Just Economic Info

State electricity company PT PLN will go ahead with a plan to take over the stalled development of the Sarulla geothermal power plant in North Sumatra, despite a commitment from the current developer to continue the project, a PLN executive said.

PLN planning and technology director Nasri Sebayang said Thursday that his company could not trust in the commitment because the consortium – of PT Medco Energi Internasional, Ormat Technologies, Itochu Corporation and Kyushu International Corporation – had failed to show expected progress since it won the tender in 2007.

“The Power Purchase Agreement [PPA] for Sarulla was signed in 2007, but as of today the project has not been started,” he said.

The PPA was revised in April of 2010 stipulating that PLN would buy the electricity produced by the power plant at 6.7 US cents per kilowatt hour with a price escalation of 2 percent per year.

Nasri said that PLN would start the construction of the power plant this year so that in 2015 electricity produced by the power plant could be enjoyed by people in North Sumatra between 2014 and 2015.

“We made this decision because we can’t buy the consortium’s words. If it started construction in 2007, today people should be enjoying power. People there badly need power, they can’t wait any longer,” he said.

The Sarulla power plant was planned to have a total capacity of 3 x 110 megawatts.

PLN’s president director announced earlier that his company had decided to take over the construction of the power plant as the investors did not demonstrate any intention to start the project although all the negotiations with PLN had been settled.

“PLN has completed all negotiation processes, but negotiations among investors and other related parties cannot be completed,” he said.

In a board of directors meeting on May 31, PLN agreed to start the construction of the environmentally friendly power plant late this year.

Earlier this month, Medco said the consortium was committed to continuing the Sarulla project.

Lukman Mahfoedz, the company’s president director, said the consortium had spent around US$20 million in initial investments to support the project. The funds were used to create an engineering design, drill two work-over wells and 33 new wells, acquire land and conduct corporate social responsibility programs, among others, he said.

“I’m very optimistic with the future of this project because we have secured a $1 billion financing commitment from the Japan Bank for International Corporation and the Asian Development Bank,” Lukman said.

To kick off the project, the consortium was currently in the final phase of discussing an amendment to a Joint Operation Contract with PT Pertamina Geothermal Energy and an Energy Sales Contract (ESC) with PLN.

Lukman said if the company could finish negotiations on the two contracts this month, it could start the project very soon and produce electricity from the first unit in 2014, as agreed in the ESC.

“The second and third units will begin operations in 2015 and 1026,” he said.