Govt to issue a guarantee letter to IPPs

The government plans to issue a number of incentives including the issuance of a guarantee letter to lure more independent power producers (IPPs) to enter the country?s electricity sector, and to improve the success rate of such private power projects to 25 percent from 15 percent at present.

Energy and Mineral Resources Minister Purnomo Yusgiantoro said in Jakarta on Wednesday that there were a number of guarantees being proposed for such power plants such as a sovereign letter, a guarantee letter, a support letter and comfort letter.

The minister said that with such a guarantee letter, the government will act as a guarantor of the loans to be raised by the IPPs, and will buy the electricity from the IPPs, if state owned electricity firm PT Perusahaan Listrik Negara (PLN) fails to honor its contracts due to a change in the government?s policy.

Besides the guarantee letter, the government was also considering providing a fiscal incentives for the power plants to be built under PLN?s second 10,000 MW fast track power program, the minister said

In order to provide more certainty, PLN would be also allowed to set the prices of the electricity to be sold by IPPS. ?A regulation which will allow PLN to determine the prices of the electricity from private power plants is currently being drafted,? Purnomo said.

The government expects an additional power supply of 9,963 MW under the under the second fast track program. Of the total, 2,616 MW is expected to come from coal-fired power plants, 1,440 MW from gas-fired power plants, 4,733 MW from geothermal power plants and 1,174 MW from hydro power plants.

The entire projects will require investments of up to US$15.32 billion. The commercial operations of power plants to be built under this program are expected to begin by the end of 2014.

Meanwhile, Monang Sirumapea, PLN's Vice President For IPP Construction, said that the success rate of IPP projects were only 15 percent at present.

"Of the 151 IPP projects being proposed, only 15 percent of them could be implemented according to the plan,? he said. With the issuance of a guarantee letter, and fiscal incentives, he hoped the success rate could be increased to at least 25 percent.

He also said that a number of power plants built by IPPs would soon begin their commercial operations. The Sengkang gas fired power plant ( 1 x 60 MW) in South Sulawesi had even begun its operation in November last year, while the Wayang Windu geothermal power plant (1x110 megwatt) in West Java was expected to begin its commercial operation this month.

Other IPP power plants which will begin commercial operations this year include the Gasifikasi Batubara gas fired power plant (1x30 MW) in Kalimantan.

Meanwhile, PLN?s power plants which are expected to begin commercial operations this year include coal-fired power plant Labuhan Angin ( 2x115 MW) in North Sumatera, which would start its commercial operation in May, he added.(Bernard)