Energy investors back to Indonesia

Energy investors back to Indonesia

Fitri Wulandari, The Jakarta Post, Jakarta

After being considered a pariah nation for years by power
investors, Indonesia has started to regain investor confidence,
largely due to the successful resolution of disputes with
independent power producers (IPPs), a senior official said on
Friday.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
told a discussion at The Jakarta Post that proposals from IPPs to
set up new power projects had been on the increase.

The government, which until recently was gripped by worry over
a possible power crisis in the future, has become more optimistic
that such a crisis will not materialize.

"The investment climate (within the power sector) has been
improving," Purnomo said.

He did not elaborate on the number of power project proposals
the government had received but said Sumatra, Kalimantan and Java
were the regions that had attracted most investors.

Indonesia was embroiled in disputes with dozens of leading
global power investors for years after the economic crisis,
following the government's decision to suspend most of the power
projects, and state electricity firm PT PLN's refusal to honor
the contracts.

After years of negotiation, the government managed last year
to settle disputes with all 27 IPPs, apart from American firm PT
Karaha Bodas Company, which is still pursuing legal redress in
the U.S. to win compensation for its suspended project. The firm
has a geothermal power project in Garut, West Java.

Of the 26 project owners, 14 agreed to continue projects and
reduce the price of the electricity they generate, seven agreed
to terminate their projects and five agreed to transfer their
projects to state oil firm PT Pertamina and PLN.

Purnomo is optimistic the dispute with Karaha Bodas can also
be settled out of court.

Given the protracted dispute and suspension of the projects,
most analysts had previously predicted that Indonesia would face
a serious power crisis in the near future.

Purnomo, however, dismissed such fears, saying more power
plants were due to come onstream this year and in subsequent
years to meet the growing demand for power.

Approximately 3,500 MW of additional power supplies will enter
the market from 2004 to 2006 with the completion of the Cilegon,
Muara Tawar, Cilacap and Tanjung Jati B power projects.

In June this year, completion of the repowering project for
the Muara Tawar power plant in Bekasi, West Java, will bring an
additional 800 MW into the Java-Bali power grid, while the
Cilacap and Cilegon power plants, which are expected to come
onstream next year, will add 600 MW and 750 MW respectively to
the existing supply. Cilegon is located in Banten, and Cilacap in
Central Java.

Another 1,329 MW of capacity will come onstream in 2006 with
completion of the giant Tanjung Jati B power plant in Central
Java.

"Thus, in the short run, we can cope with additional power
demand," the minister said.

Purnomo said although no new factories had been built over the
past few years due to lack of investment, demand for electricity
from domestic customers had kept growing.

Power demand has been growing at an average of 7 percent
annually over the past few years -- higher than the country's
economic growth of about 4 percent.

The national power supply now stands at 21,000 MW, with the
Java-Bali grid accounting for 18,600 MW of this.