Indonesia will begin construction next month of its long-delayed $1.6-billion Sarulla project, the world’s biggest geothermal power plant, the country’s chief economic minister said on Wednesday.
Southeast Asia’s largest economy, home to the world’s largest geothermal resources, is racing to meet power demand growth of more than 7 percent a year, with plans to add 60 gigawatts of capacity to its existing grid by 2022.
But the sector has struggled to attract investment because of complex regulations and difficulties securing project finance. A government plan to derive 12 percent of the country’s energy mix from geothermal power by 2025 seems unrealistic.
“The Sarulla groundbreaking will be very soon,” Coordinating Economic Minister Chairul Tanjung told reporters, adding that the project had reached financial closing and the government expected construction to begin next month.
He declined to give further details.
The project was originally initiated in 1990 but ground to a halt during the Asian financial crisis in 1997. Its first phase is expected to begin operation in 2016, with the next two phases to follow within 18 months of the first phase.
The 330-MW Sarulla project is envisioned to provide clean power to an Indonesian grid dominated by fossil-fuel energy. Sarulla is expected to reduce 1.3 million tonnes of carbon dioxide emissions a year when completed in 2018.
The financing of the project has been heralded as a breakthrough for Indonesia’s largely undeveloped 29 gigawatts of geothermal potential.
The banks involved in the financing are the Japan Bank for International Cooperation (JBIC) and the Asian Development Bank (ADB) along with Bank of Tokyo-Mitsubishi UFJ Ltd, ING Bank NV (a unit of ING Groep NV ), Societe Generale, Sumitomo Mitsui Banking Corportation, Mizuho Bank Ltd and National Australia Bank.
The project is sponsored by Itochu Corporation (25 percent), Kyushu Electric Power Company (25 percent), Medco Power Indonesia (37.5 percent), a unit of Medco Energi Internasional and Ormat International, a unit of Ormat Technologies (12.5 percent).
The Sarulla plant’s recent financial close makes it Indonesia’s first geothermal project to gain financing since Star Energy’s 227-MW Wayang Windu plant commenced in 1997.
After decades of delay, Indonesia will soon begin the development of the US$1.6-billion Sarulla geothermal project, which will be the largest geothermal power plant in the world.
Newly appointed Coordinating Economic Minister Chairul Tanjung said that the ground-breaking for the geothermal power plant project would take place soon. “It will be the largest geothermal power plant in the world,” he said on Wednesday.
The operation of the new geothermal power plant would have a major role in the government’s plan to increase power supply by about 60 gigawatts by 2022, said Chairul, who was appointed last week to replace Hatta Rajasa, who quit his job after he was nominated as the running mate of Prabowo Subianto in the presidential election on July 9.
Chairul said the commencement of the geothermal power plant would be a breakthrough for the development of the country’s vast geothermal resources, believed to be among the largest in the world.
At least 30 geothermal projects have been delayed due to problems related to land acquisition and permit issuance, leaving most of the country’s geothermal resources untapped.
The geothermal power plant, which will be built and operated by Medco Power Indonesia, will have a power-generation capacity of 330 megawatts (MW).
Medco Power president director Fazil E. Alfitri said the field work for the mega project in Sarulla, North Sumatra, would begin in early 2015, about 22 years after the project was first initiated.
He said Medco and its partners, under the consortium Sarulla Operations Ltd., had secured financial agreement for the first drawdown of the project’s funding. “It was reached on May 23,” he said when contacted on Wednesday.
Sarulla Operations comprises Medco, Japan’s Itochu Corporation and Kyushu Electric Power Co. and US-based Ormat International Inc.
The financial deal enables Sarulla Operations to draw $1.17 billion from a consortium of financial institutions, which comprise the Japan Bank for International Cooperation, the Asian Development Bank, Bank of Tokyo-Mitsubishi UFJ Ltd., ING Bank NV, Mizuho Bank Ltd., the National Australia Bank, Société Générale SA and the Sumitomo Mitsui Banking Corporation.
The plan for the power project was originally drawn up in 1993. However, the government put the project on hold following the economic crisis that hit Indonesia in 1998. The project was resumed in 2000 when negotiations on costs were begun, but no agreements were ever reached.
Fazil said that Sarulla Operations had begun preparing infrastructure for the project six months ago and would continue with well drilling and other engineering work from June until year-end.
Vice President Boediono was informed of the project’s progress on Wednesday, when he held a meeting with Chairul, Energy and Mineral Resources Minister Jero Wacik, Finance Minister Chatib Basri, State-Owned Enterprises Minister Dahlan Iskan and PLN president director Nur Pamudji at his office.
Speaking after the meeting, Jero said that Boediono would most likely inaugurate the project in a ground-breaking ceremony at the end of June.
Meanwhile, Chairul said that he planned on taking a “social approach” to finding a solution to the construction of the Batang coal-fired power plant in Central Java, which has been stymied due to land-acquisition problems. When completed Batang will be the biggest coal-fired power plant in Southeast Asia.
“I am going to hold talks with local officials because I don’t want the parties involved holding each other to ransom. I want to see more flexibility because most of the land has already been cleared for the project,” he said.
Work on the 2 x 1,000 MW project, estimated to be worth around Rp 35 trillion ($3.01 billion), began more than two-and-a-half years ago, but continues to face land-related problems. As of now, only 29 out of 226 hectares needed for the project are still in dispute.
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