Senior minister opposes policy to review PPA

Petromindo

Coordinating Minister for Maritime Affairs Luhut B. Panjaitan, who also oversees the Ministry of Energy and Mineral Resources (MEMR), expressed disagreement over move by state-owned electricity firm PT PLN to review its power purchase agreements (PPAs) with independent power producers (IPPs).

Luhut said on Thursday that once a PPA has been signed, it is final and binding, and thus should no longer be reviewed. He added that the review of PPAs that have been signed by PLN would only undermine investment climate in the power sector.

On November 3, Director General of Electricity at MEMR, Andy Noorsaman Sommeng, sent a letter to PLN President Director Sofyan Basir requesting the state utility firm to review PPAs on large-scale coal fired power plant projects which have yet to start construction or have yet to obtain the so-called business feasibility guarantee letter (SKJU) from the Ministry of Finance, to ensure that the tariff of electricity from the PLTU projects does not exceed 85 percent of the local electricity supply cost (BPP) of PLN where the project is located. The move is part of efforts to bring down BPP, and eventually lower electricity tariff for PLN consumers.

The letter, leaked to the press last week, was welcome by PLN. Sofyan said that the company has reached agreement to amend the PPA for the Cirebon PLTU expansion project, lower the tariff from 6.1 US cents per kWh to 5.5 cents per kWh. He, however, said that the company was still in negotiation with Bakrie Group and YTL Group for lowering the electricity tariff of the PLTU Jawa-3 project.

Sofyan later said that the new policy will be expanded to include review of PPAs of existing PLTUs which have been in operation for more than 10 years to bring down the electricity tariff to below the 85 percent of BPP limit.

Secretary General of the Directorate General of Electricity, Agus Tribusono was quoted by kontan.co.id as saying that the intention of the revision of the PPAs is to bring down electricity tariff for consumers. He said that it?s quite reasonable for PLN to review PPAs of projects which have yet to start construction or have yet to obtain SKJU as it is not yet binding.

He added that the plan to review the PPAs of PLTUs which have been in operation for more than 10 years will be made in a business to business negotiation approach.

The Indonesian Private Power Producers Association (APLSI) has also opposed the PPA review, saying that it would undermine investment climate in the power sector.

Meanwhile, Bisnis Indonesia reported on Friday that banks plan to review its lending policy toward the power sector amid fresh uncertainty triggered by the move by PLN to review its PPAs with IPPs.

Vice President Director of BNI, Herry Sidharta said that the bank will reevaluate the feasibility of power plant projects run by IPPs before giving loans.

Lending to the power sector accounts for around 30 percent of BNI?s total outstanding loans to the infrastructure sector of Rp 92.4 trillion.

Bank Central Asia Economist David Samual said that the move by PLN to review its contracts with IPPs will create fresh uncertainty in the power sector, which will force banks to be more extra careful in lending money to the sector. (*)