Case study: IPP projects by International Power-GDF Suez

In 2008, International Power-GDF Suez partnered PT Supreme Energy to do preliminary field surveys in several geothermal areas in Sumatra. Between 2009 and 2010, the consortium was awarded the licence for three areas in Sumatra, namely Muara Laboh, Rajabasa and Rantau Dedap. 

A year later, two consortiums or special purpose vehicles were set up for the three projects; PT Supreme Energy, IP-GDF Suez and Sumitomo Corporation (for Muara Laboh and Rajabasa) and PT Supreme Energy, IP-GDF Suez and Marubeni Corporation (Rantau Dedap).

Jan Bartak, senior head of business development of IP-GDF Suez, says all three projects are part of the second fasttrack programme and, as such, benefit from favourable development conditions and are eligible for a Ministry of Finance guarantee of “business viability of PLN” in accordance with Presidential Regulation No 4/2010.

Having completed civil engineering, land acquisition and the necessary permitting, civil works are now in progress in Muara Laboh with exploration drilling targeted to start in the third quarter of 2012, and subsequently in the two other areas.

Although it took several years, a “new generation” of geothermal power purchase agreement (PPA) has been negotiated with PLN and reviewed by potential lenders. In combination with the “business viability guarantee letter” (BVGL), this constitutes a contractual structure bankable under non-recourse international project financing.

Bartak says: “The number of geothermal IPPs in the development pipeline indicates that developers are willing to take exploration risks, as long as they can expect a fair return. Most of all they need clarity, predictability and efficient implementation of the existing regulatory process by all stakeholders.” 

He adds that the success of geothermal IPP development in Indonesia depends on the completion of the “pilot” process to be transformed into a standard, efficient and fully predictable development procedure.