Electricity industry can turn to banks, bonds for financing<\/p>\n
Fitri Wulandari, The Jakarta Post, Jakarta<\/p>\n
Power shortage woes in the country might just have a way out,
\nas domestic financing sources such as banks and the bond market
\nare now ready to provide financial backup for power projects,
\naccording to experts.<\/p>\n
Ventje Rahardjo of Bank Mandiri and Desimon of investment firm
\nPT Danareksa said there was now growing interest in investing in
\nthe country's power sector amid increasing demand for the
\ncommodity.<\/p>\n
The two were speaking last week at a seminar on financing the
\npower sector.<\/p>\n
Bank Mandiri commercial banking director Ventje said that a
\ndomestic financing source for the power sector had become
\ncrucial, as foreign investors were still reluctant to invest in
\nthe sector, particularly due to problems in the past suffered by
\n27 independent power producers (IPPs), mostly foreign companies.<\/p>\n
A power crisis is looming in the country, amid limited supply
\nand rising demand.<\/p>\n
PLN has installed capacity of around 21,000 megawatts (MW)
\nnationwide with some 18,000 MW for densely populated Java and
\nBali island.<\/p>\n
However, in reality PLN can only provide 12,000 MW to 14,000
\nMW in Java and Bali alone, while the peak load in Java and Bali
\ncan reach more than 13,000 MW.<\/p>\n
The Asian Development Bank (ADB) said state power company PLN
\nneeded new investments amounting to US$28.5 billion to the year
\n2010 in order to meet increasing power demand.<\/p>\n
Relying on the cash-strapped, state-owned power company PLN
\nwould not be feasible. PLN's internal source of funds is
\ndependent upon its power sales. Although PLN has increased its
\npower rates several times, it claims it still has to give a
\nsubsidy of 11 percent to 17 percent in order to make its power
\nprice affordable to households, which make up the majority of its
\ncustomers.<\/p>\n
The scope for seeking loan from multilateral agencies is also
\nlimited. Multilateral agencies such as the ADB have stopped
\nfinancing power generator projects for Java and Bali.<\/p>\n
Eddy Soeparno of Dutch bank ABN-Amro said this situation had
\nbeen worsened due to the fact that international lenders were
\nstill traumatized by the lengthy dispute between the IPPs and the
\ngovernment.<\/p>\n
With such limited financing sources, Eddy said new investment
\ncould only come from local investors.<\/p>\n
Ventje said that the banking industry was now in a very liquid
\ncondition as the average loan-to-deposit ratio (LDR) was still
\ncurrently at a low level of 40.8 percent. Most banks have put
\ntheir money in Bank Indonesia SBI promissory notes.<\/p>\n
\"Judging from the SBI and LDR, the banking industry is still
\ncapable of expanding its loan,\" Ventje said.<\/p>\n
Law No. 22\/2002, which had liberalized the power sector, also
\nprovided more certainty for investment in the sector, experts
\nhave said.<\/p>\n
According to Ventje, Bank Mandiri has provided financial
\nbacking for two power generation projects. It has also set up a
\nmedium financing scheme for power generation, with a value of
\nUS$10 million to $30 million.<\/p>\n
He said that investing in the power sector could provide a
\nreturn of 17 percent to 20 percent, compared with a SBI interest
\nrate that had declined to single digits, at around 9.53 percent.<\/p>\n
Meanwhile, Desimon also said that the expanding bond market
\nwas poised to become a significant alternative financing source.<\/p>\n
He said that, so far, bonds issued by power-related entities
\nonly made up 2.2 percent, or Rp 600 billion of the total
\noutstanding bonds issued, worth Rp 27.75 trillion.<\/p>\n
He said that investors in other Southeast Asian countries had
\nnow become more confident in investing in bonds issued by power
\ncompanies.<\/p>",
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"sponsor": "Okusi Associates",
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