China wants higher interest for PLN projects

Alfian, The Jakarta Post, Jakarta | Wed, 02/11/2009 12:24 PM  

State power firm PT PLN's 10,000 megawatt (MW) crash program may be delayed because China as the main investor is requesting an increase in the loan interest rate, the company's president director Fachmi Mochtar said Tuesday. 

Fahmi said the request was because banks from China, committed to finance the project, have now requested higher loan interest rates than the figures agreed during the contract agreement last year. 

"The problem is the progress of this project is pretty much depending on the smoothness of the financing flow. With this delay, some work might also be delayed," Fahmi said. 

Fahmi said that banks from China were the main financial sources of the program, which depended on dollar denominated loans. 

The consortium of China 's banks, includes the Bank of China, the China Development Bank and the China Export Import Bank, which signed agreements with PLN to finance several power plant projects under the 10,000 MW program. 

The three banks have agreed to provide PLN with loans amounting to about US$ 1.48 billion. 

Fahmi said that part of this financial commitment has been disbursed, but for the remainder of finance required the banks have asked to renegotiate the loan interest. 

He added that aside from ongoing projects, PLN was also in negotiation with several banks in China with a view to financing other projects within the program. Fahmi said for upcoming projects the banks also wanted higher loan interest. 

Fahmi however said that the latest progress on the negotiations on financing was not yet finalized. 

"PLN and the government are discussing what we can propose to China . Thus, the project would not necessarily be delayed," he said. 

The 10,000 MW program was launched by the government in 2006 to meet the increasing demand for electricity across the country, especially in Java and Bali . 

The program included 35 power plants, 10 of them in Java and Bali, while the remaining 25 were off Java-Bali, in other islands. 

Fahmi said in an earlier press conference that the project needed $8 billion in total. He said that this figure was the accumulation of all required funds denominated in rupiah and in US dollars. 

Fahmi said domestic banks could represent PLN's source of final recourse for program financing, but he quickly added that the local banks' capacity for lending foreign currency might be not that big. 

The 10,000 MW program is planned to be completed by 2011. Loans by PLN for this program are guaranteed by the government. 

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