PLTN gives Pertamina more time in Java 1 project

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Jakarta, Jakarta Post. State-owned energy forms PLN and Pertamina will slog through the planned construction of one of the country’s largest gas-fuelled power plants, although the two parties failed to link agreement by the deadline on Monday.

A consortium led by Pertamina has yet to sign a power purchase agreement (PPA for the construction of the 2 x 800 megawatt (MW) power plant with electricity provider PLN, although the latter has repeatedly threatened to put the project back on auction should the deadline pass before an agreement is reached.

However, things have changed now. PLN procurement director Supangkat Iwan Santosos said that PLN would not cancel the project, dubbed Jawa 1-giving the Pertamina-lead consortium a change to sit longer at the negotiating table.

“We do not know when we will manage to sign the PPA. We are still waiting for a complete review and need some time to complete ant terms that have not yet been agreed upon,” he said, declining would extended.

Under and independent power producer (IPP) scheme, the consortium will construct a power plant worth USD 2 billion in Bekasi, West Java and sell the electricity to PLN for distribution in the Greater Jakarta and Wes Java areas.

Pertamina, along with Japan’s Marubeni and Sojitz Corporation, won the bidding after offering the lowest price of 5.5 US cents per kilowatt hour (kWh) of electricity for PLN to purchase. Thus, the consortium was obliged to sign the PPA within 45 days after the winner was announced.

The consortium outbid a group consisting of local energy company PT Adaro Energy and Singapore’s Sembcorp and another group comprising local firm PT Rukun Rahardja and Mitsubishi Corporation.

If PLN revokes the decision because of unresolved disagreement the Adaro-led consortium was ready to sign the PPA, Pertamina gas and power commercialization vice president Ginanjar said the bankability of the project remained a main concern to lenders.

“One of the issues that remain an obstacle is the issue of bankability, which has already been voices by lenders even before bidding started. The (the concerns) were raised during the market sounding phased,” he told the Jakarta Post.

One of the main issues questioned by the potentials lenders was the liquefied natural gas ILNG) supply. According to Ginanjar, the Jawa 1 power plant will 20-21 cargo loads of LNG to reach 60 percent of its operating capacity.

Furthermore, Ginanjar vehemently denied allegation that Pertamina has demanded PLN buy 92 percent of the plant’s electricity production capacity, instead of maximum of 60 percent as stipulated by the electricity firm’s own bidding rules.

“any technical and economic issues such as capacity have already been managed. This is a high-profile project involving at least 18 international and domestic companies, and Pertamina, alongside its partners is committed to making this project fly,” he said.

Responding to the case, Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said it was understandable that lender were concerned about the LNG supply it would be provided by PLN as the buyer and not Pertamina as the producer.

PLN has previously ensured that the gas supply for Java 1 would be procured from BP Indonesia’s Tangguh field in West Papua. As the electricity firm does not have any gas field of its own, it will depend on the government and the Upstream Oil and Gas Regulatory Task Force (SKK Migas).

“Lenders will see there is a quite high risk lending a higher (lending) rate. Furthermore, the Pertamina consortium may also have to cover multi-risk mitigation costs if any happens to the gas supply,” he said.

The project is one of the biggest in President Joko “Jokowi” Widodo’s signature electicity procurement program, the 35,000 MW project- a continuation of the 10,000 MW policy launched by the president Susilo Bambang Yudhoyono during his tenure in 2005 in order to maintain reserve margins.

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