[Kabar-indonesia] 5 Power/Electricity Reports: JP Op-Ed by Bappenas Director [+PLN; Smelter]

[JoyoNews at aol.com]

5 reports: 

- JP Op-Ed: A way forward for RI electricity 
  industry [by Montty Girianna, director for 
  energy, mineral resources and mining at 
  the National Development Planning Board 
  (Bappenas)]

- Indonesian govt may transform smelter 
  into power company

- Indonesian power plant unaffected 
  by distribution hitch

- Indonesia's PLN to hand over power 
  projects to subsidiaries

- Medco-Ormat-Itochu Consortium 
  Wins Tender for 340 MW Sarulla
  Geothermal Power Project in 
  Indonesia

The Jakarta Post
July 31, 2006

Op-Ed

A way forward for RI electricity industry 

by Montty Girianna, Jakarta

The 2002 law on electricity provided the national electricity industry an 
unprecedented opportunity. It offered a full deregulation of the industry and 
increased competition at the wholesale and retail levels.

More specifically, the law had provisions for introducing market competition 
and a regulatory body to set electricity rates, vertically unbundling state 
electricity company PLN. In addition it increased the role of local government, 
emphasized the use of renewable energy, and encouraged enhanced private sector 
participation. 

However, the ruling by the Constitutional Court annulling this law will 
require a rethink as to how best to satisfy the demands of the court and the needs 
of the industry. 

The annulment automatically reinstates the 1985 Electricity Law, although any 
agreements made based on the 2002 law prior to its dissolution will remain 
valid. With this conventional law, the central government's role becomes 
dominant again, in terms of regulating, facilitating and operating the industry. 

A regulatory body is not recognized under the 1985 law, as that function is 
in the hands of the energy minister, except for electricity rates, which are 
regulated through a presidential decree. Moreover, the provision of electricity 
must be integrated, and facilities cannot be separated into different 
components, i.e., generation, transmission, distribution, retail and wholesale, etc., 
and all are under the jurisdiction of PLN. 

This has exposed the industry to significant uncertainty, particularly for 
independent power producers (IPPs). The default of electricity business 
provision bestowed on PLN and the role of the IPPs is only recognized through the 
granting of a license through PLN. This, however, is more to augment PLN capacity 
and is limited to the provision of electricity. 

Unlike the 2002 law, the 1985 law does not encourage the application of 
regional power rates and applies the concept of universal rates for PLN across the 
region, despite the disparity in the costs of electricity supply in various 
regions. The average cost of power produced by PLN is 6.5 U.S. cents per kWh 
while it recovers only 6.1 U.S. cents per kWh on average across its electricity 
network. 

Even in Java-Bali, where PLN sells about 80 percent of its power, PLN only 
recovers its costs due to the government subsidy. This has contributed to PLN's 
financial risks, which in turn deters private investment in capacity 
expansion, and since PLN is the sole buyer of wholesale electricity, the IPPs face the 
risk of PLN default. 

A new law must be prepared and the court has demanded that the new law has to 
be in compliance with the Constitution. We must remain committed to the 
course of deregulation, however. Competitive tendering for IPP partners will 
enhance competition and offer lower wholesale pricing, increasing retail 
competition, which will further improve the overall performance of the industry. 

It is important to formulate a new electricity deregulation law as soon as 
possible, and the new law must include the development of a regulatory authority 
to ensure professional oversight of the industry, setting new rates and 
adopting licensing procedures. 

An interim measure has been made possible through a number of government 
regulations to enhance the application of the 1985 Electricity Law, which does not 
provide a sufficient framework to address current electricity needs and 
challenges. A crash program recently endorsed to accelerate the development of 
roughly 20,000 coal- and gas-fired power plants will test the efficacy of this 
transition. 

With the sky-rocketing global oil prices, the use of non-oil energy (coal and 
gas) is necessary for efficiency purposes. The cost of production is expected 
to be reduced to approximately 4.5 cents per kWh. The crash program will rely 
primarily on IPPs, both domestic and international. While this program 
presents a case for high growth and huge market potential, our electricity industry 
is subject to risks both internal and external. 

With increasing worldwide competition for scarce resources, our country must 
present a united front to reduce the risk to IPPs. Foreign debts have come at 
a very high risk premium that has further burdened the industry hence driving 
up retail costs. 

To lower the cost of executing the crash program it is necessary to review 
contracting procedures to ensure greater standardization of contracts thereby 
reduce the time and administrative delays in contract negotiation. Of course 
contracts on offer will need to be of the highest quality and meet international 
standards to be accepted by our partners. 

By offering greater investment opportunities in rupiah-based funds, benefits 
will accrue not just for our IPP partners but for the overall investment 
community as well. To the extent that finance must be obtained in foreign currency, 
rate adjustments must be made to provide protection to investors. However, by 
reducing the percentage of loans in foreign currency overall exposure will be 
lowered. 

For the crash program to be successful, we have to ensure that rates are both 
fair and reasonable for the public and producers, reflecting the disparity of 
costs across regions. We must strike a balance between the electricity sale 
prices and ensure the producer a reasonable profit. 

This will require setting a formula to automatically adjust electricity 
prices and offer firm dates for application. The government must resolve matters of 
cross-subsidies, i.e., from high to medium to low voltage consumers and from 
Java-Bali to outside of Java-Bali consumers, to ensure that only needy 
consumers are assisted to ensure universal coverage. 

In addition, power purchase agreements in absence of deregulation will need 
to follow many of the same guidelines as power agreements in the past. It is 
recognized that in a regulated environment with a monopoly purchaser of power 
(PLN as the sole buyer), without firm agreements with PLN ensuring a market, 
full off-take and cash flow will be problematic. Offering an agreement of 
international standard will be a key to closing a deal with interested firms. Our 
past experience has offered valuable lessons. 

It is anticipated that agreements can be standardized and more transparent 
and meet with public scrutiny. It is hoped that dispute resolution can be 
resolved more quickly and at a lower cost than in the past. 

Lastly, we hope to fully deregulate the industry as soon as possible to offer 
greater levels of competition both at the wholesale and retail level. In this 
way power producers can have a range of customers to whom they can offer 
their services. 

The writer is the director for energy, mineral resources and mining at the 
National Development Planning Board (Bappenas). The article reflects his 
personal views. 

--------------------------------

Indonesian govt may transform smelter into power company

JAKARTA, July 31 (Asia Pulse/Antara) - The government is studying the
possibility of changing PT Indonesia Asahan Aluminium (Inalum) from an
aluminum smelter into a power generating company when ending its
contract with Japanese investors in 2013.

Inalum has two hydropower plants built to supply power for the smelter
fed by the Asahan river.

Asahan II hydroelectric plant alone has a capacity of 603 megawatts,
which is potential to supply power in the region frequently hit by
power shortage, State Minister for State Enterprises Sugiharto said.

The government, however, still sees the possibility of improving
efficiency and productivity of Inalum as a smelter , which will enable
it to repay a debt of US$720 million until 2013, Sugiharto said.

He said the government has set up a team to study the economic value
of Inalum either as an aluminum smelter or as a power generating
company.

In 2005, Inalum showed good performance operating

500 units of its 510 ovens to produce 252,328 tons of aluminum bars
exceeding its installed capacity of 225,000 tons a year.

Its reported a net profit of US$120 million in 2005 but with large
accumulation of losses the company could not pay taxes that year. It
is expected to be able to offset the losses and start paying taxes in
2008.

The company is jointly owned by the Indonesian government and the
Japanese government and a consortium of more than 10 Japanese
companies including Sumitomo Chemcal Company, Ltd, Sumitomo Shoji
Kaisha Ltd
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Indonesian power plant unaffected by distribution hitch

GARUT, W Java, July 30 (Asia Pulse/Antara) - Suspension of coal
distribution by state railway company PT Kereta Api Indonesia (PT KAI)
will not affect the operation of coal-fired power plant PLTU Suralaya
here, which is managed by PT Indonesia Power.

The suspension of coal distribution from July 27 to July 31 would not
affect the operation of PLTU Suralaya because the power plant still
have enough supply for the 20 days, production director of PT
Indonesia Power Ahmad Sadikin, said here on Sunday.

Ahmad said PT KAI was having a problem which hopefully could be solved soon.

"We have already had anticipatory measures in place to meet any
eventuality like this," he said.

The deputy chief of the Tanjung Enim station, Ermi Hadi, denied that
the suspension of coal distribution was a sabotage.

He said the coal distribution had to be temporarily stopped because PT
KAI was making improvements of Tanjung Enim-Tarahan and Tanjung
Enim-Kertapati tracks including bridges and locomotives on those
routes.

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Indonesia's PLN to hand over power projects to subsidiaries

JAKARTA, July 31 (Asia Pulse/Antara) - State electricity company PLN
will hand over the ownership of its coal fired power projects with a
total capacity of 10,000 megawatts to its subsidiaries PT Indonesia
Power and PT Pembangkitan Jawa-Bali .

PT Indonesia Power and PT Pembangkitan Jawa-Bali will take over the
projects as well as a debt of around US$9 billion used to finance the
projects, President of Indonesia Power Abimanyu Suyoso said.

PLN, however, has yet to decide the share of the projects, which are
to be completed before 2010, to be handed over to each of the two
subsidiaries..

Suyoso said PT Indonesia Power is financially able to handle the part
of 6,900 MW to be built in Java and it will be ready to provide
guarantee for any goods supplied for the company.

He said the project handover will take place when the projects are
about to be completed .

He said the PLN's decision has forced PT Indonesia Power to put off
initial public offering (IPO) plan originally to be launched in mid
2007.

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PR Newswire (U.S.)
July 31, 2006

Medco-Ormat-Itochu Consortium Wins Tender for 340 MW Sarulla
Geothermal Power Project in Indonesia

Ormat Technologies to provide equipment to construct 3 new power plants

Will have minority equity interest in owning and operating power plants

RENO, Nev., July 31 /PRNewswire-FirstCall/ -- Ormat Technologies, Inc.
(NYSE: ORA) today announced that a consortium consisting of its
wholly-owned subsidiary, Ormat International, Inc., a unit of Medco
Energi Internasional Tbk (Indonesia's largest private oil and gas
company), and Itochu Corp. of Japan, has been declared the winner of a
tender issued by the Indonesian state-owned utility PT PLN (Persero)
for the development of the Sarulla, North Sumatra, Indonesia
geothermal power project on an independent power producer basis.

(Logo: http://www.newscom.com/cgi-bin/prnh/20040422/LATH066LOGO )

The Sarulla project represents the largest single-contract geothermal
project to date in the geothermal industry worldwide and is a
reflection of the large scale and high productivity of Indonesian
geothermal resources, as well as an indicator of the potential of the
Indonesian geothermal power industry.

Medco is the leader of the Consortium, whose bid consisted of the
completion of the development of the geothermal steam field,
construction of the field piping systems and three ORMAT designed and
supplied power plants with a combined gross capacity of 340 MW, owning
and operating the facilities and selling electricity to PLN under a
30-year Power Purchase Agreement (PPA) expected to be concluded within
4 months. Ormat's specific responsibilities include the supply of the
power plant and setting up and supervising the operations and
maintenance of the plants, which will utilize its technology and
equipment. The total project cost is projected to be about $600
million. The value of Ormat's scope of work for the supply of power
plant equipment is expected to be approximately one third of the total
project's cost. Release of the supply contracts to Ormat will be made
upon the financial closing of the transaction, expected to be 12
months from the effective date of the PPA.

The Sarulla project is to be constructed over the next five years in 3
phases of 110 to 120 MW each, with the first power generating unit to
be operational within 30 months and the last within 48 months from the
financial closing. Power delivered by the project will serve the base
load of PLN's North Sumatra - Aceh grid system. Upon the completion of
the third phase, the expected annual revenue from electricity sales
under the PPA will be approximately $110 million.

The project will be owned and operated by an Indonesian special
purpose company (SPC) that will be established by the Consortium
members under the framework of a Joint Operating Contract with the
concession holder, Pertamina (the state-owned oil and gas company). In
addition to its responsibilities as the project's power plant
equipment supplier and for supervision of operations and maintenance,
Ormat will participate as a minority shareholder in the SPC.

The power plants to be constructed shall be Ormat Geothermal Combined
Cycle Plants. Ormat has supplied and constructed five plants of this
type to date in the U.S., the Philippines and New Zealand. As was the
case with these plants, the Sarulla power plants will use air-cooled
condensers to achieve 100% geothermal fluid reinjection, which serves
to sustain the reservoir and to produce electrical power with very
limited environmental impact.

Geothermal in Indonesia

The exploitable geothermal resource potential of Indonesia has been
conservatively estimated at 20,000 MW, which is widely distributed
throughout the archipelago. Present installed capacity is
approximately 800 MW. The Government of Indonesia and its Parliament
have continuously reaffirmed their recognition of the importance of
geothermal energy in Indonesia's energy mix. Given the current power
shortages, the projected rate of economic growth and high energy
prices, the utilization of geothermal energy in the future is most
likely to be further encouraged and accelerated.

The Sarulla Geothermal Working Area is one of Indonesia's largest and
potentially most productive geothermal sites. It consists of four
distinct reservoirs, two of which the Consortium plans to develop to
achieve the project's power capacity under the bid. The SPC shall have
an option to further expand the capacity at a later stage. Several
geothermal production wells supporting generation of more than 100 MW
have already been drilled in the two areas to be developed.

About Ormat Technologies

Ormat Technologies, Inc. is a vertically integrated company primarily
engaged in the geothermal and recovered energy power business. The
Company designs, develops, builds, owns and operates geothermal power
plants and also designs, develops and builds and plans to own and
operate recovered energy- based power plants. Additionally, the
Company designs, manufactures and sells geothermal and recovered
energy power units and other power generating equipment and provides
related services. Ormat products and systems are covered by more than
70 patents. Ormat currently operates the following geothermal power
plants: in the United States - Brady, Desert Peak, Heber, Mammoth,
Ormesa, Puna and Steamboat; in the Philippines - Leyte; in Guatemala -
Zunil; in Kenya - Olkaria; and in Nicaragua - Momotombo.

Safe Harbor Statement

Information provided in this press release may contain statements
relating to current expectations, estimates, forecasts and projections
about future events that are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements generally relate to Ormat's plans,
objectives and expectations for future operations and are based upon
management's current estimates and projections of future results or
trends. Actual future results may differ materially from those
projected as a result of certain risks and uncertainties. For a
discussion of such risks and uncertainties, see "Risk Factors" as
described in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 2006 and the
Prospectus Supplement filed with the Securities and Exchange
Commission on April 5, 2006.

These forward-looking statements are made only as of the date hereof,
and we undertake no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or
otherwise.

SOURCE: Ormat Technologies, Inc.

Dita Bronicki, CEO and President, Ormat Technologies, +1-775-356-9029,
dbronicki at ormat.com; U.S. Investor Relations Contact - Todd Fromer,
+1-212-896-1214, tfromer at kcsa.com, or Marybeth Csaby, +1-212-896-1236,
mcsaby at kcsa.com; Media Contact - Lewis Goldberg, +1-212-896-1215,
lgoldberg at kcsa.com, all of KCSA Worldwide

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Joyo Indonesia News Service
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