RAM Ratings: Indonesia?s power sector could tap on ASEAN sukuk markets

(13 August 2015) -- To accelerate its ambitious electrification goals, the Indonesian power sector would require USD132.2 billion for power infrastructure development over the next 10 years. While Indonesia?s national electricity utility company, Perusahaan Listrik Negara (PLN), will continue to be the key facilitator for this mammoth plan, private investments via independent power producers are expected to play a prominent role.

Given that the development of Indonesia?s local-currency bond market is still at a nascent stage, most projects rely on export credit and support from multilateral lending agencies for financing. ?With a healthy appetite for project bonds, the ringgit sukuk market can also be a viable funding option for the Indonesian power sector,? highlights Chong Van Nee, Co-Head of Infrastructure and Utilities Ratings. A ready pool of long-term investors, ample liquidity and an established sukuk framework are some of the key factors for Indonesian projects to consider tapping the ringgit bond market. ?We have seen Indonesian corporations tap the ringgit market and there could be room for Indonesian project financing funding, particularly power sector bonds, in the market? adds Van Nee.

As part of the ASEAN Power Series, RAM has published a report on the Indonesian power sector, Power Up or Power Out. The industry is characterised by its robust electricity demand growth (CAGR of 7.1% in 2004 ? 2014) and a pressing need for rapid electrification in support of the country?s aggressive economic growth ambition. Despite its population of more than 250 million, Indonesia?s electrification ratio is deemed low ? at 84.3% as at end-2014 ? relative to most of its ASEAN neighbours.

While the country?s ability to plant-up has been continuously hindered by land acquisition issues, complicated bureaucracy and funding limitations, the Indonesian government has embarked on various reforms to overcome structural challenges that would help set the pace for successful and timely plant-ups. These are lauded as positive steps to help improve investor confidence and the bankability of projects. (ends)