Govt sets incentives for geothermal projects

Govt sets incentives for geothermal projects

JAKARTA (JP): The government will handle the exploration of
geothermal steam in the future before offering it to independent
power producers (IPPs), a senior official said here on Friday.

Director General of Electricity and Energy Development Endro
Utomo Notodisuryo said that the new scheme, part of the
incentives now being prepared to encourage geothermal power
development, would reduce investors' costs.

He said that the draft of the new policy was still awaiting
the President's approval.

"We finished the draft of the new policy and it has been sent
to the State Secretariat for approval by the President," Endro
said in a press conference.

Endro said geothermal investors had ascribed the high price of
their geothermal power to the large investment they spent on
exploration activities.

The government would thus carry out the exploration with its
own financial resources so that investors would not need a large
investment for such projects.

Under the new policy, investors would be able to produce at
lower costs, he said.

"Such a scheme has been carried out in countries like Costa
Rica and the Philippines, where investors develop geothermal
power projects using the resources that were explored by the
government," Endro said, adding geothermal power prices were much
lower in those countries than in Indonesia.

Endro noted, however, that the new policy would only be
applied on new geothermal contracts.

IPPs that have signed power purchase agreements with state
electricity company PT Perusahaan Listrik Negara (PLN) will still
follow the terms of their contracts, Hendro said.

PLN has signed contracts to buy geothermal power from 11 IPPs
at an average price of 7.4 US cents per kilowatt hour (kwh).

In comparison, PLN buys power from coal-fired power producers
for 6.4 cents per kwh.

PLN staff expert Ciptono Udimulyo said at the press conference
the Philippines government could reduce the price of geothermal
power produced by IPPs to about 5 US cents per kwh after carrying
out the exploration on its own.

Endro said under the draft presidential decree, the government
would transfer the right for the exploration of the country's
geothermal resources from state oil and gas company Pertamina to
the Directorate General of Volcanology.

In the past, the government often tried to take over the
geothermal exploration rights but it was never successful due to
the strong lobby launched by Pertamina against the move.

Under the existing regulation, IPPs have to hand over 29
percent of their net operating income to the government in taxes
and another 9 percent in fees to Pertamina.

Endro said the Directorate General of Volcanology was expected
to carry out the exploration activities using soft loans borrowed
by the government.

"The government will receive royalties in return from the IPPs
in return for the exploration the directorate general has done,"
Endro said.

According to Ciptono, the exploration costs for the production
of 50 Megawatt geothermal power amount to between US$7 million
and $16 million for between 2.5 years and six years.

IPPs have to invest about $90 million to exploit the
geothermal steam and produce power from it. (jsk)