INDONESIA POWER HIGHLIGHTS-JULY 2006

UNCLAS SECTION 01 OF 02 JAKARTA 009867 SIPDIS DEPT FOR EAP/MTS AND EB/ESC/IEC DEPT PASS OPIC, EXIM, TDA DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 COMMERCE FOR USDOC 4430 SIPDIS E.O. 12958: N/A TAGS: EPET ENRG EINV PREL ID SUBJECT: INDONESIA POWER HIGHLIGHTS-JULY 2006 ¶1. Summary. On July 5, the Government of Indonesia (GOI) issued Government Regulation 26/2006, revising provisions for electricity purchases under the direct appointment method. On July 18, the Minister of Energy and Mineral Resources issued Decree 44/2006 for the purchase of power under the Accelerated Energy Diversification Plan. On July 5, the GOI also issued Presidential Regulation 71/2006 directing state electricity company PLN to accelerate the development of coal-fired plants. On the same day, the GOI also issued Presidential Regulation 72/2006 creating the Coordinating Committee for the Accelerated Development of Power Plants. On July 24, Jakarta's Muara Tawar power plant suspended operations due to a lack of fuel. On July 17, the Cilacap power plant was also down following an earthquake and tsunami. This report uses an exchange rate of Rp 9,070/USD as of July 31, 2006. Power Regulation Amended -------------- ¶2. On July 5, the GOI issued Government Regulation 26/2006, the second amendment to Government Regulation 10/1989 on Electricity Supply and Utilization. The regulation revises provisions for the purchase of electricity from independent power producers. The regulation permits the direct appointment of electricity producers using renewable energy sources and those expanding existing facilities. Under the decree, the Minister of Energy and Mineral Resources will have the authority to establish the electricity reference price for directly appointed producers. ¶3. On July 18, the Minister of Energy and Mineral Resources issued Decree 44/2006 for the Purchase of Power under the Accelerated Energy Diversification Program for Coal Fired Power Plants. The decree establishes three types of reference prices for electricity produced from non-mine mouth, coal-fired plants. For contracts denominated in Rupiah, the maximum price is Rp 520 (USD 0.057) per kwh. For contracts denominated in US dollars, the maximum price is USD 0.0495. Alternatively, producers may choose to link their contract to state electricity company PLN's retail selling price. In that case, the contracted price is capped at 70 percent of retail tariff. Table 1: Electricity Prices for New Coal Fired Plants -------------- -------------- Plant Size Scenario 1 Scenario 2 Scenario 3 (Rp/kwh) (USD/kwh) percent -------------- -------------- Up to 25 MW 520 0.0495 70 150 MW to 150 MW 495 0.0475 65 More than 250 MW 485 0.0450 60 Note: Kwh (kilo watt hour) PLN to Accelerate Development of Coal-Fired Plants -------------- -------------- ¶4. On July 5, the GOI also issued Regulation 71/2006 directing PLN to accelerate the development of coal-fired plants with the goal of adding 10,000 MW of generating capacity to the national grid by 2009. The GOI also gave PLN the task of expanding the network of transmission lines within the next three years. According to the regulation, PLN must use an open and competitive tender process in selecting the contractors. However, PLN is permitted to make direct appointments of contractors when they bring their own financing to the project. The regulation requires PLN to submit monthly progress reports to the Ministers of State-Owned Enterprises, Finance, and Energy and Mineral Resources. ¶5. The regulation includes a list of 10 projects in Java and 30 projects outside the Java-Bali grid under the accelerated development program. On July 10, PLN announced a request for proposals (RFP) for the 10 power projects on Java. These projects will add at least 6,900 MW supply to the Java-Bali grid. According to media reports, Vice President Jusuf Kalla said that the government is prepared to consider offering comfort letters to power investors. JAKARTA 00009867 002 OF 002 Table 2: List of Tendered Coal Fired Power Projects in Java -------------- -------------- Project Name Unit Generator Location Output(MW) -------------- -------------- 1 PLTU* 2 Banten 2 300-400 Labuan,Banten 2 PLTU 3 Banten 3 300-400 Tangerang,Banten 3 PLTU 1 Jawa 3 300-400 Indramayu, Barat West Java 4 PLTU 2 Jawa 3 300-400 Pelabuhan Ratu, Barat West Java 5 PLTU 1 Jawa 2 300-400 Rembang, Central Tengah Java 6 PLTU 1 Jawa 2 300-400 Pacitan, East Timur Java 7 PLTU 3 Jawa 2 300-400 Tuban, East Java Timur 8 PLTU 1 Banten 1 600-700 Suralaya, Banten 9 PLTU 2 Jawa 1 600-700 Paiton, East Timur Java 10 PLTU 2 Jawa 1 600-700 Tanjung Jati, Tengah Central Java Note: PLTU refers to coal fired plant Source: PLN ¶6. Also on July 5, the GOI issued Regulation 72/2006 creating the Coordinating Committee for the Accelerated Development of Power Plants. Former Director General of Electricity and Energy Utilization Dr. Ir. Yogo Pratomo was appointed chairman. The main function of the committee is to implement the GOI's above-mentioned crash program to add 10,000 MW of generating capacity to the national grid by ¶2009. The committee's term expires December 31, 2009. Java-Bali Grid Updates -------------- ¶7. On July 24, Jakarta's Muara Tawar power plant suspended operations due to a lack of fuel. The 840 MW combined cycle plant was completely shut down for one day and operated at only 140 MW capacity in the following three days. The Muara Tawar supply shortage did not cause a power deficit in the Java-Bali grid, but only because PLN initiated rotating blackouts throughout the greater Jakarta area. Lack of fuel has been a persistent problem for the Java-Bali grid in the past few months, which industry analysts say highlights the need for better coordination between PLN and Pertamina. ¶8. On July 17, the Cilacap power plant was also forced to shut down following an earthquake and a tsunami in Pangandaran, West Java. The plant, which came online in May 2006, resumed operations the next day after a PLN inspection. In July, the Java Bali grid operated on an average reserve margin of 1,382 MW or 7.3 percent of installed capacity, which was a significant improvement over April and May though still below world best practices. Table 3: Selected Power Statistics (Java-Bali Grid) -------------- -------------- Apr May Jun -------------- -------------- Capacity (MW) 18,683 18,683 18,683 Peak Load (MW) 14,178 14,279 14,405 Average Reserve (MW) 590 825 1,483 Average Reserve margin (percent) 3.2 4.4 7.9 PASCOE