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EVENT COVERAGE : AP UTILITY FORUM 2016 - JAKARTA EVENT COVERAGE: AP UTILITY FORUM 2016 - JAKARTA

Peter Wijaya, Vice President conducive for the development of a bond Bond investors Meanwhile, discrepancies in gas supply
Commercial and Business Development market. dont care also need to be resolved if the 35 GW plan
at Star Energy, adds that risk-sharing for There are a lot of constraints in the whether there is to succeed.
capital-intensive geothermal projects is a PPA about financing and re-financing, is a guarantee Developers can take the risk with
key concern for developers and investors. and around the rules of what developers or not. They the assurance that there is huge demand
Funding for exploration is tough need to prove at the time of bid when it dont care in Indonesia and PLN will be able to
investors have to take on the full risk, he comes to certainty of financing. When whether there dispatch; but lenders will not be willing
noted. As a result, independent power you do a bond, you cant provide the is a BVGL to take this risk. There are however
producers like Star Energy have to keep a same certainty in the same way a bank or a PPP or ways to resolve this issue, with proper
tight rein on exploration costs, with more can provide support by issuing letters, he government coordination between PLN, developers
budget spared for low-risk, established says. support. They and lenders. Coordination in gas supply is
fields rather than exploring untapped Pascual urged policymakers to seriously just look at the crucial for the success of RFPs, he says.
greenfield projects. consider reviving bond financing for credit rating Another little-known issue which needs
Geothermal reservoirs are much more power projects, as it is unlikely that 35 and invest. urgent attention is extremely tight bid
complex than O&G. We simply budget GW worth of power projectswhich preparation timelines from PLN. Pascual
the exploration, Wijaya says, adding that is expected to amount to a staggering says that developers and bankers cannot
exploring a well could cost as much as US$70 billioncan rely on a single prepare properly for bids because of
US$7 million to US$10 million per well. funding method in coming years. PLNs vague and often squeezed project
Renewable energy is low on the We need to expand the universe timelines.
government agenda. If I were the of capital that we can tap. The bond For instance, PLN does not release a
government, I would say the traffic market is out there and very keen on detailed schedule of requests for proposal
is attractive. If I were a developer, I Indonesian risk. Bond is a great solution (RFPs) in the pipeline, and often releases
would also say so. But the problem is for refinancing. So I would like the bond project details at such tight schedules
implementation. In order to qualify for market to become one of three solutions that leaves developers with little option to
the tariff, you first need to prove that you for the financing of IPPs, he says. contact investors and lenders.
have started exploration. Thats the law. It is impossible in 45 days for an
Indonesia trips over funding issues on its mission
The risk is entirely on the developer, he Other challenges investor to develop an EPC solution and
adds. Access to funding is not the only issue talk to banks. Developers are in the dark.

Where will Indonesia get US$70b for its Domestic funding key to growth
To resolve these funding issues, Pascual
which Indonesia needs to grapple
with. For instance, access to land is
also a big issue for developers, as well
They do not know what technology is
required, he notes.
To resolve this issue, Pascual says that

ambitious 35GW capacity addition plan? says that the government should work
on strengthening its domestic financing
framework, particularly because funding
as discrepancies in gas supply and
inadequate bid preparation timelines.
When the launch of the land
PLN needs to come up with specific
information about projects and provide
longer timelines for developers and
Investors are keen on the market, but experts warn that the program might stumble if funding issues are not resolved. for power projects is being dominated by acquisition law in recent years, lawyers investors.
Despite these challenges, Pascual

I
local banks using local currency. There reckoned that it will take two years on
f Indonesia wants its ambitious 35 Investors inconsistent government support for without losing on the exchange rate, he are very few markets left for international average to complete a land acquisition says that there is a bright future ahead
GW power capacity addition plan to need to get projects, lack of assurance regarding says. banks to do financing. Over the last 20 deal in Indonesia. for Indonesias 35 GW power capacity
succeed, then it needs to clean up its comfortable rupiah foreign exchange rates, and the The rupiah is freely convertible, its years international banks share of the pie However, PLN proved in 2015 that it addition plan.
act when it comes to providing funding that once they absence of alternative funding solutions freely transferable, the FX market every has shrunk considerably, Pascual says. is possible to complete land acquisition Theres no magic solution, but years
options for utilities and independent get this massive such as an active bond market. single day is in the hundreds of millions of Domestic currency, domestic deals in just months rather than years ago when I first came to Indonesia I
power producers (IPPs). Despite high amount of There are different forms of dollars. There is no reason in my view that financing is the right solution and showing that the law can work if used learned this beautiful word, sama-sama.
investor interest, appropriate access to rupiah, in a government support for PLN obligations. investors cant get comfortable with this. will resolve these issues. A domestic properly and effectively. And I think together, sama-sama, we
capital and inconsistencies in government single day they Theres the BVGL [Business Viability But they are currently talking to banks bank doesnt need BVGL. PLN is The law is extremely powerful if it is can make it happen. Everyone is here,
policy post a significant stumbling can go to the Guarantee Letter], the PPP guarantee trying to understand how the FX market the government, whether you have a used properly. The law is working, and everyone is keen, and the solutions are
block which can hinder the success of market and letterit varies from deal to deal. works to see if that is something they can guarantee or not. Risk assessment for land acquisition is becoming less of a not rocket science. If we work through the
Indonesias steep capacity addition target. exchange it in There is no consistency. And that is work with, he notes. international banks is different, but for focus particularly for investors, he says. constraints, there are solutions, he says.
Great potential projects are happening US dollar. something that the investors are still a local bank, PLN is the government. So
under the 35 GW program, but there trying to get comfortable with, Pascual Geothermal bears the brunt you are resolving the level of support from
are quite a few difficulties as well, says says. You have different investors for The insufficient access to funding is the government, you are resolving the US
Gilles Pascual, Partner, Infrastructure, different deals. If you have BVGL or PPP keenly felt in the countrys geothermal dollar to rupiah conversion, he says.
Ernst & Young, speaking at the recently- guarantee, the entire investor universe energy sector. Indonesia is planning Pascual also advocates a revival of
concluded Asian Power Utility Forum will be comfortable. For a deal without to produce 6023 MW of geothermal Indonesias power bond market to provide
in Jakarta. Coordination is key to make a guarantee, not all investors will be power by 2020, but experts warn that the expanded funding options for projects.
such a large program happen. You need comfortable to take on the risk, he adds. country may fail to meet its ambitious He notes that though the first IPP in
all stakeholders in the roomyou need In recent tenders, PLN had taken targets due to regulatory challenges Indonesia in 1995 was financed by a
the government side, you need PLN the view that they will pay using the coupled with extremely high exploration bond, only two bonds have been issued
[Perusahaan Listrik Negara], you need Indonesian rupiah. Although deals will costs. since then.
to have investors, and you need to have still be indexed to the US dollar, payments Cost rises steeply the moment drilling Bond investors dont care whether
lenders. will be made solely using the local and construction begins. Prior to that, there is a guarantee or not. They dont
currency. As a result, projects run the risk costs are so low it can be funded almost care whether there is a BVGL or a PPP or
Funding roadblocks of losing investors who are used to closing entirely by equity. A single field can government support. They just look at the
One of the biggest challenges to deals using the greenback. cost up to USD 50 million, excluding credit rating and invest. This makes it a lot
Indonesias 35 GW plan is access to Investors need to get comfortable other costs. Someone has to catch the easier to finance projects for developers,
funding. Although both foreign and that once they get this massive amount risk, whether it is the project owner or he said.
domestic investors are extremely keen to of rupiah, in a single day they can go to the government, says Sugeng Triyono, However, the power purchase
take part in the capacity addition plan, the market and exchange it in US dollar President Director of PT Tangkuban agreements (PPAs) and requests for Indonesian law is extremely powerful if used properly.
they are hindered by challenges including at roughly the same rate without leakage, Parahu Geothermal Power. proposals (RFPs) that PLN issues are not
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