Indonesia looks into co-insurance scheme for future IPPs<\/p>\n
JAKARTA (JP): The government is planning to set up a co-
\ninsurance scheme with the World Bank to protect power projects in
\nthe country against risks which may stem from social and
\npolitical uncertainties, according to an executive of global
\nenergy organization World Energy Council (WEC).<\/p>\n
Chairman of WEC's local branch, the Indonesian National
\nCommittee, Endro Utomo Notodisuryo said the co-insurance scheme
\nwas aimed at allowing the government or the state electricity
\ncompany to share political risks with independent power producers
\n(IPP).<\/p>\n
\"Investors and the country where they invest must bear equal
\nrisks,\" Endro, who is also former director general of electricity
\nand energy development at the Ministry of Energy and Mineral
\nResources, told reporters during a press meeting.<\/p>\n
He said the co-insurance scheme was initiated by WEC to
\npromote power investment and protect power projects in African
\nand Southeast Asian countries with high political risks.<\/p>\n
Under the scheme, each country and investing IPPs must pay an
\nannual premium to the co-insurance firm.<\/p>\n
\"If anything goes wrong, they (the countries and IPPs) can
\ndraw their claim from this insurance firm,\" he explained.<\/p>\n
However, the government and the World Bank would meet in April
\nto hammer out details of the co-insurance scheme, he said.<\/p>\n
According to him, Indonesia suffers from its current contracts
\nwith the IPPs because of the absence of a co-insurance scheme.<\/p>\n
\"The IPPs have turned Indonesia into their investment
\nexperiments without being willing to bear the risk of failure,\"
\nEndro complained.<\/p>\n
When Indonesia opened its power sector to private investors
\nduring the mid-1990s, state power company PT PLN signed 27 IPP
\ncontracts to cope with a surge in power demand.<\/p>\n
During the economic crisis however, power demand dropped and
\nthe rupiah fell sharply against the U.S dollar, thus raising the
\nprice of power in rupiah sold by the IPPs to PLN.<\/p>\n
Under the 27 contracts, PLN buys electricity from the IPPs at
\nan average price of 6 U.S. cents per kilowatt per hour (kWh)
\n(about Rp 580 at the current exchange rate), as compared with its
\naverage selling price of Rp 240 per kWh.<\/p>\n
The government subsequently canceled construction of some of
\nthe power projects.<\/p>\n
But that decision caused a backlash when the United States
\nstate-owned insurance firm Overseas Private Investment Corp.
\n(OPIC) billed Indonesia with a US$290 million insurance claim
\nfrom IPP MidAmerican Energy Holding.<\/p>\n
MidAmerican called in its OPIC insurance claim, after
\nIndonesia suspended its power plant project in Patuha, West Java,
\nand after PLN refused to pay for power from MidAmerican's
\ngeothermal power plant in Dieng.<\/p>\n
Endro said that under the co-insurance scheme, Indonesia would
\nnot be obliged to pay compensation for losses caused by political
\nrisks.<\/p>\n
However, he added, if such a scheme was established, Indonesia
\ncould not force the IPPs to join it.<\/p>\n
\"Indonesia joining the co-insurance scheme has no impact on
\nthe existing contracts with the IPPs,\" he explained.<\/p>\n
Visiting WEC secretary-general Gerald Doucet also charged that
\nthe contractual period of 30 years for the power purchase
\nagreements signed by PLN and IPPs was too long.<\/p>\n
\"The IPPs are too dependent on long term contracts, while the
\nburden falls mainly on the government or the people of
\nIndonesia,\" Doucet said.<\/p>\n
He did not say what the ideal contract term was, but added
\nthat a co-insurance scheme would help balance the rights and
\nobligations between the IPPs and governments.<\/p>\n
Doucet also criticized Indonesia for hampering the entrance of
\nnew IPPs by continuing to subsidize power prices.<\/p>\n
To attract foreign investors for the power sector, Indonesia
\nshould allow market prices to drive the competition, he
\nsuggested.<\/p>\n
He called for power market reform, where competition would
\nresult in providing affordable power prices to the public.<\/p>\n
The government is drafting a new electricity law as part of a
\nderegulation of the power sector, and is expecting to submit its
\nbill to the House of Representatives sometime this year.(bkm)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/indonesia-looks-into-co-insurance-scheme-for-future-ipps-1447893297",
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"sponsor": "Okusi Associates",
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