Opinion: Proposed New Tender Rules Clarify Geothermal Concession Bid Requirements

The following article is printed with permission from Hadiputranto, Hadinoto & Partners.(ed)

The Government is amending Government Regulation No. 59 of 2007 on Geothermal Activities (GR 59/2007) to, among other things, amend geothermal working area tender procedures.

Clarification on the Intent of Regulation of the Minister of Energy and Mineral Resource (MEMR) No. 22 of 2012 (MEMR Reg. 22/2012)

Under the previous regimes, the process of determining the price payable by PLN involved the relevant developers participating in a tender for the geothermal business licence (IUP) issued by the relevant Regional Government, and as part of that bid process, the developers were required to bid a specific US$/kWh price to the Regional Government. The lowest price offered (provided the relevant bidders met the required technical, financial capability and administrative qualifications) would win the geothermal IUP, and then sign a Power Purchase Agreement with PLN. Provided the successful bidder's price was below the maximum caps set under the previous regimes, PLN was obliged to accept that price.

Therefore, when MEMR Reg. 22/2012 was issued, it was unclear whether in the tender, the new geothermal feed-in-tariff stipulated in MEMR Reg. 22/2012 would serve as: (i) a ceiling price, as in the predecessor regulations, MEMR Reg. No. 2 of 2011 and MEMR Reg. No. 32 of 2009 which provided a cap on geothermal tariffs of US$0.097/kWh; (ii) a floor price; or (iii) a fixed price. Please see here our earlier Client Alert on MEMR Reg. 22/2012.

Based on the draft amendment of GR 59/2007 (Draft GR 59/2007 Amendment) circulated in the Socialization Meeting held by the Directorate General of New Energy, Renewables and Energy Conservation on 13 November 2012, bidders are no longer required to bid the tariff that the bidders are willing to accept.

This approach clarifies that the intent of the Government when issuing the new geothermal feed-in-tariff in MEMR Reg. 22/2012 was to fix the tariff for the purposes of awarding new geothermal licenses.

New Tender Procedures

The tender will no longer consist of two stages. Under Draft GR 59/2007 Amendment, there will be only one stage but in this one stage, bidders are required to submit the required documents in two envelopes.

The first envelope shall contain all administrative, technical and financial requirements, and the second envelope shall contain the applicant's exploration commitment based on the exploration plan submitted in the first envelope.

a) The administrative requirements include among other things, corporate documents and profile of the bidder. For a bidder who has obtained an IUP in another working area, the Draft GR 59/2007 Amendment requires the bidder to also submit a recommendation letter from the Directorate General on the bidder's performance in that geothermal working area.

b) For technical requirements, the Draft GR 59/2007 Amendment requires the bidder to submit among other things, the work program which shall cover, e.g., plan and schedule for exploration, feasibility study and exploitation.

c) To prove that they have financial capability, bidders are required to submit among other things the following financial requirements: (i) the source of financing; (ii) evidence of placement of a bid bond with a value of a minimum 2.5% of the first year exploration costs plan; (iii) evidence showing the capability of the bidder to provide a minimum 30% of the financing in the form of equity; (iv) a corporate guarantee from the holding company (if the bidder is a subsidiary) which shall be supplemented by evidence from the holding company that the holding company has an A or BBB rating or Earnings Before Interest, Tax, Depreciation and Amortization of 20% of total project costs.

The winners of successful tenders will be determined based on evaluation of administrative, technical and financial capability qualifications, and exploration commitment.

Under the Draft GR 59/2007 Amendment, the administrative requirements evaluation is an elimination system, while the technical and financial capability will be evaluated based on a scoring system. The tender committee is no longer required to evaluate the bidders based on the lowest tariff submitted by the bidders.

The second envelope evaluation shall be based on: (i) the highest exploration commitment and a statement letter from a state-owned enterprise/prime bank confirming that the bidder has financial capability to finance the exploration commitment plan; (ii) a statement letter on the capability to pay 30% of the exploration commitment if the bidder is appointed as the winning bidder; and (iii) details of the working plan and budget of 30% of the exploration commitment.

Based on the discussion in the Socialization Meeting, it seems the exploration commitment which is in line with the work program submitted in the first envelope will have the highest weighting in determining the winning bidder.

What Next?

The Government is targeting issuance of GR 59/2007 Amendment at the latest by January or February next year. The Draft GR 59/2007 Amendment will be further discussed by all relevant stakeholders to obtain input and improvements.

In the meantime, it was also informed in the Socialization Meeting that the MEMR is in the process of preparing: (i) technical guidelines detailing the scoring and the weighting mechanisms for the bidder evaluation; (ii) technical guidelines detailing procedures to further implement MEMR Reg. 22/2012, which will cover, among other things, procedures for requesting price adjustment to match with the new feed-in tariff; and (iii) technical guidelines detailing the issue of transmission line construction.

For further information please contact

Luke D. Devine
Foreign Legal Consultant
+62 21 515 4909
luke.devine@bakernet.com

Kirana D Sastrawijaya
Senior Associate
+62 21 515 4916
kirana.d.sastrawijaya@bakernet.com

Mesianti Tobing
Associate
+62 21 515 5090/91/92/93 Ext.6904
mesianti.tobing@bakernet.com

Hadiputranto, Hadinoto & Partners*
The Indonesia Stock Exchange
Building, Tower II, 21st Floor
Sudirman Central Business District
Jl. Jendral Sudirman Kav. 52-53
Jakarta 12190
Indonesia
www.hhp.co.id

Chew Chin
Principal
+65 6434 2589
chin.chew@bakermckenzie.com

Henry Cort
Associate Principal
+65 6434 2589
henry.cort@bakermckenzie.com

Baker & McKenzie.Wong & Leow*
8 Marina Boulevard
#05-01 Marina Bay Financial Centre
Tower 1
Singapore 018981
www.bakermckenzie.com/Singapore