JAKARTA. After promising to revise regulation on insurance, State Electricity Company (PLN) changed its stand point. Recently, PLN decided to maintain the regulation for investor to deposit project insurance funds at 10% of investment value.
Head of Corporate Communication at PLN I Made Suprateka said the regulation aims at measuring the seriousness of independent power producer (IPP). Before the regulation released, some of PLN’s projects were dormant. Therefore, PLN had to sell the projects.
The insurance funds will increase mutual trust between PLN and IPP. In this case, PLN requires IPP to have sufficient capitals to join bid for power plant that has a capacity of 35,000MW.
Therefore, the project will attract funding investors. Suprateka said that PLN found the case of where some IPPs, which have fewer funds, sell the project to other parties after won the bidding.
The dormant projects will cause the target to realize a 35,000MW of power plant projects to be stagnant. Furthermore, this may lead financial institutions to give bad ratings to PLN projects, because the financial institutions usually conduct due diligence process related to the identity, track record, and financial condition of the project implementer. In this case, the financial institution will be financing the project after having a guarantee that the project will be completed.
Made stressed that in order to maintain the healthy competition, PLN is not discriminative to local and foreigner investors in applying the regulation. Both local and foreign investors, which involve in investment in electricity sector, may conduct natural hedging.
Made added that IPP needs sufficient funds to complete the project and secure investor’s trust.
However, Executive Chairman of Indonesian Private Electricity Entrepreneurs Association (APLSI) Arthur Simatupang said that the dormant projects were caused by complicated regulations, slow process of land acquisition, and problems related to contract with PLN. He refused the assumption that the dormant project was caused by the lack of financial capability of the IPP.
According to Arthur, PLN may select developers through mechanisms, which may not lead to cash trap in the developers. “We ask (PLN) to reduce the insurance funds to the level of 1%,” he said.
Arthur added that IPP is actually required to secure sufficient D&B (the Dun and Breadstreet) rating to join pre-qualification process. The rating itself indicates the financial capability of an IPP.
As an information, developer has to provide bank guarantee at the level of 10% of total project value, while IPP has to deposit a project insurance funds at 10% of investment value in advance.
President Director of PT Sumberdaya Swatama admitted the regulation on 10% insurance funds is burdensome for IPP. (Translator: Muhammad Farid)
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