Adaro Energy, through its subsidiary PT Adaro Power, is set to team up with PLN’s subsidiary PT Indonesia Power in developing the Kaltim 5 mine-mouth coal-fired power plant in East Kalimantan. The facility is expected to generate 200 megawatts of electricity once it commences full operation by 2023.

However, Adaro Power claims it is unable to find financing for the project because of two unfavorable clauses in its PPA with PLN, namely one related to share transfer and another on natural force majeure.

“We have made significant progress in this project. But, this issue is of utmost importance because if we are unable to secure bank loans, [our efforts] will be in vain,” Adaro Power deputy CEO Dharma Djojonegoro recently said.

The clause on the share transfer is stipulated in the Energy and Mineral Resources Ministerial Regulation No. 48/2017, which prohibits an independent power producer (IPP) from transferring its stake in a private power plant to another business entity, except its 90 percent-owned affiliate, before the project reaches its commercial operation date (COD).

Dharma said lenders generally wanted to ensure that they could take over the ownership of a power plant project if the original developer failed to realize its commitment to construct the facility. Therefore, they were reluctant to provide loans because the ministry had restricted any share transfer prior to the COD, he added.

Meanwhile, the clause on natural force majeure is based on Ministerial Regulation No. 10/2018, which exempts any party involved in the agreement from any obligation if there is a force majeure. If a natural disaster occurs, the COD can be extended until the event passes and any damage to the project is fixed.

Dharma said the force majeure clause could also apply to a situation when PLN’s electricity grid was unintentionally disabled. However, PLN, rather than the IPP, was the one that should bear such a risk, he claimed.

“Let’s say PLN’s grid in Purwakarta is damaged [due to a natural disaster]. What if it takes so long for PLN to fix the damage? The IPP will be the one harmed because of this. Lenders interpret [the force majeure clause] that way,” Dharma explained.

Commenting on the matter, PLN strategic procurement director Supangkat Iwan Santoso acknowledged that finding financing for a project had never been easy for any IPP.

“Nevertheless, many other IPPs have been able to secure such financing. If it takes a long time for Adaro to seal funding, we have an option to take over the project ourselves,” Iwan told The Jakarta Post.

The Kaltim 5 project is part of dozens of mine-mouth projects that have been auctioned by PLN. The winners are expected to jointly develop the plants with its subsidiaries, either Indonesia Power or PT Pembangkitan Jawa Bali (PJB), which will control a majority stake of 51 percent in the projects.

PLN initially planned to develop 16 new mine-mouth power plants with a combined capacity of 6,990 MW as stated in its electricity procurement business plan for the 2017-2026 period.

However, in its revised business plan for the 2018-2027 period, the company scrapped several development projects. As a result, it only plans to build mine-mouth plants totaling 6,045 MW within the next decade.

PLN has calculated it will need around 4 to 5 million tons of coal per year for mine-mouth coal plants with a capacity of 1,000 MW.

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