Although most of the funding for the second 10,000 megawatt (MW) electricity crash program will be covered from bank loans, state power firm PT PLN needs to contribute up to US$1.5 billion, or about 25 percent from its own funds.

PLN, which will be responsible for half of the power plants under the program, will need a total investment of $5.9 billion to construct the power plants.

The company has secured loans for almost all projects, but it must also allocate a part of the funding for its internal source as lenders will not cover all the required funding.

“PLN’s own fund contribution will vary for the power projects. Each project could receive between 15 and 25 percent of the total costs, depending on terms and conditions of the loans for each plant.

“We will need at least between $1 billion and $1.5 billion,” PLN’s planning and technology director Nasri Sebayang said recently.

Nasri said that PLN was still evaluating how to provide the $1.5 billion. “We may use part of our earnings to cover them,” he added.

Although PLN receives subsidy from the government, it is also allowed to take a profit from the sales of its electricity to help the company finance new power plants.

The margin is given in a percentage of the company’s production cost.

As for this year, the government has said that it would provide PLN with a profit margin as
much as 8 percent of the production cost. Last month, PLN’s president director Dahlan Iskan said the company would need Rp 114 trillion for its operational expenditure this year.

PLN labor union chairman Ahmad Daryoko said PLN’s own fund contribution to the projects would seriously hurt the company’s cashflow.

“The problem may arise if there is a problem in the disbursement of the loans. In the first 1,000 (MW) program, PLN needed to, for example, reduce spending allocated for maintenance costs to cover the undisbursed loans. This may be the reason why blackouts often take place,” he said.

Daryanto added that the existing policy that requires PLN to first get an approval from the government and House of Representatives before introducing new tariffs, had put the company in a difficult situation.

PLN seems quite confident in finding lenders for the second 10,000 (MW) projects.

Unlike in the first one, where most projects were financed by Chinese banks, in the second 1,000 (MW) program, which also included the construction of several geothermal and hydro power plants, has attracted multinational donors such as the Asian Development Bank and World Bank.

Nasri said about 80 percent of the required loans had been secured.

Dahlan said the current lenders did not require PLN to name certain contractors to handle the projects, like those demanded by Chinese banks in the first 10,000 (MW) program. “In the first program, power projects financed by Chinese banks should be awarded to Chinese contractors,” he said.

Source : The Jakarta Post