Govt to synchronize geothermal business ruling and guarantee letter

The government is currently drafting a revision to the Mineral Resources and Energy Ministry Regulation (Permen) Number 11, Year 2009 on Geothermal Business. The revision is partly aiming at synchronizing the regulation with recently issued Finance Ministry?s regulation, PMK number 139, 2011, on government guarantee for the second phase of the government?s fast track program in the power sector.

?In the PMK No. 139 Year 2011, the government, in this case the Finance Ministry, provides guarantee to the independent power producer (IPP) that PLN will purchase electricity from the IPPs in accordance with the PPA (power purchase agreement),? said Dudi Rulliadi, the head for sub-unit for regulatory affair at the Fiscal Policy Agency (BKF) at the Finance Ministry on Tuesday.

Dudi however said that the government will only guarantee the amount of liabilities that have to be paid by PLN for the electricity supplied by IPPs. Meanwhile, independent power producers demand that the government should also provide guarantee against political risks such as in the event that a mining permit (IUP) be abruptly revoked by a local government.

Dudi said in principle the guarantee letter does not cover political risks as they are beyond the Finance Ministry?s control. However, the Finance Ministry has done its best to address the issue. ?We have asked local governments that issue an IUP to provide written statement, declaring that the IUP is valid and is issued in accordance with proper tender procedure and will not be cancelled,? he said.

The government guarantee regulation was issued on August 22, 2011. It regulates among other things government guarantee on the feasibility of the project, sales and purchase agreement, and bank financing.

The new regulation also requires investors to seek financial closure within 48 months, or would automatically be dropped from the project. (sonar)