PLN bets on direct lending for 35,000 MW program

JAKARTA. State electricity firm PLN is looking to secure direct loans from international financial agencies to support investment needed for a number of projects under the government’s ambitious plan to add 35,000 megawatts (MW) in power capacity nationwide.

Under the direct lending mechanism, financial agencies will be able to directly channel the loans to PLN. In previous practices via the so called sub-loan agreement (SLA), the agency disbursed the fund to the state, which then channeled the money to the designated state-owned firms.

“The agencies offer direct lending to PLN and the government will only need to give its guarantee. A presidential decree relating to the matter is being drafted,” PLN director Murtaqi Syamsuddin said.

PLN expects that the agencies’ loans will not burden its budget, as the lending will be given with competitive interest rates and a longer maturity period of up to 40 years. According to Murtaqi, lending agencies such as the World Bank and the Asia Development Bank are willing to issue loans for the development of non-coal fired power plants, transmission networks and other programs aiming to accelerate the improvement in electrification ratio.

The national electrification ratio stood at 84 percent as of the end of last year. However, there are some areas, such as Papua, where the ratio was as low as 43 percent. The government is aiming to see a 99 percent electrification ratio by 2022.

As part of attempts to meet demand for electricity nationwide, the government is also aiming for an additional 35,000 MW in capacity within five years. Combined with around 7,000 MW projects in the pipeline, the total target reaches over 42,000 MW. Of that target, PLN will develop around 18,000 MW and the remainder will be developed by private power producers.

To support the program, PLN estimates that it will need Rp 608.6 trillion in funding, which will cover not only power plant development but also transmission and distribution network development.

For this year only, PLN needs a total Rp 60.2 trillion in investment.

The Energy and Mineral Resources Ministry’s director general for electricity, Jarman, said the planned presidential decree regarding the mechanism for direct lending to PLN was expected to accelerate the realization of the 35,000 MW program.

“Apart from cutting the long process [of loan disbursement], the direct loans will also be program-based lending, meaning that it can be used for a package development, from power plant development to station development. In previous practices, loans for plants, transmission or stations were carried out separately,” Jarman said.

Although the government’s guarantee for the direct lending will only be applicable for PLN, Jarman said similar assistance could also be given to private power players.

“Lenders disbursing to private players usually don’t ask for guarantees. We have to look at it case by case. If they ask, a support letter will suffice,” Jarman said.

Financial capacity is one of the main issues hampering electricity projects in the country, particularly projects needing large amounts of capital but also high risk projects such as geothermal power plant development. Moreover, a prolonged permission process must be followed and land acquisition has also become an obstacle to large-scale development.

In a recent move to settle the issues, the Energy and Mineral Resources Ministry officially transferred the permission process for investment related to the electricity sector to the Investment Coordinating Board (BKPM). Now, investors interested in investing in the electricity sector need only apply to the BKPM, where the ministry’s officers have been tasked to process and verify all permits needed. (Raras Cahyafitri)