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When power purchase deal isn't a done deal
They are concerned that renegotiating the signed PPA may create confusion among investors, and this would not be good for the investment climate in Indonesia, which is pursuing an electricity generation target of 35,000 megawatts (MW).
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Two employees of state-owned electricity firm PLN walk at a power plant complex. (Kontan/Cheppy A. Muchlis)
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n November 2017, the Directorate General of Electricity of the Energy and Mineral Resources Ministry issued a letter concerning the review of the Power Purchase Agreement (PPA), addressed to the president director of state electricity company PLN.
The directorate general’s letter has met with controversy from independent power producers (IPP), electricity business observers in Indonesia, the Office of the Coordinating Maritime Affairs Minister and the World Bank. They are concerned that renegotiating the signed PPA may create confusion among investors, and this would not be good for the investment climate in Indonesia, which is pursuing an electricity generation target of 35,000 megawatts (MW).
Responding to these concerns, PLN should consider several matters and the legal impact of this renegotiation plan.
The government has used every possible method to accelerate the development of electricity infrastructure and reach its target of constructing power stations with a combined capacity of 35,000 MW, one of which was to assign PLN to implement such development in accordance with the presidential regulation on the acceleration of power infrastructure development.
This presidential regulation stipulates that PLN can cooperate with IPPs in electricity infrastructure development, especially in projects requiring large-scale funding, those with very high construction risks, projects in new locations that need to go through land acquisition processes, projects with an uncertain supply of fuel or an existing uncertainty in gas supply and/or its infrastructure, new and renewable energy power stations, expansion of existing IPP power plants, and/or if several IPPs are developing power plants in a particular area.
In addition to providing a guarantee to the IPP on the viability of PLN’s business for its financial obligations under the PPA, the government has assigned PLN to make every effort to complete the construction of electricity infrastructure and has obliged PLN to solve obstacles and issues to accelerate the implementation of the infrastructure development in accordance with its authority. It includes efforts to resolve the implementation of the contract.
When the signed PPA is being evaluated, PLN will not only impede the implementation of electricity infrastructure development, but also will not perform the duties and obligations mandated by the President. Additionally, it will give an impression of intervention by the Energy and Mineral Resources Ministry in a business to business (B2B) agreement between the IPP and PLN. It will affect the investment climate in Indonesia.
