Power in Indonesia 2017Investment & Taxation Guide

6th December 2017

1

Agenda

1 2017: A Year in Review

2 Global Disruptions in Alternative Electricity Generation

2

3 Key Takeaways

Agenda

1 2017: A Year in Review

3

A Busy Year for ESDM…

4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Permen No.11/2017

• Gas forPower

Permen No.12/2017

• RenewableTariffs Regime

Permen No.19/2017

• Coal Fired IPPTariffs

Permen No.49/2017

• ReplacingPermen no.10/2017

Permen No.45/2017

• New Gas forPower Reg,

Permen No.10/2017

• PPA RiskAllocation

Permen No.50/2017

• NewRenewableTariffs Regime

Permen No.43/2017

• Hydro TariffRegime

Permen No.42/2017

• CorporateActions Reg.

Permen No.48/2017

• ReplacingPermen no.42/2017,

Change from Permen No. 10 toPermen No. 49

5

In Permen no.10/2017

Article 8:

• Ayat 1(a): Risk borne by PLN because of

Government Force Majeur

• Ayat 2(a): Risk borne by IPP because of

Government Force Majeur

• Ayat 3(a): Risk borne by PLN & IPP as referred

to in 1(a) and 2(a) further arranged in PPA

Article 28:

• Ayat 2(c): Government Force Majeur

• Ayat 7: In the case of Government Force Majeur

as stated in 2(c), that cause the project to be

stopped or the power plant to be non-operational,

therefore PLN and the IPP is exempt from its

obligations.

In Permen no.49/2017

Deleted due

to concerns

of project

bankability

Permen No. 50: Renewable Power

6

IPP Appointment Scheme for Renewable Projects

Tariff for Renewable IPP’s

Scheme Type

Tender Based on Capacity Quota PLTS Photovoltaic, PLTB (wind)

Direct AppointmentPLTA (Hydro), PLTBg (biogas),

PLTBm (Biomass)

According to Relevant Regulations PLTSa (Waste), PLTP (Geothermal)

Regional BPP PLTA, PLTSa and PLTP Other Renewable Projects

Regional BPP ≤ National BPPDetermined through

agreement of parties involved

Determined through

agreement of parties involved

Regional BPP > National BPP 100% of Regional BPP* 85% of Regional BPP

* Except for Aceh, Bangka, Belitung, Sumut, Sumbar & Lampung will bedetermined through agreement of parties involved

Permen No. 45

7

Non-Well Head Power Plant Gas Pricing

• Where PLN/IPP cannot purchase gas at plant gate price at or less than 14.5%ICP, then:

• PLN/IPP can buy LNG at plant gate if the price is below gas sold throughpipes

• If domestic LNG and imported LNG has the same price at plant gate,then PLN/IPP is required to buy domestic LNG

• If the above requirements are not met, then the Government will decideon the gas supply for the power plant

Construction of Well Head Power Plant

• Direct appointment if gas price is below 8% ICP.

• Through public tender if gas price is above 8% ICP

Changes from Permen No. 42 toPermen no. 48

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Issue Reg 42 Reg 48

Change of shareholdingprior to COD

Not permitted, except to90%+ owned Affiliate withMEMR approval

Not permitted, except to90%+ owned Affiliate withPLN approval and report toMEMR

Change of shareholdingafter COD

MEMR and PLN approvalrequired

Nothing (although itappears MEMR reads itsown regulation as requiringPLN approval and reporting)

Change of Board ofDirectors/Commissioners

MEMR and PLN approvalrequired

MEMR reporting only

Roll back of earlier requirements

Good News and Bad News

9

• IPP sector previously enjoyed a more attractive investment regimewith long period of regulatory stability in the past

• Constantly moving regulatory framework scares off developers andlenders

Bad News

• Government is trying to listen to market concerns and feedback

• Moving fast to rectify mistakes and signaling willingness to adjusttheir reform effort

Good News

Renegotiation of Tariffs in PPA

10

In a letter to President Director of PLN, the

Director General of Power & Electricity suggested

that PLN should review all PPA tariffs for large

scale power plants located in Java that has not

yet entered construction phase.PPA’s Under Review

What does this mean?

• ESDM & PLN’s inconsistency in upholdingsanctitiy of signed PPA contracts

• Weakens the PPA as a binding agreement

• Precedent for PLN reviewing PPA’s of IPPprojects outside of Java?

• Creating investor uncertainty

• Renewed negotiations will further delaypower plant construction

Peraturan Direksi PLN 36/2017

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PLN to assign its subsidiaries as equity partners

in power plant projects, including projects

assigned for IPP’s. PLN’s subsidiaries will own

minimal 30 to 51% equity stake in the projects.

PLN’s Criteria for IPP Partners

1. Able to Provide Financing

2. Able to Ensure Primary Energy Supply

3. Has Experience and/or Technical Expertise

• Free carry for PLN Subsidiary?• Is it commercially viable for IPP?• If PLN subsidiary owns majority, who will

provide guarantee for investment loans?

• Enough supply for 25 year PPA contracts?

• Population of private companies withexperience or technical expertise limited inIndonesia

Case in Study from our members

12

PLTU Cirebon Unit II

• AMDAL cancelled by PTUN Bandung on 19th April2019 due to objections from the local community

• Pemprov Jawa Barat issued a new AMDAL on 17th

July 2017

• PLN pushing to reneg the tariff in the PPA,lowering it to 5.5 cents per KWh

PLTU Jawa 3 Tanjung Jati A

• Being built by PT Bakrie Power & PT TanjungJati Power (YTL Malaysia)

• PLN also pushing to revise the tariff in thePPA, lowering it to 5.5 cents per KWh

Agenda

2 Prospects in Alternative Electricity Generation

13

Is Indonesia Ready for Nuclear Energy?

14Source: Kontan, Jakarta Post

Indonesia “Go Nuklir”

• On 3rd November 2017 Deputy Minister ofESDM, Arcandra Tahar stated that ESDM toseriously examine nuclear as new energysource for Indonesia

• Focus on the availability of thorium anduranium reserves in Indonesia

• With current tech, it will cost approx USD 6million per MW to build a nuclear power plant

• It will be commercially expensive.

• Indonesia needs 10 years before it canoperate a nuclear power plant.

Global Trend of Nuclear

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• Drop in nuclear electricity production in 2010 due to cutbacks in Germany andJapan’s Fukushima accident

• Is the world moving away from nuclear energy?

Source: World Nuclear Association

Why Still Consider Nuclear?

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1. Efficient: Every one gram of Uranium can produce 8,000 times more energy than onegram of coal

2. Reliable Base Load: Survey by EIA found that the average capacity factor of USnuclear power plants is 92%

3. No Operating Emissions: Nuclear reactors does not produce any air pollutants

4. Inexpensive Energy Source: approximately 2.6 cents/Kwh

1. High Capital Costs

2. Radioactive Waste Needs Careful Storage

3. Accidents Are Serious (eg. Chernobyl, Fukushima)

Pros:

Cons:

Floating Solar PV in Indonesia

17Source: CNN Indonesia,

Indonesia to Build a Floating Solar PV Power Plant

• In early November 2017, PT Pembangkitan Jawa-Bali (PJB) and the United Arab Emirates (UAE) -owned company Masdar signed a projectdevelopment agreement to build a floating SolarPower Plant (PLTS) on the Cirata reservoir,Purwakarta, West Java.

• It will cover 250 hectares of the 6,000 hectares of theCirata Reservoir

• Phase 1 to build 50 MW capacity to be operational inQ2 2019 with an investment of USD 180 million

• A further 150 MW to be build in further three phases

Cost of Solar PV Modules

18

USD

/Wat

t

Residential PV (5.7 Kw) Utility-Scale PV (>100MW)

• Cost of installing SolarPV Systems havedecreased by ~70% inthe last 7 years,

• Trend to continue for theforeseeable future withnew battery and invertertechnologies,

• How much will Solar PVSystems cost in thefuture?

Source: National Renewable Energy Labroratory

Residential Solar PV in the US

19

Several Types of Residential PV Systems

27 38 58 82 164 246 304494

792

1,231

2,099

2,583

-

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capacity of Residential PV Systems installed in the US (MW)• It took 9 years from 2005 for

1,231 MW to be installed, butonly two years from 2015 to2016 to double that number

• One million homes installed inthe US. Number forecasted todouble in the next 5 years

Source: IEA

PLTSa Sumur Batu: Converting Wasteto Energy

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• In 2016, the President introduced PR No. 18 to expedite waste-based power plants inIndonesia’s seven largest cities.

• Construction in Sumur Batu, Bekasi finished in November 2017.

• Has maximum capacity of 34 MW and can burn 2,200 tons of trash per day.

• Electricity produced not yet sold to PLN as currently there is no MoU or PPA with PLN.

• Needs better system to separate waste (in developing countries such as Indonesia not yetestablished) to be fed into the PLTSa to maximize capacity and efficiency.

New Technologies Links WasteManagement, Sanitation & Energy

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Linking sanitation & energy…

Agenda

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3 Key Takeaways

Key Takeaways

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Shifting our outlook outwardlyto pay attention to global

disruptive pattern in seekingmore sustainable electricityproduction with falling cost

curves and improvingtechnologies

Rebalancing the nationalelectrification planning,appraisal and selectionprocesses (IPP & PLN),

Upholding transparency &efficiency of PLN, and also tap

into more the capital marketparticipation to further fund

power projects. Again,planning well and attracting

investors play a key role.

ESDM getting busy in 2017introducing new regulations.Boosting the participation of

the private sector ininfrastructure development willrequire improvements in thecomplex legal and regulatoryenvironment and too many

changes can jitter theinvestment momentum.Regulatory certainty is

paramount.