China Exim Releases $186m

The Jakarta Globe, Reva Sasistiya, Mita Valina Liem & Janeman Latul, March 3, 2009

China’s Exim Bank appears to have relented and will free up $186 million in funding for two projects under the first stage of the fast-track 10,000 megawatt energy program of the PT Perusahaan Listrik Negara, Rudiantara, a vice president at the state-owned utility, said on Monday. 

A significant chunk of funding has been held hostage by China in a dispute involving state-owned PT Merpati Nusantara Airlines, which agreed to buy 15 aircraft from a Chinese manufacturer before saying it couldn’t afford them. China has threatened to haul Indonesia before an international arbitration tribunal, seeking $90 million in damages from the stalled $232 million deal. 

The fast-track program aims to bring 10,000 MW on stream by the end of 2010. China had previously agreed to finance most of the estimated $8 billion cost. However, it has demanded higher interest rates for the loans, putting the brakes on projects like a $200 million plant to be built on Sulawesi Island by PT Bosowa Corp. 

After a negotiation team went to China, the dispute was reported to be solved, with China agreeing to draw down the loans based on the project schedule, Rudiantara said on the sidelines of the World Islamic Economic Forum. 

The bank “assured us that they will not change anything, including the interest rate,” Rudiantara said, adding that the disbursement happened 10 days ago. “They will stay with the initial agreement. So far, China has disbursed $1.8 billion to finance coal-fired power plants in Paiton, East Java [Province], and Suralaya in Banten [Province].” 

PLN’s vice president said the Chinese bank’s refusal to disburse the funds had to do with the deepening world financial crisis, adding that the rest of the funds, which he declined to quantify, were still being discussed. 

The two plants approved for financing are expected to generate 1,285 MW starting in early 2010. However, PLN earlier warned that some won’t be completed until 2012. 

The utility’s vice president also confirmed that PLN has been in talks with the Qatar Investment Bank through its Malaysian unit, the Asian Finance Bank, about financing the fast-track program, which will require 33 million tons of low-grade coal annually. Ninety percent of the coal has been secured in long-term contracts with Indonesian producers. 

PLN expects to build 10 power units in Java, which will account for 70 percent of the capacity of the program. Another 25 plants, ranging from 5 MW to 100 MW, will be built in Sumatra, Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua. 

The Energy and Mineral Resources Ministry estimates that total domestic consumption of coal in 2009 may rise by nearly 30 percent from 52.57 million tons to 68.3 million tons, while coal production is expected to reach 230 million tons this year, up slightly from 225 million tons last year. 

PLN is expected to consume 41 million to 42 million tons of coal this year, with the remainder being used by industrial enterprises.