Friday, February 3, 2017

Indonesia: New PPA Regulation Proving Controversial

Bankability Concerns Over New Generation of Indonesian Power Purchase Agreements (Lexology)

The Indonesian power sector has to date been the most successful of the infrastructure sectors in attracting private sector investment, and debt financing from both international and domestic lenders. The State power utility, PT PLN (Persero), has since the very early private sector power generation projects of the 1990s developed a robust and bankable Power Purchase Agreement (PPA) model for large scale power projects. Whilst there have been the inevitable tweaks to the PPA model over the past 20 years (coming from both the PLN side of the negotiation table as well as the developer/lender side), the model for large scale power projects remains today a solid one, and one that is able to mobilise private sector equity and debt funding.

Recent flagship projects that demonstrate the success of the current PPA model include the Sarulla Geothermal Project and many others.

However the Ministry of Energy and Mineral Resources on 19 January 2017 issued Regulation No. 10/2017 on Principles of Power Purchase Agreements (MEMR Reg. 10), which, for the first time in any material way, seeks to impose certain requirements as to what provisions must be built into PPAs in the power sector.

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