Electricity industry can turn to banks, bonds for financing
Fitri Wulandari, The Jakarta Post, Jakarta
Power shortage woes in the country might just have a way out, as domestic financing sources such as banks and the bond market are now ready to provide financial backup for power projects, according to experts.
Ventje Rahardjo of Bank Mandiri and Desimon of investment firm PT Danareksa said there was now growing interest in investing in the country's power sector amid increasing demand for the commodity.
The two were speaking last week at a seminar on financing the power sector.
Bank Mandiri commercial banking director Ventje said that a domestic financing source for the power sector had become crucial, as foreign investors were still reluctant to invest in the sector, particularly due to problems in the past suffered by 27 independent power producers (IPPs), mostly foreign companies.
A power crisis is looming in the country, amid limited supply and rising demand.
PLN has installed capacity of around 21,000 megawatts (MW) nationwide with some 18,000 MW for densely populated Java and Bali island.
However, in reality PLN can only provide 12,000 MW to 14,000 MW in Java and Bali alone, while the peak load in Java and Bali can reach more than 13,000 MW.
The Asian Development Bank (ADB) said state power company PLN needed new investments amounting to US$28.5 billion to the year 2010 in order to meet increasing power demand.
Relying on the cash-strapped, state-owned power company PLN would not be feasible. PLN's internal source of funds is dependent upon its power sales. Although PLN has increased its power rates several times, it claims it still has to give a subsidy of 11 percent to 17 percent in order to make its power price affordable to households, which make up the majority of its customers.
The scope for seeking loan from multilateral agencies is also limited. Multilateral agencies such as the ADB have stopped financing power generator projects for Java and Bali.
Eddy Soeparno of Dutch bank ABN-Amro said this situation had been worsened due to the fact that international lenders were still traumatized by the lengthy dispute between the IPPs and the government.
With such limited financing sources, Eddy said new investment could only come from local investors.
Ventje said that the banking industry was now in a very liquid condition as the average loan-to-deposit ratio (LDR) was still currently at a low level of 40.8 percent. Most banks have put their money in Bank Indonesia SBI promissory notes.
"Judging from the SBI and LDR, the banking industry is still capable of expanding its loan," Ventje said.
Law No. 22/2002, which had liberalized the power sector, also provided more certainty for investment in the sector, experts have said.
According to Ventje, Bank Mandiri has provided financial backing for two power generation projects. It has also set up a medium financing scheme for power generation, with a value of US$10 million to $30 million.
He said that investing in the power sector could provide a return of 17 percent to 20 percent, compared with a SBI interest rate that had declined to single digits, at around 9.53 percent.
Meanwhile, Desimon also said that the expanding bond market was poised to become a significant alternative financing source.
He said that, so far, bonds issued by power-related entities only made up 2.2 percent, or Rp 600 billion of the total outstanding bonds issued, worth Rp 27.75 trillion.
He said that investors in other Southeast Asian countries had now become more confident in investing in bonds issued by power companies.