APLSI Warns Government on Unilateral Review on PPAs

Wednesday, 22 November 2017 , 11:00:00 WIB -

Worker are seen maintaining the electricity system of the Mandalika Special Economic Zone Lombok Tengah, Nusa Tenggara Barat, Tuesday (7/11). (ANTARA)

JAKARTA, GRES.NEWS – The government’s initiative to instruct state-run electricity company PT PLN to review several power purchase agreements (PPA) may arouse new problems.

"The evaluation will taint the sanctity of the contracts and create risk of default for the related independent power producers (IPP)," said Rizka Armadhana, Vice General Treasurer, Indonesian Private Power Producers Association (APLSI), in a press release sent to gres.news, Tuesday (21/11).

Rizka said investors in the electricity sector will translate the reviews as investment uncertainty and will also raise the credit risk for power plant projects.

"It would mean that regulations can change easily. It would mean uncertain return on investment. Financial institutions will take such factors into account and will raise the cost of fund for power plant investors interested in participating in the 35,000 MW Program," Rizka said.

Rizka further stated that financial institutions that had great confidence in power plant projects, especially with the 35,000 MW Program, would lose their appetite as the government is showing that regulations can change easily. Thus, they would have to raise the credit risk for power plant constructions.

Rizka warns that the unilateral reviews will cause investors to lose confidence on the government, which would be ironic bearing in mind that the government is making efforts to improve the country’s investment climate.

"Investors would doubt the commitment of our regulators as egulations can change easily. This would create a negative sentiment (for the country’s investment sector, red)," according to Rizka.

It has been reported that the Directorate General of Electricity of the Ministry of Energy and Mineral Resources has instructed PT PLN President Director, Sofyan Basir, to review PPAs with large steam power plant projects in Java that have not entered construction phase and have not acquired a Business Feasibility Guarantee Letter from the Ministry of Finance.

Director General of Electricity, Andy Noorsaman Sommeng, had explained that the move aims at assuring affordable electricity for customers. (mag)