On 6 October 2011 a number of agreements for the commencement of the Central Java 2×1,000 MW Steam Power Plant project (CJPP), located in Batang, have been signed at the Coordinating Ministry for Economic Affairs in Jakarta. CJPP is a large scale Public Private Partnership (PPP) Project and one of the showcase PPP and the associated Indonesian Infrastructure Guarantee Fund (IIGF/PT PII) projects that is significant in and of itself and will serve as a showcase project for how future PPP projects will be developed under the PPP and the IIGF frameworks.
The documents signed on this occasion include:
- Power Purchase Agreement between PT PLN (Persero) and private power developer PT Bhimasena Power Indonesia / PT BPI
- Guarantee Agreement between the Minister of Finance of the Republic of Indonesia and PT PII (Persero)/IIGF as guarantor, and the private power developer PT BPI
- Recourse Agreement between the Minister of Finance of the Republic of Indonesia as a guarantor and PT PLN (Persero)
- Recourse Agreement between PT PII (Persero)/IIGF as a guarantor and PT PLN (Persero)
- Sponsor Agreement for project development between J-Power, Itochu, and Adaro
CJPP is the first large-scale showcase PPP Project based on President Regulation No. 67 of 2005 on Cooperation between the Government and Business Entities in the Provision of Infrastructure, with a value of more than Rp30 trillion (approx. US$3.4 billion). And is one of the projects in the Master Plan for Acceleration and Expansion of Indonesian Economic Development (MP3EI). The CJPP project received a Government guarantee using a mutual Government guarantee scheme between the Government and IIGF which is mandated based on President Regulation No. 78 of 2010 on Guarantees for Public-Private Partnership Infrastructure Project through the Infrastructure Guarantee Fund. The guarantee for CJPP includes specific financial obligations of PLN under the Power Purchase Agreement (PPA), consisting of PLN’s financial obligations related to monthly electricity purchases from the Independent Power Producer (IPP). The provision of the guarantee for the CJPP project is a significant step forward in the process of infrastructure development in Indonesia due to the new transparent and accountable insurance scheme through PT PII/IIGF, which serves as one of the Government’s fiscal policy instruments.
Lubis Ganie Surowidjojo (LGS) acts for the Government of the Republic of Indonesia, advising the Ministry of Finance, the Indonesia Infrastructure Guarantee Fund (PT PII/IIGF) and PLN on issues related to the issuance of guarantees by providing legal advice on the regulatory and legal mechanism of Infrastructure Guarantees for Public Private Partnership (PPP) projects, including the preparation of the related legal documentation.
The IIGF guarantee scheme:
- Insures risks of PPP projects stemming from a variety of sources, including unfavorable policy changes and other political risks
- Increases certainty for investors
- Facilitates access to credit due to reduced risks
- First such attempt in Indonesia to facilitate PPP projects
- Replaces the previous practice of government guarantee notes, of ambiguous certainty, that were issued on a per-project basis