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PLN backs out of Chevron asset auction

State-owned electricity company PLN is likely to withdraw its bid to take over two geothermal assets offered for auction by US-based energy corporation Chevron

Fedina S. Sundaryani (The Jakarta Post)
Jakarta
Tue, November 1, 2016

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PLN backs out of Chevron asset auction

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tate-owned electricity company PLN is likely to withdraw its bid to take over two geothermal assets offered for auction by US-based energy corporation Chevron.

PLN claims that Chevron has not provided it with the audited financial reports of its subsidiaries Chevron Geothermal Indonesia and Chevron Geothermal Salak, which operate the two geothermal assets PLN has been eyeing.

To date, PLN is in the running to take over Chevron’s Mount Salak and Darajat geothermal fields in West Java, which are estimated to be worth a combined US$3 billion.

PLN director for corporate planning Nicke Widyawati said the company had sent repeated requests to Chevron to send the audited reports as the auction deadline had been set for Monday.

Putting in a bid for the geothermal assets was seen as risky as PLN needed to have a detailed description of Chevron’s third-party obligations, including its tax extensions. PLN claims that the Supreme Audit Agency (BPK) reported that Chevron still had outstanding tax it needed to pay.

Furthermore, the state-owned company claimed that the permits for both geothermal fields to be developed in a conservation area would soon be terminated, which was not detailed in the unaudited report received by PLN.

“We have not received an audit from the owners of the geothermal fields. Based on existing regulations, we cannot and should not conduct valuations based on unaudited reports because an audited report is not just to be evaluated, but also contains any obligations for third parties. There may also be legal issues we need to know about,” Nicke told reporters on Monday.

PLN already has a power purchase agreement (PPA) to buy electricity from the Mt. Salak and Darajat geothermal power plants, which have a generating capacity of 377 megawatts (MW) and 255 MW, respectively.

The company buys electricity from the Darajat field for 6.63 cents per kWh and from the Mt. Salak field for 7.05 cents per kWh.

The PPA has recently been extended until 2040. However, Nicke said that PLN did not have any obligation to extend it further or apply a price adjustment in the contract.

The six companies in the running for the geothermal fields are PLN, state-owned oil and gas giant Pertamina, Japan-based diversified company Mitsui, Japanese trading house Marubeni and local firms Medco and Star Energy, according to the Energy and Mineral Resources Ministry. The auction winner is scheduled to be announced in January.

The government has long been trying to develop geothermal energy, generated by the heat of the Earth, as Indonesia is estimated to have around 38 gigawatts (GW) in geothermal potential.

Although the country hopes to procure 7,156 MW of geothermal energy by 2025, geothermal energy today only makes up around 5 percent of the total installed power plant capacity of 53,000 MW.

Energy and Mineral Resources Ministry spokesman Sujatmiko said he could not confirm the news yet. Chevron Indonesia’s corporate communications manager, Prasasti Asandhimitra declined to comment on the issue.

Chevron, the second-largest US oil producer after Exxon Mobil Corp., has slashed jobs, canceled drilling projects and sought asset sales in response to a slump in global energy prices over the past two years. The company, which is based in San Ramon, California, is aiming to sell its main Asian geothermal operations in Indonesia and the Philippines.

In July, the company reported its third straight quarterly loss, the longest slump since at least 1989, Bloomberg reported.

Meanwhile, the Indonesian Geothermal Association (API) claims that PLN’s ability to maintain and develop the two geothermal fields is questionable.

Chairman Abadi Purnomo, who is also a member of the National Energy Board (DEN), said that PLN should focus on building more power plants under the government’s 35,000 MW project. Acquiring the Salak and Darajat geothermal fields, Abadi said, would not fulfil that objective and would only waste funds that needed to go into the project.

“Furthermore, PLN is not competent enough in the upstream geothermal sector,” he told The Jakarta Post, citing Pertamina as a more fitting owner of the geothermal fields as it had the equipment and human resources needed to develop geothermal energy.

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