated in the Loan Agreement with Lender
Developer/Lender
Government
•
changes in law, tax, custom, environmental standard
Tariff adjustment based on new regulations
Buyer (i.e. PLN)
•
expropriation, nationalisation, consents withdraw
Owner entitled to terminate as government default compensation paid for
termination
Developer
Operating costs overrun
Penalties payable by the O&M company
Developer
Inflation adverse change in cost of finance, exchange or interest rates
Formulated in the Invoicing and Payment Procedure
Developer/Buyer
Foreign exchange non-availability/non-convertibility
Formulated in the Invoicing and Payment Procedure
Developer/Buyer
OPERATION PERIOD
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Risk
Remedy
Bearer
Failure to make available sufficient foreign exchange
Formulated in the Invoicing and Payment Procedure
Developer/Buyer
Fuel Supply
Formulated in the fuel supply agreement
Developer
Failure of purchaser of power (PLN)
Formulated in Payment Formula. Buyer payable Capacity Charge with an agreed
Capacity Factor
Buyer
Forced Outage/De-Rate or Temporary Short fall in Capacity,
Determination in Heat Rate (owner’s fault)
Formulated in Payment Formula
Developer
Forced outage or Temporary short fail in Capacity (Purchaser’s fault)
Formulated in Payment Formula
Buyer
Increase Fuel Cost (not arising from lighter Heat Rate deterioration
than Base Case)
Fuel price adjustment formulated in Fuel Price Determination Passed through
component of the Tariff
Buyer
Boiler Explosion
Formulated in the insurance policies
Developer / Insurance
Company
Failure of the operator to Perform Obligations
Penalties to the O&M Company
Developer/O&M
Company
Environmental Incidents Caused by the Operator
Penalties to the O&M Company
Developer/O&M
Company
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Appendix C
Overview of Indonesian electricity industry regulatory framework
Law / Regulation / Policy / Guideline
Details
State Policy Guidelines (GBHN)
Electricity development as an integrated part of the national development must be conducted in a harmonious and synchronous way
with the stages of development.
To achieve equitable distribution of the fruits of development, electricity development must be directed for the benefit of all people,
particularly the rural population.
Electricity development must form a part of the National Energy Policy (KUBE), which comprises: intensification, diversification
and conservation of energy utilisation.
Law 15/1985 (Electric Energy)
Basis and objectives of electricity development. Issues covered:
Energy sources for electricity;
General national electricity plan;
Electricity undertaking;
Relationship between the Holder of Electricity Undertaking Authorisation (PIUK) and the Holder of the Electricity Enterprise Permit
for Public Use (IUKU);
Supply and utilisation of electricity - Electricity supply, organised by Government and carried out by State owned enterprise (PLN).
Widest possible opportunity given to cooperatives and other enterprises (private companies) to supply electricity as a complement to
the supply by PLN;
Management and supervision; and
Penal provisions.
Government Regulation No 10/1989
(Supply and Use of Electric Power)
Deals with business of power supply: ie. proxy, business plan, business license, supply requirements, operation requirements, use of
power and power installation and standardisation.
Relationship between the Holder of the
Proxy for power affairs and the Holder of
the License for power business for public
Rights and responsibility of the public in the use of electric power
Power connection requirements
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Law / Regulation / Policy / Guideline
Details
interest
Selling price of electric power
Development/guidance and supervision
Presidential Decree No. 37/1992 (Private
Power Enterprise for Electricity Supply)
Invites private investors to “Build, Own and Operate (BOO)” power generating plants and transmission and/or distribution networks.
Permits private participation in transmission and distribution of electricity. IPP’s allowed to sell their supply or lease their activities
to PLN and other parties. Investors are permitted to wholly finance projects and operate them independently for 30 years (from date
production commences).
Selling price of the privately produced power will be stated in Rupiahs must reflect most economical price (based on joint
agreement) and must be approved by the Minister of Mines and Energy
Priority will be given to the use of primary energy other than oil and domestic supply (in effect all IPP plants must be based on
non-oil primary energy resources).
Incentives to be provided on import capital goods.
Regulation No. 02.P/03/M/PE/1993 jo
No.04.P/03/M.PE/1995
Comprehensive policy framework to guide reform and restructuring of the power sector.
(Guidelines for Implementing Private Sector
and Cooperative to Supply Electric Power
for Public Use.)
•
Private power enterprises supplying electricity for public use will be based on an Electricity Supply Enterprise Permit for
Public Benefit (IUKU permit); and
•
Private power enterprises supplying electricity will be prioritised on Build, Own and Operate (BOO) basis.
Issues stipulated:
Private power development implemented in 2 ways:
(a)
Solicited projects - based on a pre-qualification and tender procedure. Investors are invited by the government to
participate in the prequalification selection via announcements in both the national and international media. Following
Tender procedure then applied to investors who have been prequalified.
(b)
Unsolicited proposals - private power enterprises or cooperatives may propose power projects to be considered by PLN
and the Director General of Electricity. Once approved, a preliminary approval letter is issued and the company can then
apply for an investment license.
Government Regulation 23/1994
PLN status converted from PERUM (Public) to PERSERO (limited liability).
Presidential Decree No. 139/1998
(Power Sector Restructuring)
Deals with establishment of a committee to restructure and rehabilitate PLN.
The committee has set up 4 working groups, who will:
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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Law / Regulation / Policy / Guideline
Details
(i) improve PLN finances;
(ii) renegotiate PPA’s (IPP Contracts Rationalisation Group);
(iii) renegotiate other long term contracts; and
(iv) improve the PLN’s operational efficiency.
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Appendix D
Permits required by IPPs
Type of Permit
Details
Sitting Permits
Business Location Permit (Izin Tempat Usaha) by Regent of respective
Regency (Bupati Kepala Daerah TK11)
Environmental
Permits
Approval of the Minister of Mines and Energy on Environment Analysis (Analisa Dampak
Lingkungan) including the Environmental Management Plan (Upaya Pengelolaan Lingkungan) and the
Environmental Monitoring Plan (Upaya Pemantauan Lingkungan) for the Project conducted by the
AMDAL Central Commission of the Ministry of Mines and Energy to be issued to Seller pursuant to
Regulation of the Minister of Mines and Energy No. 2 of 1993.
Design
Construct
Permits
Work permits for foreign personnel employed by Seller issued by the Chairman of the BKPM, based on
approved Manpower Plan (Rencana Penggunaan Tenaga Kerja).
and
Other
(eg.
Commissioning
O&M)
Construction licenses required for the contractors to engage in the construction of the Project issued by
Governor of respective Province.
Commissioning certificate issued by Director General of Electricity and Energy Development for the
Plant following commissioning tests.
Electricity Supply Enterprise Permit for Public Benefit (IUKU permit) issued by the Chairman of the
BKPM as an operation license following commissioning of Plant.
List of permits required by Agency
1
EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Federal
Provincial/State
Local
Investment License under the Foreign Investment Law No. 1 of 1967, in the form of Presidential
Approval Notification Letter (the SPPP) or Capital Investment Agreement Letter (the SPPM) on the
basis of Domestic Investment Law No. 6 of 1968, as amended from time to time, issued by the
Chairman of the BKPM on terms consistent with the material provisions of the PPA and the results of
the negotiations between the Sponsors and the GOI.
•
Approval of the Justice to the notarial deed of establishment of the Project Company.
•
Issuance by Presidential Decree No. 39/1991 Foreign Loan Team (Tim Koordinasl Pinjaman Komersial Luar
Negeri - PKLN) of permit to obtain foreign loans.
•
Permit from Minister of Finance, Directorate General of Customs and Excise for temporary import of
equipment and other materials to be utilised in connection with the construction of the Project.
•
Registration of Seller with Department of Trade pursuant to Law No. 3 of 1982 (Wajib Daftar Perusahaan) at
relevant Department of Trade office at location of Seller’s offices.
•
Permit from Governor of respective Province to Seller to utilise sea water for purposes of Project.
•
Building Permit (Izin Mendirikan Bangunan - IMB) issued by Regent of respective Regency.
2
EWG20/10.3-Att A-Ann 3
Appendix E
Permits and Approvals Required under Indonesian law in relation to Power
Plant Projects
I.
II.
III.
Company Formation
A.
Deed of Establishment (Articles of Association) executed before a notary
B.
Approval of the Deed of Establishment from the Minister of Justice
C.
Registration of the approved Deed of Establishment at the Local District
Court in the domicile of company
D.
Publication of the Deed of Establishment in the State Gazette (Berita
Negara) by the State Printing Office
Investment Procedure
A.
Letter of Preliminary Approval
B.
Feasibility Study
C.
Approval from the President as stated in the Letter of Notification of the
President Approval (“SPPP”) issued by the Chairman of BKPM
D.
Registration at the Regency Office of Department of Trade to obtain a
Company Registration Number (TDP)
E.
Issue of the Commission Certificate by the Director General of Electricity
and Power Development for the Plant following the Commissioning Test
F.
Issue of the licence to a private business company in order that it may
undertake the business of electric power supply in the interest of the public
(the IUKU) by the Chairman of BKPM
G.
Business Location License (Ijin Tempat Usaha)
H.
Permanent/Fixed Business Licence (IUT)
I.
Issue of Final Operation License by Chairman of the BKPM (Izin Usaha
Ketenagalistrikan untuk Kepentingan Umum – IUKU) following the
commissioning of the plant
Financial
A.
Registration with the Department of Finance, Directorate General of
Taxation, to the centralisation of income tax and value added tax
administration in the relevant Jakarta tax office
B.
Registration with the Department of Finance, Directorate General of
Taxation, to obtain Value Added Taxpayer Number
C.
Consent of the Department of Finance, Directorate General of Taxation, to
the centralisation of income tax and value added tax administration in the
relevant Jakarta tax office
D.
Approval from the Department of Finance, Directorate General of
Taxation for Book-Keeping in English and in US dollar currency
1
EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
IV.
V.
VI.
VII.
Construction
A.
Issue of the Advance Building Permit (presentation delegated by Governor
to Regency level)
B.
Issue of the Building Construction Permit (Izin Mendirikan Bangunan –
IMB) by the Regent of Jepara Regency, the Province of Central Java
(presentation delegated by Governor to Regency level)
C.
Permit from the Minister of Communication, Director General of Sea
Transportation for construction and operation of a temporary jetty for
Project Site during the construction and operation period or,
D.
Permit from the Director General of Sea Transportation, Governor /Head
of the Province of Central Java, to utilise sea water for purpose of the
project (cooling water & desalination plant)
E.
Permit from the Minister of Communication, Directorate General of Sea
Communication for discharge of waste water into the sea
F.
Permit from the Central Java Transportation Office for dredging
G.
Permit from the Director General of Sea Transportation to carry out
reclamation with dredged material
Environment
A.
Approval from the Minister of Mines and Energy of the environment
Impact analysis (Analisa Dampak Lingkungan) conducted by the AMDAL
Central Committee of the Department of Mines and Energy
B.
Approval from the Minister of Mines and Energy of the Environment
Management Plan (Rencana Kelola Lingkungan or RKL)
C.
Approval from the Minister of Mines and Energy for the Environment
Monitoring Plan (Rencana Pemantauan Lingkungan or RPL)
D.
Permit from the Minister of Health to possess, store and utilise hazardous
waste
E.
Issue of a Nuisance Act Permit
Loan
A.
Permit from the Team for the Coordination of Offshore Commercial Loans
(Tim Koordinasi Pinjaman Komersial Luar Negeri or PKLN) to obtain
foreign loan
B.
Approval from Bank Indonesia of documentation for a foreign loan within
the intended investment as set forth in the SPPP
Land
A.
Issue of the Location Licence by the Regent of Jepara Regency, the
Province of Central Java
B.
Execution of Sale and Purchase/land relinquishment documents relating to
land acquisition
2
EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
VIII.
IX.
C.
Grant of Hak Guan Bangunan (HGB) title for the Project Site by the Head
of the National Land Agency
D.
Registration of the HGB title
A.
Issue of Limited Importer Registration Number (APIT) from Chairman of
the BKPM for importation of goods for project during operational period
B.
Approval from the Chairman of BKPM of the Master List of imported
capital goods (covers import duty and PPN) and issue of decision on tax
facilities for such capital goods*
C.
Application for exemption from income tax on imports (PPh. 22)
D.
Application for suspension of Value Added Tax (PPn) and /or Value
Added Tax on luxury goods (PPnBN)*
E.
Order 23 Procedure
F.
Permit from the Department of Finance, Directorate General of Customs
and Excise to establish and operate a customs clearance office and bonded
area at the Project Site during the period of construction and operation
Tax
Employees
A.
Approval of the Plan on the Employment of Expatriates (‘Manpower Plan’)
(RPTKA) from the Chairman of BKPM*
B.
Issue of Work Permit (IKTA) for individual expatriates by the Chairman
of BKPM based on approved RPTKA
3
EWG20/10.3-Att A-Ann 3
Appendix F
Interconnection Projects
Project
Status
Sumatra, Indonesia - Peninsula Project aimed for bi-directional electricity flow. MOU has been signed by both parties for the development of a mine power
Malaysia (submarine cable)
plant in Sumatra, Indonesia.
Funding is the constraints for project implementation (private participation as an alternative)
Batam,
Indonesia
Bintan, [Seeking sponsors for financing the study]
Indonesia - Singapore - Johore,
Malaysia
Sarawak,
Malaysia
West Implementation being prepared with options for private participation
Kalimantan, Indonesia (150 MW,
250 kV overhead line)
1
EWG20/10.3-Att A-Ann 3
Appendix G
Private Power Development Scheme
EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Solicited
Solicited
Project
Project
Pre
Pre
qualification
qualification
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Announcement
ent
by
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entfrom
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Submission
issionof
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Subm
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issionof
of
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Proposalto
to
DG
DGEED
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Consideration
Consideration
on
onUnsolicited
Unsolicited
Proposal
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M
MM
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Decision
for
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issionof
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esponse
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Inform
Informed
ed
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not
not
Accepted
Accepted
EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Form
Formation
ationof
of
Project
Project
C
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ompany
pany
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eportto
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inisterof
ofM
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ecision
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eveloper
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Study&
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Detailed
etailed
Proposal
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N
Negotiation
egotiation
D
Draft
raftof
ofPow
Power
er
Purchase
Purchase
A
Agreem
greement
ent
D
Director
irector
G
General
eneral
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Validation
SPPP
SPPPor
orSPPM
SPPM
(Investor
(Investor
A
Approval)
pproval)
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MM
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Approval
pproval
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ission&
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ertificate
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ffshore
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omm
mercial
ercial
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orrow
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ing
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pproval
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onstruction
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ffshore
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omm
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ercial
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orrowing
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EWG20/10.3-Att A-Ann 3
Agenda Item 10.3-Micro Eco Reform-Att A-Ann 3
Appendix H
Indonesian Security Documentation
The following security will be required to be granted in favour of the lenders:
(1) Share Pledges
(a) Pledges by current shareholders, with the right for lenders to receive
declared and liquidation dividends in the event of default;
(b) Pledges of the shares. These are required to allow step-in by the lenders at
shareholder’s level as an alternative to enforcing the pledges at 1.1; and
(c) Power of attorney over the shares, authorising the lenders to (i) vote in the
event of default and (ii) sell shares at a private sale.
The shares pledges and powers must be executed in Indonesia in notarial deed
form.
(2) Security over Receivable
It is suggested that a number of fiduciary assignments be entered into:
(a) over all PPA receivable, including bank accounts; and
(b) all amounts owed to the IPP in respect of insurance claims and proceeds.
The Fiduciary Assignments must be executed in Indonesia in notarial deed
form.
(3) Security in Tangible Movables
Tangible movables should be secured as follows:
(a) A fiduciary transfer agreement should be used to secure all tangible
movables; and
(b) Power of Attorney over Sale.
Bother the Fiduciary Transfer Agreement and the power of attorney over sale
must be executed in Indonesia in notarial deed form.
(4) Security in Immovable Property
Security over land should be taken at the outset by way of Hypothec.
(5) Security over Project Documents
under Indonesian law the core project documents cannot be assigned to the
lenders by way of security. Accordingly, lenders will require authority
pursuant to an irrevocable power of attorney to exercise the rights of the IPP
under those project documents.
(6) Other Security
1
EWG20/10.3-Att A-Ann 3
The lender will also require an Acknowledgment of Indebtedness from the IPP
in notarial deed form.
2
EWG20/10.3-Att A-Ann 3