Govt ready to guarantee private power project

The government is ready to provide guarantee for privately-owned power projects so that in the future independent power producers (IPPs) will no longer have difficulties in securing bank loans, Kompas reported Friday.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said in Jakarta on Thursday that the guarantee could be in the form of a comfort letter which could be used by IPPs in applying for bank loans.

?The government issued a guarantee in the form of comfort letter to 27 power projects before the 1997 financial crisis, which were later renegotiated after the crisis. Now, (we have) the 10,000 MW project in progress,? he said.

The lack of funding remains the main problem in the construction of private power plants. At least 152 companies have expressed interest to build private power plants, but only 16 of them could realize the projects due to financing difficulties.

Earlier, state-owned electricity company PT Perusahaan Listrik Negara (PLN) said that it would tighten the financial requirement for IPPs planning to build power plants in the country so as to prevent a possible delay in the construction works.

In order to eliminate such problems, PLN is currently drafting a new regulation which would require IPPs to provide financial guarantee to be qualified to take part in the country's power project development, Fahmi said, adding that the guarantee would account for between 2.5 and 5 percent of the total value of the projects.

Bank Indonesia?s senior researcher Agusman said that banks were mostly still reluctant to channels loans for private power plant projects not only due to technical problems such as those related to their legal lending limit, but also because of the fundamental problems such as the IPP's lack of credibility.

Meanwhile deputy chairman of the National Development Panning Bard (Bappenas) Dedi S. Priyatna said that the Finance Ministry planned to set up the so-called Indonesia Infrastructure Fund (IIF), which would also benefit the power sector.

The ministry has pooled funds amounting to $600 million from national and international financial institutions for the IIF and it continues to seek more funds to increase its funding capacity, he said, adding part of the funds could be used for the development of power projects. (*)