Since the beginning of his tenure in October 2016, Energy and Mineral Resources Minister Ignasius Jonan has introduced a number of key policy changes in Indonesia’s renewable energy sector, including the issuance of Ministerial Regulation No. 50/2017.

The regulation, among other things, requires the calculation of renewable electricity based on local electricity supply costs of each region across the archipelago. It also obliges private renewable developers to transfer their projects to state-owned electricity firm PLN after 25 years with a financial compensation of only US$1,000.

A number of developers said these provisions have made their renewable projects unbankable, making it hard for them to access financing for their projects.

When recently asked whether he would consider revising the regulation, Jonan said, “Never.

“Although renewable business associations complain about the pricing policy or other things, many developers were willing to sign power purchase agreements [PPAs] with the PLN last year.”

Last year, the PLN sealed PPAs with 70 independent power producers (IPPs) for renewable power projects with a combined capacity of 1,214.1 megawatts.

Jonan has repeatedly boasted about this achievement, especially considering that the sole electricity offtaker in the country could only sign 45 PPAs with renewable developers in the 2014 to 2016 period. In fact, only 13 of those 70 renewable developers have reached financial closure for their projects as of Jan. 10.

Riza Husni, the chairman of the Association of Hydroelectric Power Plant Developers, said domestic lenders were reluctant to provide soft loans for renewable investors, especially those executing hydropower projects, a situation he attributed to a number of problematic clauses stated in their PPAs with the PLN.

In addition to the pricing policy and build, own, operate and transfer mechanism, there was a clause in the PPAs that exempted the PLN from an obligation to purchase hydropower, while requiring developers to renegotiate the agreement if the state utility firm decided to do so, he said.

Riza added that after forcing the IPPs to set a generous rate for their hydropower, the PLN only wanted to pay for the renewable electricity in rupiah rather than the US dollar, prompting developers to take the foreign exchange gap.

“Through Ministerial Regulation No. 50/2017, Pak Jonan actually permits the use of both the US dollar and rupiah. We certainly hope that we will be allowed to use the US dollar because it will be easier for us to get soft loans,” Riza told The Jakarta Post. “Nevertheless, when we discuss this with the PLN, it always says ‘no’.”

Vivek Pathak, the director for East Asia & Pacific Department at the International Finance Corporation, said renewable investors faced several obstacles in Indonesia, including those pertaining to regulatory continuity, land acquisition costs and currency risk.

“For some people, what is bankable [in the PPAs] is different. But we need to see, in general, is a fair PPA. Is it balanced, in terms of who is bearing what risk?” Pathak added.

Rida Mulyana, the ministry’s energy conservation and renewable energy director general, previously acknowledged that the regulation had hampered investment in Indonesia’s renewable sector.

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