INDONESIA ELECTRICITY AND GEOTHERMAL HIGHLIGHTS - NOVEMBER

UNCLAS SECTION 01 OF 02 JAKARTA 002241

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SUBJECT: INDONESIA ELECTRICITY AND GEOTHERMAL HIGHLIGHTS - NOVEMBER
2008

JAKARTA 00002241 001.2 OF 002



1. Summary. Growth of the Indonesian electricity sector has been
insufficient to keep up with GDP growth and requires significant
additional investment. The government plans for independent power
producers to contribute to future growth, but Indonesia must provide
additional financial guarantees to attract sufficient business
interest. The 10,000 MW Fast Track program is proceeding, but
Indonesian financing has been difficult. There have been four new
geothermal tenders this year, the first group under Indonesia's new
Geothermal Law. End Summary.

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Electricity Sector Growth and IPPs
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2. According to the Director of Program Supervision at Directorate
General of Electricity Emmy Perdanahari, during 2005-2008 GDP growth
was about 6.2% annually, electricity demand increased 7% per year,
but electricity generating capacity increased only 3.5% per year.
According to PLN data, as of 2007 PLN's installed capacity was
29,705 MW, in which 22,302 MW was in the Java-Bali grid. PLN
predicts that by 2018, there will be up to 31 million additional
customers. To meet the new demand, the Indonesian electricity
sector will need about $68.3 billion in new investment during that
time -- $31.4 billion for generation, $24.5 billion for
transmission, and $12.4 billion for distribution. PLN estimates it
needs 57,000 MW of additional capacity over 10 years, and they
expect independent power producers (IPP) to add about 22,000 MW,
with the remainder to come from PLN-owned plants.


3. Indonesia currently has 16 IPPs with 4,194 MW of generating
capacity, 10 in Java-Bali and 6 in other regions. As of October
2008, additional IPP projects were in the following stages, although
many of the projects may not go forward as planned:

- Construction: 11 Projects, 880 MW (Java-Bali 2; Other 9);
- Financing: 37 Projects, 3,187 MW (Java-Bali 6; Other 31);
- PPA Finalization: 14 projects, 3,040 MW (Java-Bali 4, Other 10);
and
- Evaluation and Bidding: 53 projects, 14,515 MW (Java-Bali 17,
Other 36).


4. Indonesia has had trouble attracting sufficient IPP interest to
meet its electricity generation goals, and industry observers have
indicated that in many cases PLN's Power Purchase Agreements (PPA)
were not sufficient guarantees for IPP financing, as they do not
carry the explicit backing of the Indonesian government. On
November 27, Minister of Energy and Mineral Resources (MEMR) Purnomo
Yusgiantoro sought to address this problem by stating that the
government will provide a financial guarantee, which would amount to
2.5%-5% of the total value of a project, to be used by IPPs in
applying for bank loans. The ministry has pooled funds amounting to
$600 million for the so-called Indonesia Infrastructure Fund (IIF),
which would benefit the development of power projects.

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10,000 MW Fast Track
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5. PLN's primary electricity generation expansion program remains
the 10,000 MW Fast Track program. Fast Track Phase I has a total
capacity of 9,549 MW planned for development in 35 projects in
Java-Bali (7,430 MW),Sumatera (1,245 MW),Kalimantan (415 MW),
Sulawesi (239 MW),and other islands (240 MW). Chinese companies
are the primary construction contractors on all but a few of the 35
projects, which will be owned and operated by PLN. To date, 8 out
of 10 projects inside Java-Bali and 6 out of 25 projects outside
Java-Bali have started with more than 10% progress. The government
projects the completion date of ongoing projects will be around
midyear 2010, with finance support from some foreign banks
coordinated by PLN and the Finance Ministry. Some industry
observers dispute the target date, noting that completion rates
offered by PLN reflect civil engineering only. No plants have yet
received boilers or other operational equipment.


6. Although much of the financing for the 10,000 MW Fast Track Phase
I program is done through concessionary loans from the Chinese
government, Indonesia must come up with a portion. Press reports
indicated that Indonesia would seek two sources of financing: an
international bond sale for about $1 billion, and a domestic
portion, originally expected to be about Rp 3 trillion ($273

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million). The government has not yet sought international
financing, but the domestic issuance has recently been scaled back
to Rp 1.5 trillion, Rp 500 billion of which they hope to raise
through sharia banking sources.


7. Four coal suppliers for the new plants have been identified
through public tender: PT Baramutiara Prima, PT Titan Mining
Energy, a consortium of PT Senamas Energindo Mulia and PT Kasih
Industri Indonesia, and PT Arutmin Indonesia with PT Darma Henwa.
Those four companies shall supply ten power plants in Java-Bali with
18,691 million ton of coal per year, to produce 6,900 MW of
electricity. The first coal delivery is scheduled for the second
quarter of 2009.

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Geothermal Progress 2008
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8. Indonesia has 40% of the world's geothermal resources, with total
potential resources of 27,510 MW. As of 2008 installed capacity was
only 1,042 MW, of which 1,000 MW is located in Java, 40 MW in
Sulawesi, and 2 MW in Sumatera. On October 21, President of the
Indonesian Geothermal Association Surya Darma said that the
Indonesian government has an ambitious target to install up to 9,500
MW of geothermal generating capacity by 2025. Four geothermal
tenders have been awarded in 2008, the first projects under the 2003
Geothermal Law, as follows:

- Cisolok (W Java),45 MW - Indonesia Power, August 2008;
- Tangkuban Prahu (W Java),220MW - Indonesia Power (in partnership
with U.S. company Raser Technologies, Inc.),August 2008;
- Tampomas (W Java),50MW - Wijaya Karya, August 2008; and
- Jailolo (N Maluku),75 MW - Star Energy, December 2008.

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