In July 2009, PLN announced it had secured full funding of $4.13 billion for 9 power plants in Java at Paiton, Suralaya, Labuan, Indramayu, Rembang, Pelabuhan Ratu and Teluk Naga. The China Export Import Bank (China Eximbank) has been the sole provider of dollar-denominated loans for the nine projects throughout Java Island, with the Indonesian government guaranteeing repayment. Outside Java, 20 of the 22 fast-track projects have secured full funding of Rp 10.26 trillion ($974.7 million), or 84 percent of the program’s funding requirements. The following provides highlights of Chinese financing deals and related issues (e.g. Chinese contracts, Merpati dispute, currency swap deal).
China had earlier agreed to finance most of the estimated $8 billion needed to construct dozens of coal-fired IPPs under PLN’s ambitious ‘fast-track’ program which aims to bring 10,000 MW on stream by 2011. In December 2008, Indonesia and China announced investment and financing deals totaling more than Rp 35 trillion ($3.22 billion) for projects including power plant development and oil and gas production. In January 2009, however, Chinese banks decided to halt funding of electricity projects, citing the global financial crisis. The banks also asked for an increase in the interest rates for both the funds that have been cashed in, as well as the funds that are now frozen. Chinese banks had by then disbursed $1.8 billion to finance coal-fired power plants in PAITON (EAST JAVA), and SURALAYA (BANTEN).
Jan 2009: China Development Bank pulled out of financing the 250-megawatt coal-fired power plant project in JENEPONTO (SOUTH SULAWESI) sponsored by PT Bosowa Corp, the largest diversified business group in eastern Indonesia. Bosowa has interests in the construction, finance and automotive sectors and is owned by tycoon and politician Aksa Mahmud, the brother-in-law of Indonesian Vice President Kalla.
Feb 2009: The Indonesian Energy Minister said Chinese banks had postponed most of the loans for fast-track power projects in retaliation for state-owned airline PT Merpati Indonesia’s alleged failure to abide by the terms of a $232 million contract with Chinese Xian Aircraft Industry Co for the purchase of 15 aircrafts, which were to be financed by the China Eximbank. Indonesian President Susilo Bambang Yudhoyono said the central government may turn to domestic banks as a last resort. [PLN had already secured $5.5 billion in funding from domestic banks including PT Bank Mandiri Tbk and PT Bank Negara Indonesia Tbk. PLN had also been in talks with the Qatar Investment Bank through its Malaysian unit, the Asian Finance Bank.]
March 2009: A high-level negotiation team went to Beijing in a last-ditch effort to resolve the dispute. China Eximbank appeared to have relented amidst reports it would release $186 million to finance two projects expected to generate 1,285MW starting in early 2010. For several smaller power-plant projects outside of Java Island, PLN negotiated with the Association of Provincial Development Banks (Asbanda) to provide Rp 4.5 trillion in financing. In end-March, a ministerial decree was issued aimed at spurring new investment in the electricity sector and which cleared the way for PLN to pay more for power purchased from IPPs; the decree also provided an opportunity for the renegotiation of existing contracts.
May 2009: PLN announced it had secured $1.4 billion worth of financing from China Eximbank and Bank of China (BOC). The China Eximbank facility will be used to build three coal-fired power plants ($482 million, 900MW plant in PELABUHAN RATU (WEST JAVA), and $124 million, 200MW plant in ACEH), while the BOC facility will be used to construct $455 million 900MW TELUK NAGA (BANTEN). The China Eximbank facility has a 15-year tenure, while that from BOC has a 13-year term; both include three-year grace periods, with the interest rates based on the London Interbank Offered Rate.
July 2009: PLN signed loan agreements with China Development Bank for $468 million to finance 660MW plant in CILACAP (CENTRAL JAVA), and China Eximbank for $293 million for 630MW plant in PACITAN (EAST JAVA). PLN had also secured $1 billion in new loan deals with China Eximbank and the Bank of China for the construction of 990MW power plant in INDRAMAYU (WEST JAVA), and 600MW plant in TANJUNG AWAR-AWAR (EAST JAVA). PLN had by now been backing away from constructing coal-fired plants due to a funding shortfall and due to dramatic drop of global oil price since 2008, making coal less economic.
MERPATI DISPUTE -- China is again pressuring the Indonesian government to honor the 2006 Merpati aircraft deal after Chinese banks agreed to finance much of the country’s “fast track” energy program. The aircraft dispute was blamed for holding up loans from Chinese banks in early 2009. The dispute is over an agreement by state-owned PT Merpati Nusantara Airlines to purchase 15 passenger aircraft worth $232 million from Chinese firm Xi’an Aircraft International using a soft loan facility from China Eximbank, before saying it could not afford them. Saddled with financial problems that had prompted dramatic cuts in staff and flight routes, Merpati had since tried to distance itself from the deal and refused to accept the planes on the delivery date. By October 2008 the deal was embroiled in charges of corruption and allegations that Merpati officials had overpaid for the planes in return for kickbacks. Merpati and the government started putting pressure on Xi’an to lower the prices of the planes, but Xi’an insisted on the prices stated in the contract. The aircraft maker has threatened to take Merpati to international arbitration in Singapore to recover a claimed $90 million in damages, souring bilateral relations between China and Indonesia and raising fears of a wider trade war. In February 2009, an Indonesian member of parliament called for a corruption investigation into the stalled plane purchase. After a negotiation team went to China in March 2009, the dispute was reportedly solved.
CHINESE FIRM THREATENS PLN WITH $100M SUIT – In June 2009, Chinese news reports said that Chinese firm Shanghai Electric Group may sue PLN for $100 million over its failure to hoor a 2007 contract for the construction of a $100 million coal-fired power plant to replace a West Java plant run on bunker fuel; the power plant was not identified. [In September 2007, PLN was reportedly involved with a consortium led by Shanghai Electric for the construction of a coal-fired power plant worth $800 million in the West Java beach-resort town of Pelabuhan Ratu; the plant was to have three generating units with a capacity of 350MW each. Shanghai Electric was also reported to be working with electrical contractor PT Truba Alam Manunggal to build a 250MW coal-fired power plant in Kuala Tanjung (North Sumatra), estimated to cost $200 million.]
OTHER CHINESE DEALS – (1) A Chinese-Indonesian consortium won a $749 million engineering, procurement and construction deal contract with PLN to build a 660MW coal-fired power plant in Cilacap (Central Java); the consortium is made up of China National Technical Import and Export Corp and Shanghai Electric Group Co, along with local firms PT Cahaya Mulia Energi Konstruksi and PT Bajragraha Sentranusa. The plant is expected to cut PLN’s operational costs by Rp 2 trillion a year. (2) PLN entered into a a 30-year contract with Chinese energy firms Gua Hua and Shenhua where PLN will buy electricity from their 227MW Muara Enim Simpang Belimbing plant (South Sumatra) for 4.28 cents per kwh. (3) Oil and gas regulator BP Migas entered into a $642 million agreement to extend a Madura Strait production-sharing contract from 2012 to 2032, held by China National Offshore Oil Corp (CNOOC) and Husky Madura, a unit of Canada-based Husky Oil Ltd. (4) In 2007, Husky signed three agreements with PLN to purchase a total of 100 million cubic feet per day of natural gas from the block; it also signed a joint venture coal mining agreement worth $14.4 million in Bangko Tengah (South Sumatra), and a $255 million contract to build a biodiesel plant and a raw materials base in Jambi and South Sumatra provinces.
CURRENCY SWAP DEAL – Chinese banks and Chinese power contractors welcomed a proposed plan to swap rupiah directly to yuan in order to reduce foreign exchange losses. In March 2009, China and Indonesia signed an agreement on a three-year currency deal worth 100 billion yuan ($15 billion); most of the funding, equipment and expertise for the fast track project will come from China and the swap agreement will reduce inefficiencies resulting from currency transfers. -- VPC
SOURCES:
China puts pressure on Merpati (October 15, 2009, Janeman Latul)
http://thejakartaglobe.com/business/china-puts-pressure-on-merpati/335784
PLN to borrow $293.2m from Cexim for ‘fast-track’ (July 17, 2009, Dion Bisara) http://thejakartaglobe.com/business/pln-to-borrow-2932m-from-cexim-for-fast-track/318803]
PLN may face $100m suit from China firm (June 12, 2009, Jakarta Globe)
http://thejakartaglobe.com/business/pln-may-face-100m-suit-from-china-fi...
PLN to borrow $761m from China for fast-track program (May 25, 2009)
http://thejakartaglobe.com/resources/pln-to-borrow-761m-from-china-for-f...
Chinese banks to loan PLN $1.06b (May 04, 2009, Nusa Dua, Bali)
http://thejakartaglobe.com/justAdded/chinese-banks-to-loan-pln-106b-/275112
China likes power plan currency swap deal (April 30, 2009) http://thejakartaglobe.com/justAdded/china-likes-power-plan-currency-swa...
PLN hopes switching debts to yuan will help cut back on costs (April 24, 2009)
http://thejakartaglobe.com/justAdded/pln-hopes-switching-debts-to-yuan-w...
PLN to hedge $3.3bn to offset last year’s losses (April 17, 2009)
http://thejakartaglobe.com/justAdded/pln-to-hedge-33bn-to-offset-last-ye...
PLN to sign $1.4bn power-plant loan deals with China, despite Merpati spat (April 13, 2009)
http://thejakartaglobe.com/justAdded/pln-to-sign-14bn-power-plant-loan-d...
PLN to pay more for power from IPPs in a bid to spur investment in sector (April 06, 2009)
http://thejakartaglobe.com/justAdded/pln-to-pay-more-for-power-from-ipps...
China Exim releases $186m (March 02, 2009, Reva Sasistiya, Mita Valina Liem & Janeman Latul)
http://thejakartaglobe.com/business/china-exim-releases-186m/308970
Power loans tied up over Merpati (February 23, 2009, Mita Valina Liem)
http://thejakartaglobe.com/national/power-loans-tied-up-over-merpati/308394
PLN hopes to secure ‘fast-track’ funds from China despite financing freeze (February 10, 2009, Mita Valina Liem)
http://thejakartaglobe.com/business/pln-hopes-to-secure-fast-track-funds...
Funding Spat Puts the Brakes On Fast-Track Power Project (February 09, 2009, Mita Valina Liem)
http://thejakartaglobe.com/business/funding-spat-puts-the-brakes-on-fast...
Bosowa power plant project postponed as China Development Bank pulls out (January 30, 2009, Janeman Latul)
http://thejakartaglobe.com/business/bosowa-power-plant-project-postponed...
Indonesia, China Announce Oil, Gas and Power Deals (December 22, 2008, Reva Sasistiya) --
http://thejakartaglobe.com/business/indonesia-china-announce-oil-gas-and...
PLN: $1.5 billion loan for coal-fired plants (Nov. 14, 2007, Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601080&sid=aYFWaUILUkPg&refer=a...