RI turns to China for power plant projects

With China having pledged the majority of financing for Indonesia's first 10,000 megawatt (MW) power plant project, the government is again seeking China's help to fund a second 10,000 MW plant, a minister says.

In a meeting with Chinese President Hu Jintao on Thursday in Beijing, Indonesian President Susilo Bambang Yudhoyono offered an closer ties between the two countries, including in the energy sector, at a time when world economy is taking a pummeling.

Energy and Mineral Resources Minister Purnomo Yusgiantoro, who also attended the meeting, said Indonesia was optimistic China was relatively immune to the global credit crunch and still had plenty of cash to offer.

With more than 80 percent of the proposed 10,000 MW coal-fired power plant's financing coming from China, Purnomo said there was no reason why China could not play an equally pivotal role in the second phase of the program, which would promote the use of renewable energy sources in power generation.

"When you look around the globe, where else would you look for liquidity if not China, or perhaps the Middle East? We need more than US$10 billion (for the second program). That's not small money; we need to remain aggressive, especially at a time of crisis like this," Purnomo said.

He did not say how much investment Indonesia was expecting from China.

The first 10,000 MW program was launched in 2006 to meet the country's ever-increasing electricity needs, in particular in the Java-Bali system, where demand is rising at an average of 6.7 percent per year. To date, project contracts have been signed for an installed capacity of 8,700 MW.

The government, through state power firm PT PLN, has secured Rp 13 trillion and $1.5 billion from local and foreign banks respectively, in particular China Exim Bank and Bank of China.

Purnomo added the government was so upbeat about China's participation in the second program that it was considering adopting the independent power producer (IPP) scheme -- a business-to-business deal requiring no government guarantee -- in the second program.

The current program obliges the government to provide investors with some form of guarantee.

"We are seriously considering turning to the IPP scheme for the second program. This of course would be good for the state budget because no guarantee would be needed. And the responses so far are relatively good. They basically said 'no problem'," he said, adding the ministry would continue working on the matter.

"They are even ready to provide so-called concessional loans for the government, on top of their financing commitment for the projects, just as they did for the first program (worth $400 million)."

Also on Thursday, President Yudhoyono Susilo and his delegation met with representatives of China Exim Bank and other companies to discuss investment opportunities in Indonesia, including in the power sector.

No details about the outcome of the meeting were available.

Also on the agenda during the Yudhoyono-Hu Jintao meeting was a push for the renegotiation of Indonesia's Tangguh liquefied natural gas (LNG) contract with the Chinese province of Fujian. The renegotiation is aimed mostly at revising up the commodity's price to better reflect current market prices.

The contract was signed in 2002, obliging Tangguh to supply LNG to Fujian for 25 years, beginning in 2009.

The contract has been heavily criticized for stipulating a fixed LNG selling price, rather than the progressive rate common to other gas deals to ensure rates remain consistent with market prices. The price of LNG has been pegged at $2.40 per million British thermal units (MMBtu) in the contract.

Presidential spokesman Dino Pati Djalal said the two leaders acknowledged the need for the contract renegotiation, with the renegotiation teams expected to finalize the process soon. Finance Minister Sri Mulyani Indrawati heads the Indonesian team, with Vice President Jusuf Kalla directly supervising the talks.

The talks must be completed before February next year when the plant enters its first phase of production.