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Jakarta Post

PLN gives Pertamina more time in Java 1 project

Fedina S. Sundaryani (The Jakarta Post)
Jakarta
Tue, January 24, 2017

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PLN gives Pertamina more time in Java 1 project Upbeat -- President Joko "Jokowi" Widodo speaks to journalists on the sidelines of the inauguration of three geothermal power plant (PLTP) infrastructure projects worth Rp 6.18 trillion (US$532.07 million) belonging to state oil and gas firm Pertamina in Manado, North Sulawesi, on Dec. 27. (JP/Lita Aruperes)

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tate-owned energy firms PLN and Pertamina will slog through the planned construction of one of the country’s largest gas-fuelled power plants, although the two parties failed to ink an agreement by the deadline on Monday.

A consortium led by Pertamina has yet to sign a power purchase agreement (PPA) for the construction of the 2 x 800 megawatt (MW) power plant with electricity provider PLN, although the latter has repeatedly threatened to put the project back on auction should the deadline pass before an agreement is reached.

However, things have changed now. PLN procurement director Supangkat Iwan Santoso said that PLN would not cancel the project, dubbed Jawa 1 — giving the Pertamina-led consortium a chance to sit longer at the negotiating table.

“We do not know when we will manage to sign the PPA. We are still waiting for a complete review and need some time to complete any terms that have not yet been agreed upon,” he said, declining to disclose to when the deadline would be extended.

Under an independent power producer (IPP) scheme, the consortium will construct a power plant worth US$2 billion in Bekasi, West Java, and sell the electricity to PLN for distribution in the Greater Jakarta and West Java areas.

Pertamina, along with Japan’s Marubeni and Sojitz Corporation, won the bidding after offering the lowest price of 5.5 US cents per kilowatt hour (kWh) of electricity for PLN to purchase. Thus, the consortium was obligated to sign the PPA within 45 days after the winner was announced.

The consortium outbid a group consisting of local energy company PT Adaro Energy and Singapore’s Sembcorp, and another group comprising local firm PT Rukun Raharja and Mitsubishi Corporation.

If PLN revokes the decision because of unresolved disagreements the Adaro-led consortium will have a chance to take over from Pertamina in the project, or PLN can call for new tenders for the project as another option.

Claiming that the consortium was ready to sign the PPA, Pertamina gas and power commercialization vice president Ginanjar said the bankability of the project remained a main concern to lenders.

“One of the issues that remain an obstacle is the issue of bankability, which has already been voiced by lenders even before bidding started. They [the concerns] were raised during the market sounding phase,” he told The Jakarta Post.

One of the main issues questioned by the potential lenders was the liquefied natural gas (LNG) supply. According to Ginanjar, the Jawa 1 power plant will need 20 to 21 cargo loads of LNG to reach 60 percent of its operating capacity.

Furthermore, Ginanjar vehemently denied allegations that Pertamina had demanded PLN buy 92 percent of the plant’s electricity production capacity, instead of a maximum of 60 percent as stipulated by the electricity firm’s own bidding rules.

“Any technical and economic issues such as capacity have already been managed. This is a high-profile project involving at least 18 international and domestic companies, and Pertamina, alongside its partners, is committed to making this project fly,” he said.

Responding to the case, Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said it was understandable that lenders were concerned about the LNG supply as it would be provided by PLN as the buyer and not Pertamina as the producer.

PLN has previously ensured that the gas supply for Java 1 would be procured from BP Indonesia’s Tangguh field in West Papua. As the electricity firm does not have any gas fields of its own, it will depend on the government and the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

“Lenders will see that there is a quite high risk, leading to a higher [lending] rate. Furthermore, the Pertamina consortium may also have to cover risk-mitigation costs if anything happens to the gas supply,” he said.

The project is one of the biggest in President Joko “Jokowi” Widodo’s signature electricity procurement program, the 35,000 MW project — a continuation of the 10,000 MW policy launched by president Susilo Bambang Yudhoyono during his tenure in 2005 in order to maintain reserve margins.

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