Renewable energy still funny business

Poso hydropower plant in Central Sulawesi, developed by PT Poso Energy.
Poso hydropower plant in Central Sulawesi, developed by PT Poso Energy. Source: ebtke.esdm.go.id.

Energy and Mineral Resources Minister Ignasius Jonan is so fond of an old and tired anecdote that illustrates the wisdom of equitable energy solutions that he shares it with his audience at every event on the electricity industry.

His address usually begins with the usual account of his ministry’s effort to electrify every corner of the archipelago, no matter how remote. The long tale boils down to a question of what would happen if the people living under the power lines were just too poor to subscribe to the electricity.

He then sums up the moral of his story: “When parents tell their children that they cannot afford electricity, this may lead to resentment among the youth that could be dangerous for the country in the long run.”

Jonan retold this story last August in Jakarta, during the signing of power purchase agreements (PPA) between state electricity company PLN and renewable energy developers. His tale sounded even more ominous then: the number of power sale deals fell short of PLN’s expectations that month. The enterprise had targeted 64 projects, but only 46 were realized. The 20 would-be investors pulled out over disagreements on the price of renewable power sold to the sole electricity offtaker.

But Jonan was unnerved. He said while he knew that some investors regarded the PLN’s tariffs as unattractive, he insisted that his top priority was to provide affordable electricity to all. This wisdom explains why the government still relies on dirty sources of energy, such as coal and fossil fuels.

“Some people say independent developers usually abuse their access to government authorities and make the PLN pay more for their products. That’s why we must create a sense of fairness,” said Jonan.

It turned out that the August event preceded an epic dispute that pitted the ministry, PLN and private renewable power developers throughout the rest of 2017.

Ministry figures show that PLN and developers inked 70 PPAs for renewable projects worth 1,214 megawatts (MW) last year, with 66 agreements signed in August, September and November.

Jonan, who assumed office in October 2016, speaks highly about the statistics he regards as an achievement. His predecessors, Sudirman Said, Luhut Binsar Pandjaitan and Arcandra Tahar, managed to seal “only” 45 energy deals between 2014 and 2016.

Alleged trickery
The relatively high growth of renewable energy development during Jonan’s tenure has been dogged by allegations that the government has resorted to deceptive tactics as part of its bid to lure investors.

Eight independent renewable energy developers – four of which signed their contracts in the second half of 2017 – told The Jakarta Post in recent interviews that they felt they had been tricked. They claimed that ministry officials cunningly made them sign blank papers attached to the PLN contracts.

Businessman Paul Butarbutar, whose company signed a deal with the PLN last August and September, said that like his peers, he was required to sign the final page of the contract for three projects in Medan, North Sumatra, without seeing the details, let alone negotiating them.

Paul, who dons another hat as the regional green finance director at global environmental solutions provider South Pole Group, detailed how the PLN pressured private investors to attend the signing ceremonies, ostensibly “for show”.

“[Prior to the signing ceremonies], the PLN North Sumatra officials told us, ‘Just sign your name. It’s no big deal; the agreements can be modified later. This is just for show,’” said Paul, who went on the record on the condition that the Post did not identify his company that inked the deal with the PLN.

In a text message shown to the Post, PLN procurement analyst Irwanto sent a message, allegedly at the behest of then strategic procurements director Nicke Widyawati, that investors who failed to show up at the August ceremonies would lose the chance for a second bid.

Hoedani Hadijono, president director of PT Syres Power Energy, concurred with Paul’s version of the story. In September, she was asked to sign the last page of the PPA the PLN had prepared for her two mini-hydro power plants, which have a combined capacity of 13.7 MW.

“I didn’t even get a copy of the agreement afterward. The PLN said I would get it after I paid the collateral deposit. But I told them I would only settle the payment once I had thoroughly read the agreement clause by clause,” said Hoedani.

Under government regulations, the PLN requires private investors to pay a collateral deposit equal to 10 percent of their project value before the lender could issue a performance bond as a guarantee that investors had satisfied all requirements.

Normally, the deposit is paid before signing a PPA to make the agreement legally effective, while the opposite happened in the three signing events in the second half of 2017.

Hoedani said she was compelled to sign the agreement, as she might lose the opportunity otherwise. She was referring to the Energy and Mineral Resources Ministerial Regulation No. 50/2017, which requires private investors to go through the PLN’s so-called “direct selection” program.

The direct selection scheme makes it obligatory for renewable energy developers to take part in a tender. If they lost the tender, they lose the project and the money they had already paid for feasibility studies or land acquisition.

“[The direct selection] scheme is a very bad practice because when another company comes up and offers a construction project cheaper than ours, we must lower our bid or lose the project,” said Hoedani.

After Hoedani signed the agreement, PLN insisted on adding clauses that were unfavorable to her as an investor.

For example, contractors would be paid in Indonesian rupiah instead of US dollars, although Regulation No. 50/2017 permits either currency for power sales. However, PLN has refused to take rupiah, thus forcing developers to risk exchange rate fluctuations.

But government officials have rebuffed these claims of coercion. Rida Mulyana, the renewable energy director general, said he had never heard of investors being tricked into signing blank sheets of paper attached to power sales documents.

Hadi M. Djuraid, special staff member to the energy minister, dismissed the allegations as “nonsense”. “The PPA is effective for thirty years. So, it simply doesn’t make sense that people would willingly do something they didn’t agree with for thirty years,” he said.

PLN renewable energy head Tohari Hadiat also refuted the claims, maintaining that investors were invited to attend the 70 PPA signing ceremonies last year and that signing was voluntary.

Unappealing
Another factor that makes the business less attractive is that the regulation also requires investors to develop their renewable projects under the build-own-operate-transfer (BOOT) scheme. Under the BOOT, developers must transfer their plants to PLN at the end of their PPAs or a maximum period of 30 years.

This requisite that favors the state electricity company is unattractive to domestic banks, too. They have been reluctant to provide soft loans for renewable energy developers like Paul and Hoedani.

PLN figures show that few investors have made significant progress since the agreements for 70 renewable power projects were inked last year. Up to March 19 this year, only eight investors had paid their collateral deposits as required and only four had reached financial closure, including PT Bangun Tirta Lestari and PT Energy Sakti Sentosa.

Last September, Bangun Tirta Lestari reached a deal with PLN for its 21 MW hydropower plant in Air Putih, Bengkulu, while Energy Sakti Sentosa signed a deal for its 18 MW Pakkat hydropower plant in North Sumatra.

At the time, the two companies had just upgraded the status of their power plants from “mini” – which are eligible to sell a maximum 10 MW of electricity to PLN – to “standard”, so that they were entitled to sell more.

Developer PT Tamaris Hydro signed a power sales deal with PLN in November and paid the collateral deposit earlier this year. In May 2017, it had just begun construction on its 8 MW Tanjungtirta mini-hydropower plant project in Banjarnegara, Central Java.

“So, in terms of new [hydropower] projects that start from scratch, not a single developer has been able to reach financial closure since last year’s agreements,” said Hengki Mahendrarto, president director of renewable power plant developer PT Buminata Aji Perkasa.

The disrupted development of Indonesia’s renewable energy sector will only make it harder for the country to meet its Paris Agreement commitment to slash 29 percent of its greenhouse gas emissions by 2030.

A fundamental drawback is the government’s preference for affordable, not cleaner, electricity as outlined in PLN’s 2018-2027 electricity procurement plan. The company envisions that coal will account for 58.5 percent of the country’s power generation over the next decade, while renewable energy will make up only 20.4 percent of its energy mix.

PLN president director Sofyan Basir advocates coal as a source of energy, arguing that the nonrenewable commodity is the most logical choice for maintaining affordable electricity rates.

“Indonesia still needs it. Cleaner energy is not our number one priority,” he says.

***

Note
1. This story is part of special reports on Indonesia’s renewable energy development published in The Jakarta Post newspaper on April 23, 2018.

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