#1Case 16 Indonesia Energy Sector Central Java Power Plant Sinthya Roesly#2Central Java Power Plant Name of the speaker and email contact: Sinthya Roesly (CEO of IIGF); [email protected] Public Organization, managing the public interest: PT PLN (State Electricity Company) as the Contracting Agency Private Organization, developing the project: PT BPI (J-Power, Itochu & Adaro consortium) as the Project Company Capital Providers, financing the project: JBIC & several commercial banks Why is this project a Case Study for PPPs: The CJPP is the national strategic project to be well-prepared as a benchmark PPP transaction Why is this project a Case Study for PPPs based on SDGs: Context Strategy Project KPI's Impact Scale up & replicate → Management Team → -> > Realizing CJPP as the 1st PPP Project under Indonesia PPP regulation Year 2005 Supporting the Project through MoF fiscal support, including the IIGF Guarantee Support economic growth, improve public service provision Without the Project, Gol can not meet the needs of power to cover the electricity demand in the Java-Bali which grew >7 percent annually As the PPP model project, the PPP process, documentation has been replicated to other sectors. Other countries may also benefit from the government guarantee model provided to PPP project (i.e. IIGF guarantee) with more accountable risk management Strong & integer CA team; Forced to get the attention from multi Government stakeholders up until the President PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund Context: Indonesia, is one of the investment targets for international investors and banks in infrastructure sector. There is an urgent need for infrastructure development to sustain stable economic growth, serve strong domestic demand and for Indonesia to remain competitive. A number of positive development in infrastructure sector by the Government Creation of land fund, infrastructure fund, guarantee fund & viability gap fund, as well as new Land Law issuance Improvement in regulatory framework for PPP implementation in accordance with international best practices has been undergoing for the last 10 years E.g. electricity sector reform, e.g. 1st Gen of IPP to FTP 1, standard PPA, PSO & direct MoF guarantee; Its workability has been seen in first deals done under the new PPP regulation with international competitive bidding and IIGF+MOF guarantee E.g. CJPP (Central Java Power Plant), Palapa Ring IT backbone network; In addition to power sector, telco, water sector and toll roads, ports and social infrastructure such as hospital and sports facility are currently being prepared by the Government of Indonesia (Gol) to be procured under PPP regime PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund#3Strategy: On Nov 2006, Gol had announced CJPP as one of PPP Model Project.. Mei Feb Mar Jun Jul Nov Feb The CJPP was critical to avoid 2008 2009 2010 electricity crisis FS Start Market Consultation Forum Final FS Report PQ Start ed Electricity supply in Java to sustain national economic growth The Project needs government guarantee For emerging market (sub- investment grade credit rating), governments typically provide sovereign guarantee for cross-border IPP project Apr'10 - Mar 2011 PQ Result Announced 1st RFP Issued Bid Negotiation (incl. adopting new guarantee structure) Proposed Govt guarantee from PLN to KKPPI/MOF Tender participants: 1. Shenhua (China) 2. CNTIC/Yudean (China) 3. KEPCO (Korea) 4. Mitsubishi (Japan) 5. J-Power (French) Apr Jun Oct 2011 Q4 2012 6. Marubeni (Japan) 7. Mitsui/Int'l Power (Japan/UK) Q2 2017 Q2 2042 Date of Bid Submission. Winning Bidder Announce Expected Financial Close Expected COD Expected PPA End Construction period Q1-20154 months] Q3-2020 Operation period [25 years] Q3-2045 Signing of PPA, Guarantees create liabilities to Government Provision sovereign guarantee must be part of fiscal risk management framework creation of a guarantee fund (IIGF) Gol PPP program needs a template to follow As national priority, the CJPP project was selected as a model project for the 2005 PPP regulation Project KPI's The Project Jakarta Batang Central Java Province Guarantee Agreement & Recouse Agreement Ultra super critical coal fired power plant; BOT; 2x 1000 MW; located in coastal area of Central Java; Project cost US$ 4 bio Bali Java, Indonesia DELAYED! The Stream of Cash Scope of IIGF & MOF Guarantee Guarantee Agreement: IPP with IIGF and Gol Covered: . Coverage: political risks, force majeure affecting PLN and PLN PLN's Payment Obligatio ns, as in PPA EOD (Event of Default) Guarantee Tenor: Construction period + After COD: Equity 16 years Debt 21 years Not covered: 1. Sellers EOD X 2. 3. Tax for Special Facilites Indemnity 1. Obligation to purchase electricity Monthly payment (Capacity and Energy payment) 2. Deemed Dispatch • Due to PLN not being able to receive Sellers output 3. Buyout obligation due to PPA Termination triggered by Political Force Majeure and Natural Force Majeure 4. Obligation to pay due to PLN Event of Default (EOD): . Non payment • Material Breach Merger, Consolidation • GOI EOD under GA IIGF PT Penjaminan Infrastruktur Indonesia (Persero) Indonesia Infrastructure Guarantee Fund Target IRR Investment Cost Cash Flow calculation Operating Cost Private sector Revenue Public sector PLN Payment PSO User Tariff PLN (as GCA) PPA Recourse Agreeme nt 1 Recourse Agreeme nt 2 Project Company (Private) First loss basis Remaining balance up to certain amount Guarantee Agreement (GA) after IIGF portion PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund#4After Signing Before Signing Impact on People & Planet . CJPP Main Issues to have Impact to the 'Conventional' approach No PPP benchmark: Project Preparation, Transaction, Guarantee - process & docs • • Regulatory adjustments, e.g. enabling State offtaker PLN as the CA Years of PLN experience for Indonesia IPP transaction IFC facility as transaction advisor; RfP revised > 15 times (coping with the 'dynamic' process) Gol introduced new guarantee scheme for PPP in CJPP • IIGF as the new entity to the transaction; Guarantee regulation ready after RfP issued; One on one meetings with the bidders (& its lenders) . Detail discussion on Risk Allocation • Risk Allocation: Land acquisition was assigned to the Project Company → issue !! Exist in standard PLN PPA (after 2012 Land Law enactment became Govt responsibility) • Stakeholders coordination: Central government, provincial and municipality levels Land acquisition issues: Dispute and legal suit on land use approval; • Also impact the PC and Project Sponsors, e.g. change in BoD; discussions with JBIC Guarantor's consent to PPA amendments: extended role of IIGF as guarantor CJPP brings benefits on reducing poverty, increasing employment, economic development and addressing the gap of affordable energy access in Indonesia. PPP process requires extra efforts in balancing the risks and strong commitment to address social issues, environment and people management, to be able to succeed • PPP FC delay PPA amendment prior to FC (as the guarantee has not been effective); • Expectation for IIGF to drive debottlenecking efforts: Joint Monitoring Committee meetings, Guarantee Monitoring System development, etc PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund Project Impact to the SDGs No Some SDGs High Sustainable Development Goals Describe Impact Impact Impact | Impact 1 End poverty V Higher economic activities 2 End hunger ฟ 3 - Well being healthy lives V 4 Quality education Higher economic activities Better living facilities Better living facilities 5 Gender equality 6 Water and sanitation for all 7 Affordable and sustainable energy V √ ฟ Better access to information Better utility to water treatment Reduce off-grid electricity cost 8 Economic growth and decent jobs for all Resilient infrastructure, sustainable industrialization, 9 foster innovation 10 Reduce inequalities within and among countries V Higher economic activities Provide utility to other services Higher economic activities 11 Cities inclusive, safe, resilient and sustainable ฟ Higher economic activities 12 Responsible consumption by all V 13 Combat climate change ฟ 14 Protect the ocean V 15 Take care of the earth V 16 Peaceful and inclusive society, justice for all, ฟ accountable institutions at all levels 17 Mechanism and partnerships to reach the goals Given the difficult process, with socialization Coal-fired emission minimization Coastal jetty for coal transport Coal-fired emission minimization Better socio-living facilities Efficiency and effective through PPP PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund#5Escalating the (Case Study) project: 1st PPP Project under Indonesia PPP regulation Year 2005 National priority infrastructure project since 2006 PPP Project Finance Deal of the Year 2012 1st PPP Project receiving IIGF guarantee 1st big Project utilizing the new Land Law with Government responsible for land acquisition Forced to get the attention from multi Government stakeholders up until the President Approach to be replicated: Guarantee and Financing documentation process MoF & + IIGF A&O, LGS Draft GA Comments' /Feedback on Draft GA IFC, Draft PLN + NR, PPA K&M Comments/ 1-on-1 Meetings Feedback on Draft PPA Potential Bidders Lenders, Fin Adv, Legal Adv IIGF PT Penjaminan Infrastruktur Indonesia (Persero) Indonesia Infrastructure Guarantee Fund People First is also about the Management Team that made it happen: National Program Level •No Perfect PPP - start with 'quick wins', high impact • Get the 'Right' Risk Allocation - land acquisition • • • • Public sector team: CMEA; Bappenas Fiscal support provision - and its integration to PPP process Constructive regulatory and legal support - may assist on dispute cases Affected people early involvement - public consultation and communication SDG impacts assessment - to be communicated & monitored Multi stakeholders engagement - commitment to the higher purpose of the Project (the PPP facilitator) IFC; NR; K&M (the PLN advisor) MoF + IIGF (the PPP guarantor) PT PLN (the state utility) Governor: Regent; Public BPN (the Project 'host') (Land regulator & authority) Sectoral / Project Level • • • Commitment of PLN as the CA - may require strategic approval/decision Negotiation prior to bid submission - including the guarantee coverage Strong project documentation Private sector team: • • Competitive, transparent process and integer, capable procurement team Credible project preparation and transaction support - multilateral may be involved for pilot project JP; Itochu; Adaro (the Investors) JBIC; Banks (the Lenders) • Positive cooperation of private participants - sponsors, (potential) financiers early involvement during transaction process Engineers; Analyst: Lawyers; (the Advisor) PT Penjaminan Infrastruktur Indonesia (Persero) IIGF Indonesia Infrastructure Guarantee Fund