Government Comes To PLN’s Rescue With New Rule

Government Comes To PLN’s Rescue With New Rule

The government has come to the rescue of PLN with the issuance of a new regulation that gives a guarantee to the company’s projects, including those under the grand 35,000-megawatt (MW) electricity program. The regulation came in the form of a finance minister’s regulation, that was issued on Aug. 24.

It gives two government guarantees for several projects, namely the 35,000 MW program, the construction of 46,000 kilometers of transmission lines and other supporting infrastructure. The first guarantee is a loan guarantee, to be given to financial institutions that provide financing to the state-owned PLN as a loan repayment assurance.

The second guarantee is a business feasibility guarantee, to be given to independent power producers (IPPs) that partner with PLN. It is to provide an assurance that PLN has the financial capacity to purchase the power produced by the IPPs according to their agreed contracts.

Robert Pak pahan, director general of financing and risk management at the Finance Ministry, said the government hoped to smooth PLN’s electricity generation journey by providing the guarantees because some of the projects assigned to the company might not be economically feasible. “This is part of our support,” he said on Tuesday.

The 35,000 MW program is one of President Joko “Jokowi” Widodo’s signature projects that the government and PLN hope to complete by the end of Jokowi’s tenure in 2019. However, only 195 MW is already in operation, representing a tiny 0.5 percent of the target. The company has been facing mounting problems since the program’s early days that include a lack of potential partners, financing difficulties and land acquisition obstacles.

Despite the bumpy road, PLN recently said it was moving forward with the project. As of Aug. 4, it wrapped up development contracts for power plants with a combined capacity of 16,515 MW. It hopes to complete the signing of contracts for power plants to generate the remaining 18,485 MW by year-end, 63 percent of which will be signed under a power purchase agreement (PPA) scheme.

The remaining 37 percent, meanwhile, will be under PLN’s engineering, procurement and construction (EPC) contracts. The company is also optimistic that financial closure will be reached for projects amounting to 8,705 MW by the end of 2016.

PLN president director Sofyan Basir said that the new regulation would exponentially help expedite the development of the 35,000 MW program. “[The PMK] covers wider ground and allows for a government guarantee for the private sector. Previously, we could only get such a guarantee for bank loans and offshore borrowings,” he told The Jakarta Post on the sidelines of a hearing at the House of Representatives.

He claimed the guarantee would help PLN secure loans for other large projects as well, such as the Rp 30 trillion (US$2.28 billion) 2 x 1,000 MW Jawa 5 coal-fueled power plant and the 2,000 MW Jawa 7 power plant projects in Banten. “All of our projects are ginormous in size. So when we try to find funds [for the projects], they will all be government guaranteed,” he said.

Meanwhile, data from the Finance Ministry show that the government allocated $3.96 billion and Rp 35.7 trillion worth of guarantees for coal power plants to produce 10,000 MW under its fast track program (FTP 1) and $5.08 billion for renewable energy, coal and gas power plants to produce 10,000 MW under its fast track program 2 (FTP 2).

The total amount of guarantees that the government already provided for various projects reached Rp 213.6 trillion as of June 16, 1.69 percent of gross domestic product (GDP). The government can provide guarantees up to Rp 357.4 trillion by 2017, 2.57 percent of the GDP.