Indonesian Energy Report PDF 468 KB 30287

Indonesian
energy report
FINANCIAL INSTITUTIONS
ENERGY
INFRASTRUCTURE AND COMMODITIES
TRANSPORT
TECHNOLOGY
A NORTON ROSE GROUP GUIDE
AUGUST 2010
Indonesian energy report
Norton Rose Group August 2010 Edition No. NR8180 08/10
The whole or extracts thereof may not be copied or reproduced without the publishers prior
written permission.
This publication is written as a general guide only. It does not contain denitive legal advice and
should not be regarded as a comprehensive statement of the law and practice relating to this area.
Up-to-date specic advice should be sought in relation to any particular matter. For more information
on the issues reported here, please get in touch with us.
No individual who is a member, partner, shareholder, employee or consultant of, in or to any
constituent part of Norton Rose Group (whether or not such individual is described as a partner)
accepts or assumes responsibility, or has any liability, to any person in respect of this publication.
Any reference to a partner means a member of Norton Rose LLP or Norton Rose Australia or
a consultant or employee of Norton Rose LLP or one of its afliates with equivalent standing
and qualications.
Preface
Indonesia is a resource rich country with a growing demand
for energy. The established oil and gas industries continue
to offer good opportunities for developers, but unconventional
forms of energy also offer exciting new upstream potential.
Coalbed methane, shale gas and geothermal energy are among
the sizeable and under-developed opportunities available
in Indonesia.
On the downstream side, Indonesias need for new electricity
generating capacity continues. The nancial closing of recent
independent power projects (IPPs) in March 2010 indicates that
Indonesian IPPs are clearly back in business. The troubled times
of the 1997 Asian nancial crisis are a distant memory: existing
IPPs have performed well and PLN has shown a strong payment
record. The condence of developers and nanciers has now
reached a critical tipping point.
This report looks at current developments in the Indonesian
oil, gas and power industries. We look at the industry structure,
the regulatory environment and current opportunities for investors.
This report has been produced from publicly available information
sources. Care has been taken to check the reliability of the
source, but we have been unable to verify the accuracy of all
the information contained in this report. The facts contained
in this report are subject to change.
Please refer to the contacts listed at the back of this report,
if we can assist you with any further information.
Contents
08 Executive summary
11 Oil
24 Gas
34 Electricity
48 Denitions
50 Norton Rose Group
51 Contacts
Executive summary
Oil
Indonesia currently produces nearly 950,000 bbl/d of oil, but many of its elds are mature
and production is declining. Indonesia became a net importer of oil in 2004 and for that
reason, it opted to withdraw from OPEC in 2008.
Chevron operates Indonesias two largest oil elds the Minas and Duri elds where
Chevron employs steam ooding techniques to enhance production. Indonesias largest
new eld development is the Cepu block operated by ExxonMobil.
The Oil and Gas Law (Law 22 of 2001) (Law 22) ended the monopoly control of the state-
owned oil enterprise, Pertamina, in the downstream sector. Since the enactment of Law 22
and the implementing downstream regulations, more than 25 companies have obtained
licences for various downstream activities.
In 2003 Pertamina was converted from a state-owned enterprise into a state-owned limited
liability company. Pertamina will be privatised at some point in the future, but tangible
plans to carry out this goal are some way off. One of the key obstacles to further reform
of the downstream oil sector in Indonesia is the consumption subsidies for domestic retail
fuel consumers. Whilst subsidies have been reduced, they have not yet been eliminated.
Indonesia recently awarded 14 oil and gas blocks. Repsol, Talisman and PTT Exploration
& Production were some of the biggest winners of the blocks mostly offshore Papua and
the Makassar Strait.
Indonesia caps the cost recovery available to contractors, as well as restricting the category
of recoverable costs. This move has been widely blamed for the poor results in the 2008
and 2009 bid rounds. In January 2010 the Government of Indonesia (GoI) announced plans
to abandon the practice of capping cost recovery in order to encourage more investment
in the upstream sector. Revised regulation is keenly awaited.
MIGAS launched an informal pre-bid round on 3 February 2010 for a total of 35 blocks.
We understand that MIGAS will ofcially open a bid round after gauging the level of interest
gathered during this pre-bid round.
Gas
Indonesia has proven gas reserves of approximately 98 tcf making it the tenth largest holder
of gas reserves in the world. Indonesia is home to Southeast Asias largest gas eld, the Natuna
D-Alpha block estimated to contain 46 tcf of recoverable reserves, which are largely undeveloped.
Indonesia ranks eighth in world gas production. Indonesia produced approximately 7.9 bcf/d
of natural gas in 2009, about half of which was consumed domestically. Several elds are
expected to come on stream in 2010 and will boost production. Indonesia exports gas to
Malaysia and Singapore via pipeline. Indonesia is also the worlds third largest LNG exporter
Norton Rose Group 09
Executive summary
with projects at Arun, Bontang and Tangguh. Further liquefaction projects are planned,
as well as regasication terminals to service east and west Java.
The GoI requires gas producers with a PSC signed after 23 November 2001 to supply 25
per cent of their gas production to the domestic market. However, this domestic obligation
has failed to keep pace with growing domestic demand for gas from both the power and
fertiliser industries. As a result the GoI introduced a policy to redirect gas intended for export
to domestic projects. To this end, gas has been diverted from the Bontang and Arun LNG
projects. Recently the GoI has stated that producers will be allowed to export gas provided
there are no domestic buyers. The Ministry of Energy & Mineral Resources (MEMR) claims
domestic customers will be given the rst opportunity to negotiate the purchase of gas.
Total is the largest gas producer with production of 2.57 bcf/d of gas. Total produces 80 per
cent of the feedstock gas for the Bontang LNG project. Several gas developments are taking
place including Chevrons Ganal-Rapak deepwater gas development, Pertaminas Natuna
D-Alpha eld and ConocoPhillips North Belut eld development.
Coal bed methane (CBM) offers huge potential to Indonesia given that it holds the worlds
second largest reserves, estimated to be 453 tcf. As yet there is no commercial production
of CBM in Indonesia. Uncertainty in the legal and regulatory regime is the reason behind the
lack of development to date, but this could change rapidly with the new regulations enacted
in 2008. The rst CBM cooperation contracts were awarded in 2008 and a further four are
expected to be auctioned in mid 2010.
Electricity
Indonesia has approximately 36 GW of installed generating capacity. Some 87 per cent
of Indonesias generating capacity comes from conventional thermal sources oil, natural
gas and coal. The electrication ratio is 65 per cent and there is a shortage of power with
frequent black outs.
Indonesias power sector is dominated by PLN, formerly known as Perusahaan Listrik Negara.
PLN is a vertically integrated monopoly and, until recently, was the sole buyer and seller of
electricity in Indonesia. PLN operates around 85 per cent of the countrys generating capacity
and all transmission and distribution activities. In recent years the majority of new projects
have been developed by PLN.
Indonesia passed a new law for the electricity sector in September 2009, Law No. 30 of 2009,
(Law 30). Law 30 ends PLNs monopoly over supply and distribution but does not go so far
as to unbundle PLNs vertically integrated status. Law 30, however, is already controversial
and subject to judicial review. It is alleged by some to be unconstitutional. It will likely be
some months before the outcome of the judicial review is made public.
Like the oil industry, one of the key impediments to reforming Indonesias electricity sector
is the subsidisation of electricity prices. Traditionally, the GoI has set the retail tariff payable
for electricity, which is often less than the cost of production, leaving PLN with a funding
shortfall for new generation projects. Subsidies have been reduced, but not yet eliminated.
PLN has suggested retail prices for electricity may rise by 10 per cent in 2010.
In order to speed the development of much needed generating capacity the GoI introduced
the Fast Track Programme in 2006 with the aim of adding more than 10,000 MW of new
capacity. Much of the programme has been implemented by PLN using Chinese contractors
and equipment suppliers, with Chinese export nance and domestic loans. Nearly half
of the new capacity has now come on line and the rest is expected on line by 2013.
There had been little IPP activity in Indonesia for ten years, but it appears that Indonesia is
entering into a new phase of IPP activity. In March 2010 the Cirebon and Paiton 3 coal-red
IPPs reached nancial close with a combined capital cost of more than US$2.7 billion. Debt
was provided by Korea Eximbank and/or Japan Bank for International Cooperation (JBIC),
alongside international commercial lenders.
PLN is now implementing the second phase of the Fast Track Programme. Unlike the rst
phase of the programme, IPPs will have a more signicant role in the second phase. There
are plans for 10,147 MW of new capacity comprised of 3,977 MW of geothermal, 3,312
coal-red, 1,660 gas-red and 1,198 hydro projects.
In parallel to the Fast Track Programme, PLN is progressing the 2 x 800 MW coal-red
Central Java IPP which is currently subject to tender. PLN is expected to offer seven other
coal-red projects for private investment in 2010.
Indonesia is thought to offer excellent geothermal potential with resources sufcient for as
much as 28,000 MW of power generating capacity. The MEMR has issued 26 new geothermal
working areas. Of that number seven have been tendered, six are in the bidding process
and 13 are ready to bid. Up to 50 working areas are expected to be offered at a later date.
In total, there are 44 geothermal projects included in the second phase of the Fast Track
Programme, of which approximately 30 are intended to be awarded to IPPs. In April
the 330 MW Sarulla IPP successfully agreed a revised tariff with PLN securing the future
for the project and boding well for other geothermal IPPs.
Oil
Oil
Introduction
Indonesia had 3.7 billion barrels of proved oil reserves as at the end of 2008. Much of
these reserves are located onshore. Central Sumatra is the countrys largest oil producing
province and is the location of the large Duri and Minas oil elds. Other signicant oil eld
development and production is located offshore northwestern Java, East Kalimantan and
the Natuna Sea. Indonesia currently produces nearly 950,000 bbl/d of oil, but many of its
elds are mature and production is declining.
Institutional framework
Under Indonesias 1945 Constitution all natural resources within Indonesian territory are
owned and controlled by the state. The Ministry of Energy & Mineral Resources (MEMR) is
responsible for overseeing the states ownership and management of oil and gas resources
in Indonesia.
Oil and gas remains within the primary jurisdiction of the central GoI, however, local
governments have certain controls and rights to share in the nancial benets of the oil
and gas business. The degree of control retained by the GoI continues to be a key area
of contention for the governments of the oil and gas rich regions.
Law 22 and Pertamina
Indonesia introduced a new legal regime for its oil and gas industry with the passing of the Oil
and Gas Law (Law 22 of 2001) (Law 22). There have been several implementing regulations
promulgated under Law 22, as well as directions and decrees, to give effect to the broad
outline principles laid out in the primary legislation.
Law 22 introduced a number of changes with clear political signicance. The law restructured
and liberalised the state control over the oil and gas industry. Law 22 conrms the grant
by the State to the GoI of exclusive control over petroleum natural resources and the rights
for oil and gas exploration and development. More signicantly, it ends the monopoly control
of the state-owned oil enterprise, Pertamina. The law aims to encourage competition and
open the downstream sector to private investment.
The law, together with subsequent implementing regulations, transferred Pertaminas
upstream and downstream supervisory role to two separate government agencies. The
two regulatory agencies are Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi
(BPMIGAS) and Badan Pengatur Hilir Minyak dan Gas Bumi (BPH MIGAS), which implement
and supervise Indonesian upstream and downstream activities respectively. Both agencies
are responsible directly to the President of Indonesia.
BPMIGAS has succeeded to all of Pertaminas interests it held in PSCs and other contracts
in which Pertamina acted on behalf of the GoI (and not in respect of participating interests
held by Pertamina as a contractor under those contracts). The key exception relates to
production sharing arrangements with contractors under technical assistance agreements.
Such interests have been retained by Pertamina for the balance of the term of those
agreements. One of BPMIGASs roles is to select the representative to sell the GoIs share
of oil and gas production. There is no presumption that Pertamina will be appointed in
this role, and in practice it is usually the operator of the relevant block that is appointed.
BPH MIGAS supervises all downstream activities, which include rening, storage,
transportation, distribution and marketing of petroleum and petroleum products.
In 2003 Pertamina was converted from a state-owned enterprise into a state-owned limited
liability company, known as PT Pertamina (Persero) (Pertamina). Theoretically, Pertamina
now functions like any other private sector commercial oil and gas company. It does,
however, enjoy a number of benets or privileged positions, and also assumes several
additional responsibilities, due to it being a state-owned business enterprise (BUMN) and
also specically in its own right. Some of these are discussed in more detail below. The GoI
has expressed an intention that Pertamina will be privatised at some point in the future,
but tangible plans to carry out this goal are some way off.
Pertamina engages in upstream and downstream oil and gas activities, as well as some
grandfathered rights to exploit geothermal energy. Pertamina pursues its own operations,
as well as through partnerships.
Law 22 ended Pertaminas monopoly in the downstream sector. Private companies may now
engage in downstream activities provided that they have been granted a business licence
by the GoI. With distribution to over 2,500 fuel stations, Pertamina continues to be dominant
in the retail market, but this is expected to erode over time. Since the enactment of Law 22
and the implementing downstream regulations, more than 25 companies have obtained
licences for various downstream activities. Shell opened the rst internationally branded
petrol station in Indonesia in October 2005. Others now include Petronas and Total.
One of the key obstacles to further reform of the downstream oil sector in Indonesia is
the consumption subsidies for domestic retail fuel consumers. Consumers are entitled
to purchase oil products at a discount from market prices. Discounted fuels are supplied
under a public service obligation that has been awarded by tender or direct appointment
by BPH MIGAS each year since 2004. Pertamina has been the sole selected distributor
each year. However, in 2010 two private companies, PT AKR Corporindo and a subsidiary
of Petronas, have also been awarded distribution rights in discrete locations. A signicant
portion of GoI expenditure is consumed by funding these subsidies. Over the years the
GoI has made attempts to reduce the subsidies, which was met with much political ill will.
In 2005 subsidies were rolled back causing petrol and diesel prices to rise by 125 per cent.
Whilst subsidies have been reduced, they have not yet been eliminated.
Indonesian energy report Oil
The GoI has been running initiatives to encourage consumers to reduce their consumption
of subsidised fuels. In one recent initiative, consumers have been encouraged to switch from
kerosene to LPG. The GoI claims that over US$1.3 billion in subsidies has been saved since
the programme commenced in 2007 through to April 2010.
Pertamina has ambitious investment plans for 2010 amounting to US$4.2 billion. It plans to
fund its capital expenditure from borrowings of US$2.5 billion, which would include a 1 trillion
rupiah domestic bond issuance. In April Pertamina secured US$1.4 billion on loans from a
syndicate of foreign banks including Citi, HSBC and ANZ. The US$4.2 billion war chest would
be split between upstream projects (65 per cent) and downstream (35 per cent). Pertamina is
looking to make ve to ten acquisitions, including taking licences in oil and gas businesses.
Pertamina is also looking to invest in new rening capacity (see Oil Rening below) and
oating liqueed natural gas receiving terminals (see Gas LNG Regasication below).
Private sector
More than 230 private contractors are active in Indonesia, the largest including Chevron,
ConocoPhillips, ExxonMobil, Total and CNOOC Ltd. Of these, about 170 are engaged
in exploration activities.
Chevron is Indonesias largest oil producer and operates the Duri and Minas oil elds,
which together account for more than 30 per cent of Indonesias total oil production.
ConocoPhillips operates seven PSCs in Indonesia, four offshore and three onshore.
The largest producing blocks are the mature Block B in the South Natuna Sea and the
Corridor Block in Sumatra.
VICO Indonesia, the joint venture between ENI and BP, is the third largest production
sharing contractor in Indonesia.
ExxonMobils oil production is expected to substantially increase in coming years as
it continues its development of the Cepu contract area onshore Java.
Cooperation contracts
All private companies wishing to explore or exploit oil and gas reserves must do so via
cooperation contracts with BPMIGAS. Under these cooperation contracts the GoI retains
ownership of the oil and gas and the contractor bears all the risk and costs of exploration,
development and production in return for an agreed share of the proceeds derived from
subsequent sale of production.
Under the prevailing regulations, cooperation contracts may have a term of up to 30 years,
with provision for a further 20 year extension. They provide for an initial exploration period
of six years, which can be extended once by up to four years. There are also provisions
for the gradual relinquishment of a portion of the operational area, or complete
relinquishment where approval for the initial eld development has not been obtained or
where the relevant activities have not been commenced within a ve year period after the
expiry of the exploration period. Under regulations introduced in February 2010, a eld may
also be required to be relinquished if the Contractor does not submit a development program
within new expedited timeframes, and BPMIGAS is required to recommend termination of the
cooperation contract in the event of breach of the contract and/or legislation and regulations.
Additional MEMR regulations are expected to be passed in 2010 relating to the extension
of cooperation contracts, and it is expected that these will contain certain preferential rights
in favour of Pertamina.
Every cooperation contract entered into with BPMIGAS must be approved by the MEMR
and notied in writing to the Peoples Representative Assembly (DPR). Whilst the DPR does
not have the right to approve the cooperation contract, the implication is that the terms
of contract will be transparent.
The form of cooperation contract most commonly entered into in respect of upstream activities
is the production sharing contract (PSC). The rst signicant Indonesian PSC was signed
in 1966 and since that time more than 200 PSCs have been signed.
The current PSC used by BPMIGAS, on behalf of the GoI, is substantially similar to the former
version used by Pertamina, with the key exception of the domestic supply requirement for
natural gas. Key terms of the recent form of PSC are summarised below:
Table: Typical key terms of the current Indonesian PSC
Key terms
Term 30 years, of which:
Exploration: Six years, with one four year extension permissible.
Participating interest At the time of approving the first development plan, a local government
business enterprise (BUMD) is given the opportunity to take a 10 per
cent participating interest by paying a 10 per cent share of operating
costs to date (in cash). If the BUMD does not take up the 10 per cent
interest, it must then be offered to a BUMN, or a private national
company wholly owned by Indonesian citizens.
Time limits Six months to commence petroleum operations from the date of signing.
Three years to submit a development plan in respect of any discovery
(may be extended by two years for technically difficult areas or where
there is delay in determining gas sale and purchase arrangements).
Five years to commence petroleum operations from the end of the
exploration period (which may be extended for gas discoveries).
Oil
Key terms
Relinquishment Within three years of signing the PSC, the contractor must relinquish
a portion of the original contract area, usually between 20-25 per cent.
A further 15 per cent must be relinquished if the work commitment has
not been completed in this time. By the end of the sixth contract year
a total of 80 per cent must be relinquished. Contractor may relinquish
the contract after the first three years.
Performance bond A sum as security in respect of the work commitment for the first three
years. The amount will be reduced annually by deducting the amount
included in the work program and budget for the required activity.
Development plans,
work programs
and budgets
BPMIGAS, MEMR and the applicable provincial government have the
right to approve the initial development plans. BPMIGAS approves
all annual work programmes and budgets.
Domestic market
obligation
Crude oil: 25 per cent, to be sold at 25 per cent of the market
price (such discounted price to apply for each field from
the sixth year of production from that field onwards).
Natural gas: 25 per cent of the contractors gas entitlement. Domestic
buyers are given a one year period in which to opt to
purchase natural gas. Failing which the contractor may
market the gas internationally with the GoIs consent.
Production share First tranche petroleum (FTP): FTP is taken each year before any
deduction for operating costs. It is either taken solely by BPMIGAS
(typically around 10 per cent of petroleum produced for the year), or it
is shared with the contractor in the same proportion as the profit oil/gas
allocation (below) (typically around 20 per cent of petroleum produced
for the year). FTP effectively operates as a cap on cost recovery and
guarantees BPMIGAS a minimum income from the development.
Thereafter, for volumes remaining after cost recovery:
Crude oil: 37.5 per cent BPMIGAS, 62.5 per cent contractor.
Natural gas: 28.5714 per cent BPMIGAS, 71.4286 per cent contractor.
The percentage splits may vary, and will usually be more attractive
for the contractor for eg, deepwater and frontier blocks.
Title to equipment Title to equipment purchased by the Contractor passes to BPMIGAS
on importation. Title to leased equipment does not pass and may be
freely re-exported.
Decommissioning Contractor must conduct an environmental baseline assessment
and will be responsible for decommissioning at the end of the term.
For PSCs signed from 1995 onwards, the contractor must deposit
abandonment and restoration funds as equity for decommissioning
costs in an escrow account in an Indonesian bank. Such funds
will be included within the allowable operating costs for cost
recovery purposes.
Key terms
Transfers No transfers of a majority interest within the first three years. Any
transfer of an interest to an affiliated or non-affiliated company,
and any proposed change of control, requires the prior approval
of BPMIGAS and the GoI.
Tax Contractors are subject to income tax and such tax is maintained
under a tax equalisation clause.
Bonus payments A payment upon signature of the contract (secured by a signature
bonus bond delivered pre-execution).
Equipment and services to be provided, if requested, during the first
contract year.
Further bonus payments due upon cumulative production reaching
specified thresholds.
These bonus payments are not cost recoverable.
Arbitration Under UNCITRAL Rules at a location to be agreed.
Historically the general after tax split between the GoI and the contractors for natural gas
has been 70:30 after the contractor has recovered its costs. Generally, the current split is
between 60:40 and 70:30, but, theoretically, the production split is open for negotiation.
In addition to the production sharing, the GoI also levies corporate taxes on the contractors.
In response to concerns over the nature of certain items being cost recovered by contractors,
and the annual value of cost recoverable items during a period of declining production,
Ministerial regulations were recently passed setting out a negative list of cost items not
eligible for cost recovery. New regulations are proposed for 2010 that will further regulate
the cost recovery mechanism, potentially setting out an exhaustive list of cost items that
are eligible for cost recovery and capping the annual cost recovery amount for a block by
reference to its annual work program & budget for the year. The GoI also moved cost recovery
into the state budget process, thereby introducing an effective annual cap on cost recovery at
the level stated in the budget. In 2009 the state budget capped aggregate cost recovery at
US$11.05 billion. This was increased to US$12 billion for 2010. This move has been widely
blamed for the poor results in recent bid rounds. In the period running from December
2008 through to November 2009, only 25 per cent of blocks offered for tender attracted
a qualifying bid. In January 2010 the GoI announced plans to abandon the practice
of capping cost recovery, via the state budget, in order to encourage more investment in
the upstream sector, and in April 2010 announced that the cap would not be included
in the forthcoming draft legislation on the cost recovery mechanism.
Oil
Licensing rounds
2010 round
Indonesia offered 24 new oil and gas blocks for tender in 2010 (launched on 28 December
as the Second Round of 2009), consisting of 12 blocks offered by way of direct proposal
and 12 by way of regular auction. The majority of the new blocks offered are in central and
eastern Indonesia, particularly Cendrawasih Bay in Papua and the Makassar Straits. The
MEMR announced the winners of 14 blocks in May 2010, who include Repsol (with three
blocks offshore Papua) and Talisman and PTTEP (offshore Makassar Strait).
MIGAS launched an informal pre-bid round on 3 February 2010 for a total of 34 blocks
with 18 blocks under regular tender and 16 blocks under direct proposal tender. It is not
an ofcial bid round. Thus a bid deadline and bid documents are not available. It was
understood that BPMIGAS will ofcially open a bid round after gauging the level of interest
gathered during this pre-bid round, and removing from the round blocks which fail to
generate interest.
2009 round
The GoIs licensing rounds for 2009 met with a lack luster response from oil and gas
companies. Only three of the 24 blocks made available in the First Round between June
and November secured investors. The reason for the lack of interest is said to stem from
uncertainty amongst oil and gas companies given the GoIs plans to amend cost recovery
legislation (see Oil Cooperation Contracts above), as well as the remote location of the
blocks and a lack of data on the blocks.
The energy minister, Darwin Saleh, has stated his intention to regain investor condence
and is said to be considering new upstream incentives for oil and gas producers, including
a more favourable tax regime, amendment to the cost recovery regime, better production
splits under new PSCs and a more consultative ministry.
Seven of the 24 blocks offered in the 2009 First Round were offered by way of direct tender,
drawing bids for ve of the blocks. Only two cooperation contracts were awarded. The North
Makassar block was awarded to Niko Resources together with Baruna Nusantara Energy.
The block covers 414,904 acres and lies adjacent and to the north of Niko Resources
Southeast Ganal Block. Niko Resources and Baruna Nusantara Energy have committed to
a signature bonus of US$1 million and a work programme of US$15 million. The Blora block
in Central Java was awarded to Sele Raya who has committed to a three-year exploration
programme of US$3.44 million.
Seventeen blocks were auctioned via regular tender, but attracted only one bid. The
successful bidder was Brilliance Energy who was awarded the Sula I block in Central
Sulawesi. The PSC for the block requires Brilliance Energy to spend US$1 million by way
of a signature bonus and US$16.3 million during a three-year exploration phase.
In 2009 Sarana Pembangunan Riau and Kingswood Capital signed a PSC for the Langgak
block in Riau province.
2008 round
In 2008 Indonesia held two licensing rounds with a combination of regular tender and
direct proposal tender methods. The rst round offered 25 blocks, 22 of which were awarded
to bidders. The second round offered 31 blocks, 16 of which were awarded to bidders.
Indonesia continued to auction blocks from the 2008 bid round during 2009. In December
2009 the GoI awarded ve blocks from the 2008 round, details of which are set out in the
table below. Eleven blocks remain unallocated.
Table: Awards made in December 2009
Block Awarded to
East Bula, offshore east Indonesia
Halmahera Kofiau, offshore South Halmahera
West Papua IV, offshore West Papua
Niko Resources and Black Gold Energy
Andaman III, offshore North Sumatra Talisman Energy
West Glagah Kambuna, offshore North Sumatra Petronas and Pertamina
Together the successful bidders committed to spending US$20 million in signature bonuses,
US$5.5 million in geological and geophysical studies, US$33 million in seismic studies and
US$53 million on the drilling of three exploration wells.
Production
Oil production in Indonesia has steadily fallen over the last few years due to declining
production at mature oil elds and exploration efforts that have failed to keep pace with
the decline. Indonesia produced approximately 950,000 bbl/d in 2009 from 969 wells.
This compares to production of some 1.4 million bbl/d in 2000 and current domestic oil
consumption of 1.5 million bbl/d.
Indonesia became a net importer of oil in 2004. Given the subsidies offered to domestic
oil users, the acquisition of foreign oil has been a major drain on GoI budgets. Indonesia
is keenly looking at ways of reducing its reliance on oil and as a consequence there is
increased interest in the use of gas, coal, coalbed methane (CBM), crude palm oil and
geothermal energy.
Having joined OPEC in 1962 Indonesia withdrew from the organisation in 2008 acknowledging
that it had become a net importer of oil and was no longer able to meet its production quota.
Indonesias two largest elds, Minas and Duri, are located off the eastern coast of Sumatra
and are operated by Chevron. Both are mature elds and production is declining. Together,
these elds account for over 30 per cent of Indonesias total oil production.
Oil
It is generally thought that all of Indonesias giant oil elds have now been discovered,
exploited and production is now on the decline. The biggest oil eld discovered in recent
years is the Cepu block in the border areas of Central Java and East Java (discussed in
Oil Production Cepu below).
Indonesia offers potential for increased production via enhanced oil recovery (EOR)
techniques. There are several old wells that could benet from EOR technology, but of crucial
importance to this issue is the cost recovery mechanism adopted by the GoI. With uncertainty
surrounding regulation on cost recovery, appetite from IOCs has been dampened.
Pertamina is keen to see production increase by 10.93 per cent in 2010. To that end, the
GoI is keen to encourage new exploration, but recent bid rounds have been disappointing
(see Oil Licensing rounds above). In 2009, only ten contractors increased their total oil
production, and most contractors failed to meet their target production levels.
In 2009 contractors committed to spending US$16 billion via work plans agreed with the
GoI. Most of the expected investment relates to producing elds and US$2.36 billion was
committed to exploration activities. The GoI estimates that 122 exploration wells will be
drilled in 2010, including 42 relating to CBM reserves.
In addition, the GoI has earmarked US$9.52 billion for investment in oil facilities in the
period 2010-2014. The planned investment will take the form of rigs and reneries.
Cepu
Indonesias largest new oil eld development is the Cepu oil project offshore Java. The
block contains proved reserves of 600 million barrels of oil and 1.7 tcf of gas. It consists
of four elds Banyu Urip, Jambaran, Alas Tua and Kedung Keris. Cepu is operated by
ExxonMobil with a 45 per cent stake in the project, alongside Pertamina (45 per cent) and
local governments (10 per cent). Pertamina has expressed an interest in raising its stake
in the project to 50 per cent.
The fast-track phase one development of the Banyu Urip eld came on stream in late 2008
and as at April 2010 was reported to be producing 14,000 bbl/d, signicantly lower than
the 20,000 bbl/d that was initially anticipated. Full-scale production from the Banyu Urip
eld is targeted at 165,000 bbl/d by 2011, but that deadline is expected to slip at least
until 2012 and possibly as far as 2014.
Production was suspended between April and August 2009, reportedly due to pipeline
problems. The GoI has blamed ExxonMobil for the delays at the project and has cancelled
an incentive given to the project on the basis that it had not achieved a production output
of 20,000 bbl/d by August 2009. The production company had been granted a 60 month
exemption from the obligation to sell 25 per cent of its crude production in the domestic
market. The operator refers to delays in receiving regulatory approval from BPMIGAS, which
is essential before the operator can open bidding for the EPC work on the blocks, as well
as land acquisition issues and technical problems.
The project includes an FPSO moored off Tuban in the Java Sea.
Duri
Discovered in 1941, the Duri eld is one of the worlds largest oilelds and the biggest
steamood operation. Steamooding is an EOR method that injects steam into the reservoir
to increase oil recovery. At the Duri eld, steamooding has more than tripled oil production,
and has enabled the recovery of more than 2 billion barrels of crude oil. Duri is located in
the Rokan block with current oil production of nearly 200,000 bbl/d. The eld is operated by
PT Chevron Pacic Indonesia, a Chevron wholly-owned subsidiary. Production commenced
from the North Duri Field Area 12, an expansion of the main mature eld development,
at the end of 2008 and is expected to reach 34,000 bbl/d by 2012.
Chevron has entered into an agreement with ConocoPhillips for the long term supply
of natural gas destined for EOR operations at the Duri oileld. Chevron also plans to buy
50 mcf/d of natural gas from PT Medco Energi for a three year period, also destined for
Duris steamood operations.
Minas
Minas, Chevrons oil eld in Sumatra, is the largest eld in Asia with oil in place exceeding
4 billion barrels. Chevron has invested in EOR operations for the eld, including a US$400
million steamooding system installed in 1995 serving the elds 13 zones. Chevron is
carrying out a chemical injection project with the aim of boosting oil recovery.
Bukit Tua
Petronas Cargali owns and operates the Bukit Tua project, part of the Ketapang PSC,
having acquired the project from ConocoPhillips in 2008. Recoverable reserves at the eld
are estimated at between 50-80 million barrels of oil and 100 bcf of gas. The development
calls for an FPSO to handle between 20,000-30,000 bbl/d of oil and a total of 50,000 bbl/d
of liquids, with a minimum storage capacity of 600,000 barrels. WorleyParsons has been
awarded the FEED contract for the Bukit Tua development. Bukit Tua is scheduled to start
production in 2011 with production of 20,000 bbl/d and 50 mcf/d of are gas.
The Ketapang PSC also includes the Jenggolo oil and gas discovery and the Payang gas
discovery, both yet undeveloped.
Mahakam
Total commenced development of the South Mahakam, Stupa, West Stupa and East Mandu
discoveries in 2008 and production is scheduled to begin in late 2011. The South Mahakam
development is expected to yield 14,700 bbl/d of liquids and 114 mcf/d of gas.
Oil
Rening
Despite liberalisation, Pertamina is still dominant in Indonesias downstream sector.
It operates all nine of Indonesias reneries.
Indonesia imports 350,000-450,000 bbl/d of nished products per year, which is one-third
of its total demand. The majority of the imported products are imported by Pertamina.
Indonesias nine reneries have a total production capacity of over one million bbl/d.
All are operated by Pertamina and are in need of modernisation.
Table: Indonesias largest reneries (by capacity)
Location Capacity (bbl/d)
Dumai, Central Sumatra 120,000
Musi, South Sumatra 16,200
30,000
30,000
35,000
16,000
Cilicap, Southern Java 118,000
230,000
Balikpapan, Kalimantan 60,000
200,000
Balongan, West Java 125,000
Sei Pakning, Riau Province 50,000
Kasim, West Papua 10,000
Pangkalan Brandan, North Sumatra 5,000
Cepu 3,800
Pertamina is planning to build three new reneries over the next eight years with a combined
capacity of 650,000 bbl/d. The rst of which is the 200,000 bbl/d renery upgrade at
Balongan, West Java, which is scheduled for completion in 2014. It will produce 103,000
bbl/d of premium, 54,000 bbl/d of kerosene and 103,000 bbl/d of diesel.
The second renery on the schedule is the Banten Bay Renery to be built in Bojanegara,
Banten. STX Pan Ocean Limited, National Iranian Oil Rening Industries Devt Co, Petroeld
and Pertamina have formed a joint venture to construct and operate the renery. The initial
processing capacity of the plant is expected to be 150,000 bbl/d and is expected to be
operational by 2013 at a cost of US$4 billion. It will produce 42,000 bbl/d of premium,
30,000 bbl/d of kerosene and 58,000 bbl/d of diesel. A further 150,000 bbl/d capacity
is also planned in a subsequent stage. The feasibility study is still in progress.
The third planned renery is the East Java Renery to be located at Tuban, East Java. It has
a planned capacity of 200,000 bbl/d and is targeted for completion by 2017. This plant
will produce 75,000 barrels of premium, 32,000 barrels of kerosene and 51,000 barrels
of diesel per day.
Pertamina has further plans to expand the Cilacap renery by an additional 60,000 bbl/d,
the Balikpapan renery by 40,000 bbl/d, the Dumai renery by 50,000 bbl/d and the Pare
Pare renery by 300,000 bbl/d.
There are also plans for private sector investment in a US$2 billion renery project in Batam,
near Singapore.
Indonesia has struggled to attract foreign investment in the rening sector given low internal
rates of return and low margins on sale of oil products in the domestic market, which remain
subsidised by the state. Foreign lenders have in the past refused to nance renery projects
in Indonesia. Not only is the internal rate of return small, but they fear that once subsidies
are eventually removed, demand for rened products will decline and rening capacity
may then exceed demand.
Transport
Indonesia has a relatively modest network of oil pipelines. The largest pipelines link elds
in central Sumatra with ports on the Straits of Malacca, offshore northwest Java and eastern
Kalimantan. Pertamina operates 170 oil terminals.
Laga Ligo International has received initial approval from the city administration of Batam
to build an US$800 million oil export terminal on the island of Sambu Kecil. Construction
is schedule to start within the year and will take two years.
The Port of Sabang in Aceh province on the island of Pulau Weh, at the northern entrance
to the Malacca Strait, is being made ready to accommodate super tankers and super
cargo ships at a cost of some US$426-533 million. As an initial step, the port authority
has appointed Dublin Port Co. to manage the port.
Oil
Storage
AKR Corporindo and Vopak have established a joint venture, Jakarta Tank Terminal, to
construct and operate a petroleum terminal located at the Tanjung Priok Port. The terminal
will be the rst independent petroleum storage terminal in Indonesia and is expected to
have a total storage capacity of 450,000 cubic meters. The rst phase of 250,000 cubic
meters, was commissioned in December 2009 and the project was ofcially inaugurated in
April 2010. The second phase is expected to be completed in 2012, depending on market
demand. Once completed the facility will be one of the largest tank terminals in the private
sector in Indonesia.
Sinopec is said to be in talks with Batam Sentralindo for the purpose of forming a joint
venture to construct and operate an oil storage complex with a 2.6 million cubic metres
capacity and a supporting quay at a cost of US$815 million.
Coal-to-liquids
Sasol Group signed an MOU with the GoI in late 2009 to study the viability of an 80,000
barrel coal-to-liquid project in Indonesia, estimated to cost approximately US$10 billion.
Sasol will partner with Tambang Batubara Bukit Asam (PTBA) who will contribute reserves
of 1.8 billion tonnes to the project. The parties are seeking further partners to contribute
coal reserves to the project. They are currently conducting due diligence on coal mines
in Kalimantan.
Gas
Introduction
Indonesia had proved natural gas reserves of approximately 112 tcf as at the end of 2008,
making it the tenth largest holder of gas reserves in the world. The majority of gas reserves
are located offshore from Natuna Island and in East Kalimantan, South Sumatra and West
Papua. Indonesia is home to Southeast Asias largest gas eld, the Natuna D-Alpha block
estimated to contain over 200 tcf of high carbon-dioxide gas, of which 46 tcf is considered
likely to be commercially recoverable.
Industry structure and legal framework
See Oil Institutional framework and Oil Law 22 and Pertamina above for the role of the
GoI, MEMR, BPMIGAS, BPH MIGAS and Pertamina in the gas sector.
Indonesias state gas pipeline company is PT Perusahaan Gas Negara (PGN), which carries
out natural gas transmission and distribution activities. This role should be distinguished
both from BPMIGAS, the oil and gas upstream regulatory agency, and from that of BPH
MIGAS, the oil and gas downstream regulatory agency who issues rights to private companies
intending to distribute or transport natural gas through pipelines (as well as licences for
other downstream business activities).
The GoIs gas pipelines are considered to be a natural monopoly and Law 22 imposes the
requirement for open access. Otherwise, there is no requirement on operators of pipelines
and storage facilities to expand their projects to accommodate third party access. BPH
MIGAS is responsible for regulation, stipulation and supervision of tariffs for pipeline and
storage services. There is yet no developed regulatory system for natural gas distribution.
Law 22 liberalised the supply and trading of natural gas. The law permits the direct
negotiation of gas sales contracts by sellers and buyers and the trading of natural gas.
The price of natural gas for households and small scale consumers is determined by
BPH MIGAS. BPH MIGAS also grants business licences to those wishing to engage in gas
trading. A licence is either for wholesale purposes or for limited trading purposes.
Pertamina remains an important participant in Indonesias natural gas industry. Pertamina,
together with Total, ExxonMobil, VICO (BP Eni joint venture), ConocoPhillips, BP, Chevron
and PetroChina account for the vast majority of gas production. Total is the largest producer
with production of 2.57 bcf/d of gas. Total produces 80 per cent of the feedstock gas for
the Bontang LNG project.
Gas
Production
Indonesia produced approximately 7.9 bcf/d of natural gas in 2009, about half of which
was consumed domestically. Indonesia ranks eighth in world gas production. Several elds
are expected to come on stream in 2010 and will boost production.
Indonesia exports gas by way of LNG to markets in South Korea, Japan, Taiwan, China
and Mexico and by pipeline to Singapore and Malaysia.
The GoI requires gas producers to supply 25 per cent of their gas production to the domestic
market. This applies to all gas ventures with a PSC signed after 23 November 2001. However,
this domestic obligation has failed to keep pace with growing domestic demand for gas.
The fertiliser industry has suffered from a lack of gas feedstock resulting in reduced fertiliser
production. PLN also claims that it needs 2.233 bcf/d of gas for power generation in 2010,
but estimated supply is only 1.258 bcf/d.
As a result the GoI introduced a policy to redirect gas intended for export to domestic projects.
The policy has not been without cost to GoI as the cost of gas supplied domestically is subsided
by the GoI. The gas price is between one third and one half of the sale price which could
be obtained from LNG export. To this end, gas has been diverted from the Bontang and Arun
LNG projects reducing the total number of cargoes of LNG exported to customers. The cost
to the GoI in 2009 has been estimated to be in excess of US$1 billion.
More recently, the GoI has stated that producers will be allowed to export gas provided
there are no domestic buyers. The MEMR claims domestic customers will be given the rst
opportunity to negotiate the purchase of gas. If the producers and domestic customers fail
to reach agreement, the producer may export gas with the consent of the Minister.
Development
General
Indonesia has ambitious plans to spend US$21.68 billion on new gas investments in the 2010-
2014 period. It is not clear how much of this will be funded by the GoI and how much will come
from the private sector. The plans include two new gas rigs in Lapangan Rambutan in South
Sumatra and in Pondok Tengah in West Java at a total cost of US$2.42 billion. There are also
plans for ve new gas plants at Blok A in Nanggroe Aceh Sarussalam, Jambi Merang in Jambi,
Randublatung in Central Java, Gajah Baru in Natuna offshore Riau Islands and Kepodang in
Bawean offshore East Java. There are also plans for gas reneries in the form of LNG and LPG.
Ganal-Rapak
Chevron is undertaking the Ganal-Rapak deep-water gas development off East Kalimantan.
The development is expected to consist of two large barge based oating production units,
similar to Chevrons nearby development at West Seno. The water depth of the two developments
range from 3200 to 6000 feet. The project requires two barge based production units, 130 kms
of gas export lines and 30 subsea wells. The Maha, Gendalo and Gandang discoveries will be tied
to a processing facility at Gendalo, which will be designed to process 700 mcf/d of gas
and 25,000 bbl/d of liquids. A further production facility at Gehem will process 420 mcf/d
of gas and 30,000 bbl/d of liquids. The gas from the development will feed the Bontang
LNG project. The project is expected to cost US$7-8.5 billion.
Chevron announced in December 2009 that it is looking for a partner to invest in the project.
Chevron currently holds 80 per cent, along with Eni (20 per cent). Pertamina is said to
be interested in acquiring a 10 per cent interest in the project. Chevron and its partner(s)
are expected to make the nal investment decision on the project in 2011. First output
is targeted for 2013 at an initial rate of 150,000 mcf/d, rising to 900,000 mcf/d by 2016.
Natuna D-Alpha block
Pertamina is awaiting approval of terms by BPMIGAS before it selects a partner to develop
the remote offshore Natuna D-Alpha block. Pertamina is thought to be looking for partners
to take a 60 per cent share of the project. The block is estimated to contain 46 tcf of
recoverable reserves, with a strong concentration of carbon dioxide. The GoI has said
that after the domestic market obligation has been met (25 per cent), the balance can be
exported. This is good news for IOCs interested in participating in the project given the
opportunity to maximise revenues from an export led project.
ExxonMobil was the former operator of the block, but the GoI transferred it to Pertamina stating
that ExxonMobil did not deliver a development plan for the block in the timeframe required.
Offshore Mahakam
Total is undertaking various developments of the elds within the offshore Mahakam PSC, off
East Kalimantan. The block produces the majority of the feedstock for the Bontang LNG project.
Total holds the elds jointly with Inpex. The block currently produces 2.6 bcf/d of gas and
further developments in South Mahakam are expected to add an additional 114 mcf/d of gas
and 14,700 bbl/d of liquids. Pertamina has also expressed an interest in acquiring equity in
the Mahakam block, either when the contract is set for renewal in 2017, or possibly earlier.
North Belut
ConocoPhillips produced the rst gas and condensate from its North Belut eld at the
end of 2009. The eld produced 6,000 bbl/d of oil and 80,000-90,000 mcf/d of gas and
production is expected to rise to 200,000 mcf/d of gas and 20,000 barrels of oil equivalent
in condensates. The eld is in Natuna block B located in the South Natuna Sea. Natuna block
B produced 78,000 barrels of oil equivalent in 2008 and was expected to produce 53,000
barrels of oil equivalent in 2009. ConocoPhillips operates the block with a 40 per cent
stake, together with Inpex (35 per cent) and Chevron (24 per cent).
Gas
Block A
Medco Energi is awaiting approval for a 20-year extension of its PSC for Block A in Aceh.
Medco Energie applied for the extension in 2008, but the approval process has stalled
at the local government level in Aceh. Medco Energie holds a 41.67 per cent stake in the
development, along with Premier Oil (41.66 per cent) and Japan Petroleum Exploration Co.
(16.67 per cent) The block is estimated to contain gas reserves of 500 bcf and can produce
around 50-100 mcf/d for about 15 years.
Jambaran
ExxonMobil expects to produce 500 mcf/d of gas from the Jambaran eld in the Cepu block
commencing 2015. The block is estimated to contain 1.3 tcf of gas reserves. The GoI is keen
to accelerate the production schedule.
Gajah Baru (New Elephant)
Development works are continuing at Premier Oils delayed Gajah Baru (New Elephant)
offshore project in the Natuna Sea. Gajah Baru is expected to produce 140 mcf/d of gas,
which will be sold to customers in Singapore and Batam Island via an existing subsea
pipeline. First gas is expected in late 2011.
Ruby
Pearl Energy is proceeding with the FEED work for its Ruby gas project off East Kalimantan.
Ruby, the renamed Makassar Straits eld, is expected to produce 100 mcf/d of gas, which
will be sold into the domestic market. A possible destination for the gas is the Bontang
LNG project.
Wortel and Oyong
The GoI has recently approved Santoss plans to develop the Wortel gas eld. The Wortel
eld in the Sampang block, offshore East Java, is estimated to contain recoverable reserves
of about 150 bcf. Santos operates the block with a 45 per cent share, along with Singapore
Petroleum Company (40 per cent) and Cue Energy (15 per cent). The eld is expected to start
producing gas in 2011. Santos has started gas production from its Oyong phase two development
in the same Sampang block. The project is expected to reach plateau production of 50-60
mcf/d of gas, which will be sold to Power Grati for use at the Grati power plant.
Kerendan
Elnusa (of Indonesia) and Sound Oil are seeking new partners to help restart exploration
activity at their Bangkanai PSC in Central Kalimantan. Elnusa is aiming to commence
production from the Keredan gas eld in 2011. The eld contains proven gas reserves
of 187 bcf and proven and probable reserves of 238.5 bcf. The gas will likely be used for
domestic power generation.
Pipelines
Most gas pipelines in Indonesia are project specic and are not interconnected. PT
Transgasindo, a company owned 60 per cent by PGN and 40 per cent by a consortium
of ConocoPhillips, Petronas, Talisman Energy and Singapore Petroleum, owns and
operates two gas transmission pipelines, and PGN owns and operates the remaining two:
Table: Indonesias gas transmission lines
Pipeline Operational since Length (km) Owned by
Grissik-Duri 1998 536 PT Transgasindo
Grissik-Singapore 2003 470 PT Transgasindo
Medan and Jakarta/Bogor 2000 536 PGN
South Sumatra-West Java 2003 1,116 PGN
In January 1999, SembGas, signed an agreement to purchase West Natuna gas from
Pertamina. The gas is transported to Singapore via pipelines from three separate blocks.
Since January 2001, West Natuna has supplied 325 mcf/d as part of a 22-year deal, while
a pipeline from South Sumatra began supplying 350 mcf/d of gas to Singapore in 2006.
In 2008 a further gas sales agreement was signed to export gas from West Natuna Sea Block
A to SembGas in Singapore. Another 100 mcf/d of natural gas is anticipated to be delivered
via the South Sumatra pipeline from the ConocoPhillips operated Corridor Block to power
Singapores planned Island Power station, but the project has experienced numerous delays.
Indonesia also pipes natural gas to Malaysia via a 250 mcf/d pipeline from the
ConocoPhillips-operated Natuna Sea Block B.
PGN operates more than 3,187 kms of natural gas pipelines across nine regional networks,
which serve around 84 million customers. However, the limited size of the network and the
lack of interconnectivity has been an obstacle to further domestic consumption. As a result,
Indonesia still relies heavily on oil, but the GoI has stated that it is keen to promote the
use of gas.
Indonesia is a keen proponent of the Trans-ASEAN Gas Pipeline, which is a project
aiming to link the gas networks of major consumers and producers in Southeast Asia.
Gas
LNG
Liquefaction
Indonesia exported some 26.85 bcm of LNG during 2008 to countries such as Japan,
South Korea, China, Taiwan and Mexico, making it the worlds third largest LNG exporter
behind Qatar and Malaysia.
Indonesia has three LNG liquefaction projects in operation, detailed in the table below:
Table: Indonesias LNG liquefaction projects
Project Location
Capacity
(mtpa)
Shareholders
Gas sourced
from
Export
destination
Bontang Badak,
East Kalimantan
22.5
(8 trains)
Pertamina 55%
Vico 20%
Total 10%
JILCO 15%
Total
Chevron
VICO
Japan
South Korea
Taiwan
Arun North Sumatra 10
(6 trains)
Pertamina 55%
ExxonMobil 30%
JILCO 15%
ExxonMobil Japan
South Korea
Tangguh West Papua 7.6
(2 trains)
BP 37.16%
CNOOC 16.96%
Mitsubishi 16.3%
Nippon Oil 12.23%
KG 10%
LNG Japan 7.35%
BP China
South Korea
Mexico
Japan
Bontang
From a peak production level in 2001 of a bit over 21 mtpa, Bontangs production levels
have dropped so that in 2009 it produced about 17.3 mtpa of LNG. It began experiencing
LNG shortfalls in 2004, causing the GoI to ask its Japanese buyers to cancel cargoes. Maintaining
Bontangs production has been difcult in part because of declining gas production, but
also as a result of GoI policy to divert gas for domestic use for fertiliser and LPG production.
The Bontang plant is expected to produce 279 cargos of LNG in 2010, down from 296
cargoes in 2009.
Total supplies 80 per cent of Bontangs natural gas from its elds in the Mahakam PSC area.
Totals PSC for the Mahakam block expires in 2017 and it has requested an extension from the
GoI. Total is committed to spending US$8 billion on developing the block in the period to 2015.
Mahakam is expected to produce 2.55 bcf/d of gas and 97,200 bbl/d of condensates in 2010.
Pertamina is said to be interested in acquiring up to a 25 per cent interest in the block.
The Mahakam block is currently held by Total and Inpex in equal shares.
Arun
The Arun LNG facility receives gas from ExxonMobils gas elds in Aceh. ExxonMobil estimates
that it has depleted more than 90 per cent of the reserves in these elds. As a consequence,
Arun LNG expects that it will ship 36 cargoes of LNG in 2010, down from 42 in 2009.
Each cargo is 125,000 cubic meters.
Like Bontang, the GoI redirected gas produced from the Aceh elds towards domestic
consumption, thereby decreasing the natural gas available for export. To meet long term
contractual obligations, the GoI defers cargoes or purchases cargoes of LNG on a spot basis.
Tangguh
The Tangguh LNG project consists of six gas eld developments in the Wiriagar, Berau and
Muturi production sharing contracts in the Bentuni area of Papua. Gas is produced from
two offshore platforms and transported via 22 kms of pipeline to two onshore liquefaction
trains, each with a capacity of 3.8 mtpa.
The Tangguh LNG project exported its rst cargo of LNG in July 2009 and that year a total
of 16 cargoes were shipped to buyers. The project suffered from initial technical problems
causing delays and the project fell short of output targets for 2009. As a consequence, BP
was forced to purchase swap cargos from Bontang to meet its contractual commitments.
In 2010 the project expects to ship 116 cargoes of LNG to customers.
Earlier this year, the Minister of Energy and Mineral Resources approved a long term supply
deal between the Tangguh project and Tohoku Electric Power of Japan. Pursuant to the
agreement, Tangguh LNG will supply 125,000 tonnes for 15 years.
In March 2010 Chubu Electric Power agreed to purchase 2 mtpa of LNG from the Tangguh
project over a ve year period.
Donggi Senoro LNG
A consortium of Mitsubishi Corp (51 per cent), Pertamina (29 per cent) and PT Medco Energi
Internasional (20 per cent) have been planning a 2 mtpa project utilising gas from the Senoro
and Matindok gas elds in Central Sulawesi at a cost of US$8 billion. The nal investment
decision is due within weeks and if positive, the project would be operational by 2014.
Plans for the single train LNG project in Central Sulawesi received a positive boost recently
when the GoI gave its approval for gas from the senoro elds to be exported, subject to
minimum domestic obligations (expected to be 25-30 per cent).
Preliminary heads of terms have been agreed with Kyushu Electric Power Company,
Chubu Power Company and Korea Gas Corporation for long term offtake of LNG.
Gas
Abadi LNG
Inpex has plans to develop the Abadi eld as a oating LNG project at an estimated cost
of US$19.6 billion. Whilst the project has received initial approval from the GoI on the basis
of a oating LNG design, the decision whether to base the liquefaction project onshore
or offshore is still under consideration. The Abadi eld is located in the Arafura Sea in the
Masela PSC about 170 kms west of Saumlaki. The eld is located at depths of 400 and
750 meters and is thought to contain reserves of up to 10 tcf.
Sengkang LNG
Energy World Corporation is planning an LNG project for its Sengkang block in South Sulawesi.
The project would be developed in phases, starting with an initial phase of 2 mtpa increasing
to 5 mtpa. The current reserves of the Sengkang block are said to be 583 bcf of gas, but
Energy World Corporation claims potential reserves could be as high as 7 tcf.
PGN has signed a preliminary agreement with Energy World Corporation for a ve year supply
of LNG for domestic usage starting in 2012. This would be the rst sale of LNG for domestic
use. The future of this sales agreement, of course, depends on plans to develop an LNG
regasication terminal in Indonesia. Energy World has also reportedly signed an agreement
to sell LNG to Tokyo Gas, however BPMIGAS has suggested this was done without GoIs approval.
Regasication
Pertamina and PGN are seeking an EPC contractor for a oating regasication terminal in
West Java with the capacity of 3 mtpa of gas. The terminal will supply gas to a receiving point
in Muara Karang, north Jakarta, and eventually supply a power plant and other industry
in West Java. PLN has recently announced that it will no longer take part in the project, but
would be a customer for the regasied LNG. The parties aspire to have the project operational
by 2012. Gas would be sourced from gas elds in East Kalimantan.
Pertamina is also considering building a oating LNG receiving terminal in East Java, with
a capacity of 1.5 mtpa. State gas distributor, PGN was originally associated with the project,
but appears to have withdrawn from it.
PGN has plans to build an LNG receiving terminal in North Sumatra with capacity of 1.5 mtpa.
Coal bed methane
Indonesia has the second largest CBM reserves in the world, after China. Indonesia is
estimated to have over 450 tcf of CBM reserves, which is about three times as much as
Indonesias potential and proved conventional natural gas reserves. Proven CBM reserves
are 112 tcf. Clearly this is a key energy source for Indonesia and is expected to grow in
importance and activity in the coming years.
The potential for CBM development has been identied in all 11 of Indonesias coal basins,
but the South Sumatra and Kutai basins offer the most promise with estimated reserves
of 183 tcf and 80.4 tcf respectively.
As yet there is no commercial production of CBM reserves in Indonesia. Uncertainty in the
legal and regulatory regime is one of the reasons behind the lack of development to date,
but this could rapidly change with the new regulations enacted in 2008. The GoI is targeting
production of 1 bcf/d by 2025.
In 2008 the GoI enacted regulations to facilitate the development of CBM projects. The
CBM regulations clarify that CBM exploration and exploitation are subject to Indonesian
oil and gas regulations. The regulations create a new type of CBM tenure distinct from oil
and gas concessions. They establish a competitive direct offer procedure for the award
of CBM concessions.
Under this procedure the contractor offers to carry out a joint study with BPMIGAS involving
seismic data collection and evaluation. The contractor bears the costs of this joint study.
The GoI evaluates the data and based on this evaluation will delineate the CBM block into
a working area, which is tendered for open bidding from interested parties. The contractor
that carried out the seismic study has the option of matching the highest bid received
by BPMIGAS in relation to the particular block in question.
CBM projects are conducted under a PSC with BPMIGAS. Twenty one such contracts have
been awarded to date. The PSC for CBM projects is broadly similar to PSCs for oil and gas
projects. The GoI has the right to take a minority participating interest in the development.
The PSC also contains a domestic market obligation requiring a proportion of the gas
to be dedicated to the Indonesian market. The GoI provides a relatively better production
split for CBM projects than oil and gas projects, with the contractors production share
at 45 per cent.
In March 2010 the MEMR announced that four CBM blocks will be auctioned in June or July
2010 offering two contractual options a net PSC (as described in the previous paragraph)
or a gross PSC. Under a gross PSC revenue is calculated from the CBM gross production,
meaning that the output will be divided directly between the GoI and the contractor without
any reduction for cost recovery ie, there will be no cost recovery payments. This model
of contract may nd favour with contractors because it allows the commercialisation
of CBM from the beginning of the exploration phase. Unlike net PSCs, contractors would
not be obliged to complete the exploration phase and receive approval for the plan of
development before commercialising the gas discovered.
One of the key areas of uncertainly before the new regulations were enacted was the priority
to be given to overlapping concession holders as between oil and gas PSC contracts and
coal concession holders. The general rule is that the contractor of an existing concession
(coal or oil and gas) has a preferential right over third parties to make a direct offer for CBM
exploration or exploitation within its concession area. Where there are both oil and gas
and coal concessions priority is given to the oil and gas contractor in overlapping areas.
Gas
Medco Energi International, Arrow Energy, Batavia Energy and PT Energi Pasir Hitam Indonesia
were awarded the rst CBM PSC in May 2008. They spudded their rst CBM exploration well on
their Sekayu PSC in the South Sumatra basin in September 2009. They are targeting production to
begin in 2011. In August 2009, CBM Asia Development acquired a 24 per cent interest in the PSC.
VICO, Opicoil, Universe Gas and Oil and the GoI signed a PSC for the CBM reserves of the
Sanga-Sanga block in East Kalimantan in December 2009. Preliminary studies have revealed that
the block may contain 4 tcf of CBM. It will potentially be the rst CBM commercially produced
in Indonesia and is destined for the Bontang LNG plant. In another rst, Indonesia is likely
to become to rst CBM to LNG producer in the world. The PSC for the CBM overlays the same
acreage as the existing Sanga-Sanga conventional PSC. The existing infrastructure is expected
to allow rapid and efcient development of the CBM reserves. VICO is reported to have paid
US$4 million by way of signature bonus and will implement a US$38 million work programme.
In November 2009 the GoI awarded six CBM blocks, as set out in the table below:
Table: CBM awarded November 2009
Block Operator and partners
Barito PT Transasia Resources (operator)
PT Jindal Stainless Indonesia
Sanga-Sanga Virginia Indonesia Co (operator)
BP
OPIC
Lasmo (an Eni subsidiary)
Universe Oil & Gas
Virginia International Co
Rengat Indon CBM Ltd
Muara Enim PT Pertamina Hulu Energi Metana Sumatera
PT Trisula CBM Energy
Batang Asin Bumi Perdana Energy Ltd
Glory Wealth Pacific Ltd
Langgak P Sarana Pembangunan Riau
Shale gas
The GoI plans to commence studies in 2010 on the use of gas extracted from shale.
Preliminary studies have shown that Indonesia has sizable shale gas reserves in its soil,
but the exact volume has yet to be measured.
Electricity
Capacity
Indonesia has about 36 GW of installed generating capacity. The state-owned electricity
utility, PT Perusahaan Listrik Negara (Persero) (PLN), controls about 21 GW and the balance
is produced by captive power producers (13.5 GW) and independent power producers (IPPs)
(1.6 GW). Many of PLNs plants are old and inefcient meaning that productive capacity is
less than installed capacity.
Some 87 per cent of Indonesias generating capacity comes from conventional thermal
sources oil, natural gas and coal. About 8 per cent comes from hydroelectric and 5 per cent
from geothermal and other renewable sources.
Indonesia suffers from a shortage of power and blackouts are frequent. PLN anticipates that
Indonesia will need additional generation capacity of 57.4 GW by 2018, with PLN controlling
61.5 per cent and 38.5 per cent controlled by IPPs.
PLN is Indonesias largest consumer of oil, but as oil production declines in Indonesia,
the GoI is keen to diversify the fuel sources for power generation in Indonesia. PLN plans
to make greater use of gas, coal and geothermal energy.
The electrication ratio is 65 per cent and the GoI plans to increase access to electricity
to 93 per cent by 2025.
Institutional framework
Ministry of Energy and Mineral Resources
The MEMR is the main policy making body for electricity. It is responsible for developing the
electricity master plan and preparing laws and regulations related to electricity. MEMR establishes
tariff and subsidy policies. It is also responsible for the issue of business licences.
PLN
Indonesias power sector is dominated by PLN, formerly known as Perusahaan Listrik Negara.
PLN is a vertically integrated monopoly and, until recently, was the sole buyer and seller of
electricity in Indonesia. PLN operates around 85 per cent of the countrys generating capacity
and all transmission and distribution activities. In recent years the majority of new projects
have been developed by PLN.
PLN has struggled to keep up with the demand for new power generation and transmission
facilities. Fuel costs make up over 85 per cent of its operating expenses and tariffs are
insufcient to cover the full costs of generation. The GoI pays a subsidy to PLN, in the nature
of a Public Service Obligation, but this has been inadequate to provide for PLNs capital
expenditure requirements.
Electricity
Regulatory framework
Law 30
Indonesia passed a new law for the electricity sector in September 2009, Law No. 30 of 2009,
(Law 30). Law 30 replaces Law No. 22 of 2002, which was revoked by the Constitutional
Court on the basis that its key provisions contravened the Indonesian Constitution.
Law No. 22 replaced the earlier Law. No. 15 of 1985.
The new Law 30, however, is already controversial and subject to judicial review. It is alleged
by some to be unconstitutional. It will likely be some months before the outcome of the
judicial review is made public.
Law 30 introduces three key reforms:
PLN will no longer have a monopoly in supply and distribution of electricity to consumers
Private businesses may provide electricity for public use, but subject to a right of rst
priority granted to state-owned companies (ie, PLN)
A greater role for provincial and regional governments in terms of support for future
projects, licence granting and tariff xing.
Like many other Indonesian laws, the statute itself provides broad outline principles and
much of the detail will only become clear as implementing regulations are enacted. Until this
time, the implementation of the new law remains unclear.
Law 30 does not contemplate the unbundling of PLN, the creation of any independent
market or network operator, or provide open access to PLNs transmission network. These
were key aspects of the former Law No. 22 of 2002 which were thought to contravene the
Indonesian Constitution. However Law 30 does refer to the lease price of electric power
network suggesting that some form of open access is contemplated. This will require further
clarication through regulation.
Law 30 does, theoretically, end PLNs monopoly over supply and distribution of electricity
to end users. The provision of electricity for public use may be carried out by state-owned
companies (ie, PLN), regional owned companies, private business entities, cooperatives and
non-governmental organisations. A generator of electricity will now be able to sell power to
parties other than PLN.
The entity carrying out the provision of electricity for public use must obtain a business
licence, which PLN is deemed to hold for the next two years. The criteria for grant of business
licences have not yet been identied.
PLN is given the right of rst refusal to supply electricity for public use. It is not clear how this
right will be implemented in practice. Law 30 does not set out a process (eg, public tender).
Further, it is not clear whether PLN may be permitted to exercise its right of rst refusal and
then gain assistance in the implementation of that right from the private sector. If substantial
foreign investment is to be encouraged, one hopes that the rst right of refusal will be used
in a circumscribed fashion.
The provision of electricity for public use may be carried out as an integrated activity to cover
all business activities, from construction and operation of a power project, to transmission,
distribution and sale of electricity to end users, all within one business area. Business
areas will be stipulated by the GoI, but Law 30 does not set out the criteria for the denition
of a business area. It is also not clear whether one entity can hold licences for multiple
business areas.
The GoI and/or regional governments (in accordance with their respective authorities for
the regions in question) must approve the tariff for electricity that is sold to end users by
the holder of a business licence. This in turn must be approved by the central and local
parliaments. They may stipulate different tariffs for different regions, which has sparked
some concern amongst Indonesians that consumers in remote regions may pay more than
their metropolitan counterparts.
The new law gives greater protection to land owners. Holders of business licences must
compensate land owners for land that is utilised in the implementation of a generation
or transmission project. The method for calculating the compensation will be specied
in regulations.
Law 30 allows the importation of electricity with approval from the GoI where certain conditions
are met ie, shortage of power within the applicable region and the import will not harm the
national interest in terms of sovereignty, security and economic development. Export is also
permitted provided that local demand has been satised, there is no subsidy on the tariff
and it will not harm the quality and reliability of electricity supply in the local region.
Like the oil industry, one of the key impediments to reforming Indonesias electricity sector
is the subsidisation of electricity prices. Traditionally, the GoI has set the retail tariff payable
for electricity, which is often less than the cost of production, leaving PLN with a funding
shortfall for new generation projects. In 2009, the subsidy is thought to have been more
than US$4.5 billion. The movement towards a market based consumer price is a key goal
for the Indonesian power sector, but will take time to fully implement. PLN has suggested
retail prices for electricity may rise by 10 per cent in 2010.
Private sector participation
The tender process for PLNs new electricity projects was amended in 2005 and 2006 and
mandates that sponsors must be selected through an open and transparent bidding process.
However, there are still certain types of projects with can be awarded by direct appointment
including projects using renewable sources, marginal gas and certain coal projects.
Pursuant to GoI regulations issued in 2010 (the so called Negative List), foreign
shareholding cannot exceed 95 per cent in the production, transmission and distribution
of electricity. Further, all generating projects of less than 1 MW are reserved exclusively
for Indonesian developers.
Electricity
IPPs
History
Indonesias IPP programme commenced in the early 1990s and by the time of the 1997 Asian
nancial crisis PLN had signed PPAs with 27 IPPs for an expected capacity of 11,000 MW.
At the start of the IPP programme, Indonesia was suffering from a supply shortage, but by the
time of the Asian nancial crisis, the committed capacity under the PPAs exceeded the short
term demand. The PPAs were criticised on a number of grounds, but mostly because they
had resulted from a non-competitive process. All but one of the PPAs had been concluded
without competitive bidding and many were the result of an unsolicited bid.
The PPAs provided for long term power prices of between 5.75 to 8 cents per kWh, which
was in excess of PLNs own cost of generating power. The cost of the power was exacerbated
by the fact that the PPAs committed PLN to a long term take-or-pay obligation to pay for
power, even where that power would not be needed because of the over supply situation
created by the amount of power committed under the PPAs. Further, tariffs were denominated
in US dollars.
Given that the power prices paid by consumers in Indonesia were (and still are) heavily
subsidised (retail prices were less than half of the actual cost of generation), PLN struggled
with its commitments to the IPPs. With the rapid devaluation of the Rupiah in 1997, PLNs
ability to honour its obligations to the IPPs became untenable.
By 1997 4,000 MW of capacity had been installed by the IPPs. PLN attempted to plug the
gap between the price payable to the IPPs and the retail revenue by raising prices. In 1998
PLN raised the price of electricity by 30 per cent, but the gap was too large to bridge and
risked considerable political turmoil.
Accordingly, PLN was forced to breach the terms of the PPAs. In some instances it ceased
dispatching the power from the IPP. In other cases it refused to comply with the payment terms
under the PPA. PLNs payment obligations under the initial projects were supported by the
Ministry of Finance and the subsequently the GoI cancelled or postponed many of the IPPs.
As a result of these cancellations, arbitration proceedings were commenced by some of the
IPPs including Paiton, CalEnergy and Karaha Bodas. The Indonesian courts were accused
of interfering in the arbitration process and refusing to enforce large arbitral awards, causing
the investors to seek enforcement proceedings against Indonesian assets overseas.
Paiton I was one of the most famous victims of the crisis. The 1,230 MW coal-red project
was completed in 1999 by a consortium of Edison Mission Energy, General Electric and
Mitsui at a cost of US$2.5 billion. PLN could not afford to take the power from the newly
completed project and failed to complete the transmission line to export power from the
project. Ultimately the PPA was renegotiated, with the rst interim agreement reached
in late 2000, with a downward revision to the tariff from 8.6 cents per kWh to what is
believed to be 4.9 cents per kWh.
In late 1999 PLN and some of the IPPs went back to the negotiating table to restructure
existing PPAs. Negotiations were not easy. While PLN was desperate to force the price for
power down, investors claimed that the new environment warranted a risk premium.
Equity investors and lenders were scarred by the experience and have awaited regulatory
reform to create a more favourable environment for reentering the Indonesian power market.
The regulatory reform process in Indonesia has not run swiftly or smoothly with the result that
there has been relatively little foreign investment in the Indonesian power sector for nearly
ten years. As a result capacity additions have failed to keep up with demand. Until the last
two years, the majority of private sector participation in the electricity sector in Indonesia
was purely in the form of sale of equipment and construction for projects initiated by PLN.
In 1999 PLN and Sumitomo Corporation signed an agreement to revive Hopewells
abandoned Tanjung Jati B project. Sumitomo had been the EPC contractor at the time the
partly constructed project was halted in 1998. The agreement with Sumitomo Corporation
was on a build-lease-transfer basis.
By 2003, PLN had renegotiated 14 of the PPAs with tariffs mostly in the range of 4.2 to
4.93 cents per kWh. Since this time, PLNs payment record has improved signicantly.
In 2007 Energy World Corporation Limited, was the rst IPP to receive uncovered nancing
in more than ten years for its Sengkang gas-red power project and associated gas eld
project in South Sulawesi, Indonesia. The Sengkang IPP is the only gas-red IPP in Indonesia.
PPA and GoI guarantee
PLN has been keen to develop an improved model form of PPA so as to speed negotiations with
potential IPP developers and enhance the bankability of future IPPs. The new model form
of PPA is expected to be used for the Central Java IPP, which is currently in a tender process.
Presidential Regulation No. 4/2010 has mandated that the MEMR and PLN accelerate
development of power plants utilising renewable energy, coal and natural gas. To that end
the GoI has said that it will guarantee the business feasibility of PLN in accordance with
prevailing laws and under provisions to be regulated by the Ministry of Finance (MoF).
The MoF regulations are keenly awaited.
Recent projects
There has been a recent surge of IPP activity with the Cirebon and Paiton 3 projects reaching
nancial close (explained below). The two projects beneted from JBIC nancing under the
JBIC Overseas Investment Loan programme. Paiton 3 is the rst project under the Umbrella
Note of Mutual Understanding for Promoting Independent Power Projects signed by JBIC
and the MoF in 2006. JBIC has committed to nancing up to US$5 billion worth of infrastructure
projects in Indonesia.
Electricity
In August 2007 a consortium of Marubeni Corporation, Korea Midland Power Co., Ltd, PT.
Tripatra Engineers and Constructors, and Samtan Co., Ltd signed a 30-year PPA with PLN
for a 660 MW power plant to be built, owned and operated in the Cirebon area in West Java.
The consortium submitted the lowest tariff, which was 4.363 cents per kWh. This is the rst
PPA for a large scale IPP to be signed since the Asian nancial crisis of the late 1990s. The
project is a coal-red project utilising super-critical boiler technology at an expected cost
of US$750 million. The project is already under construction utilising sponsors equity.
The Cirebon project reached nancial close in March 2010 on the US$595 million debt led
by JBIC and Korea Eximbank, alongside commercial banks BTMU, SMBC, ING and Mizuho.
JBIC and Korea Eximbank each lent directly as well as providing political risk cover in
support of the commercial debt.
The consortium of Tokyo Electric Power Company, IPM Eagle (a Mitsui, International Power
joint venture), Mitsui & Co, International Power and Batu Hitam Perkasa is undertaking
a US$1.519 billion expansion of the Paiton project (known as Paiton 3). The 30-year PPA was
signed with PLN in August 2008. The Paiton 3 project includes a single 815 MW super-critical
coal-red unit, which would be located within the existing Paiton complex, and is expected
to be fully operational in 2012.
Paiton 3 also reached nancial close in March 2010 on the US$1.215 billion debt for the
project. The nancing consists of a JBIC direct loan of US$729 million along side US$486
million of commercial debt from a club of eight, mostly Japanese and French, banks. The
commercial debt is covered by an extended political risk guarantee from JBIC. Loan tenor
is 18 years. Commentators describe the project as being more akin to the rst set of IPPs
awarded in the 1990s given that it is an expansion on an existing project, as well as
beneting from the GoIs guarantee of PLNs obligations.
PLN prequalied bidders for the proposed super-critical or ultra-super-critical coal-red
Central Java IPP to be located in Pemalang in November 2009. The project will have
a capacity of up to 2 x 800 MW and is to be carried out on a BOO basis. The bidders are
expected to complete the associated transmission project and acquire the land for the
project and the transmission line. The prequalied consortia consist of China Shenhua
Energy Company; China National Technical Import-Export Corp and Guandong Yudean;
GDF Suez and J-Power; Korea Electric Power Company; Marubeni Corporation; Mitsubishi
Corporation; and Mitsui and International Power. The project is expected to begin
construction in 2011 and be operational by 2014.
In late 2008 PLN also signed a PPA with Sumitomo Corporation, through its wholly-owned
unit PT Central Jawa Power, for the Tanjung Jati B expansion project. The expansion will take
the coal-red project to a total of 2,640 MW from 1,320 MW at present. The investment is
expected to be around US$1.2-1.5 billion, which will be largely funded by project nancing
from JBIC and commercial banks. The IPP will sell electricity to PLN at the price of 4.3 cents
per kWh.
Fast Track Programme rst phase
In 2006 the GoI introduced the rst phase of the Fast Track Programme to add 10,000 MW
of generating capacity from new coal-red power plants. The programme consists of ten
projects, with a total of 7,460 MW, in Java, and another 23 projects with a total of 2,513 MW
outside Java Island.
Much of the programme has been implemented by PLN using Chinese contractors and
equipment suppliers, with Chinese export nance and domestic loans. PLN also utilised
the proceeds of a US$1 billion international bond issue in 2006. See the table below:
Table: Fast Track Programme rst phase lending programme
Location Capacity (MW) Lender Debt (US$)
Pelabuhan Ratu, West Java 1,050 China Exim 481
Teluk Naga, Banten 1,050 Bank of China 455
Pacitan, East Java 660 China Exim 293
Paiton Baru, East Java 1,320 China Exim 331
Suralaya Baru, Banten 1,320 China Exim 280
Labuan, Banten 600
Indramayu, West Java 990 Bank of China 592
Rembang, Central Java 632 China Development Bank 262
Central Java 660 China Development Bank 625
West Sumatra 224 China Development Bank 138
Lampung 200 Bank BRI, Bank Mandiri
and Bank BNI
329
North Sumatra 400 Bank BRI, Bank Mandiri
and Bank BNI
Adipala, Cilicap 660
Awar-Awar 700 Bank of China 371
Electricity
The programme has suffered some delays with land acquisition and nancing, but nearly
50 per cent of the new capacity has now come on line and the rest is expected on line
by 2013. The Labuan project is expected to be fully operational very soon and will supply
the Java-Bali grid with an additional 600 MW. Four other coal-red projects at Indramayu
(3 x 330 MW), Paiton (660 MW), Suralaya (625 MW) and Rembang (315 MW) are expected
to be completed and fully operational by mid 2010.
Fast Track Programme second phase
The GoI is implementing the second phase of the Fast Track Programme, which will add more
than 10,000 MW of generating capacity using a variety of energy resources, a signicant
proportion of which will be renewable. The programme will consist of more than 70 projects.
Unlike the rst phase of the Fast Track Programme, IPPs will have a more signicant role in
the second phase. They are expected to participate in roughly half of the projects.
Ministerial Regulation No. 2 of 2010 set out the details of the locations and capacity of the
projects planned in the second phase of the Fast Track Programme. In total there are plans
for 10,147 MW of new capacity comprised of 3,977 MW of geothermal, 3,312 coal-red,
1,660 gas-red and 1,198 hydro projects. For more information on the geothermal projects
see Electricity Renewables Geothermal below.
It is thought that up to seven other coal-red projects will be offered for private investment
in 2010. The plants will be built near coal mine mouths in Riau and South Sumatra and are
expected to total as much as 2,000 MW. All will be offered to IPPs and are expected to attract
mostly domestic bidders. The rst to be offered in this category is a 600 MW plant in South
Sumatra and will be procured under a 25-year BOOT structure.
PLN is raising US$5 billion of foreign debt to nance construction of the 21 PLN led projects
falling within the second phase of the Fast Track Programme. Funding is expected to come
from the Japan International Cooperation Agency as well as Chinese banks. Most of these
projects are small-scale coal-red plants outside Java.
Other PLN projects
PLN plans to open the bidding on a US$1 billion expansion of the Muara Tawar power project
in Bekasi, West Java, in the near future. PLN has already secured export credit backing for
the project.
PLN is planning to build two gas-red power plants in South Sumatra, consisting of plants
at Prabumulih (200 MW) and Musi Rawas (400 MW).
The GoI is also considering the possibility of a 4,000 MW nuclear plant to be located on
the foothills of Mount Muria, a dormant volcano on the north coast of Java. Nuclear is only
one option under consideration, however, and the MEMR has said that it is still prioritising
the use of coal and geothermal energy.
Renewables
The objective of Law on Energy No. 30 of 2007 is to secure sustainable energy supplies and
promote conservation and the use of renewable energy resources. It sets out broad polices
for the development of the energy sector and complements the existing laws related to
geothermal and nuclear energy. The law mandates the establishment of a National Energy
Board, chaired by the President, which will draft a national energy policy and oversee
developments in the energy sector. The energy law stipulates the development of
renewable energy resources.
The GoI has set objectives to increase the use of renewable sources for power generation.
The goal is that renewables account for 17 per cent of Indonesias installed generating
capacity by 2025. The 17 per cent would be comprised of 5 per cent from biofuel, 5 per cent
from geothermal, 5 per cent from a combination of biomass, hydro, solar, wind and nuclear,
and 2 per cent from liqueed coal.
The Clean Technology Fund (of the World Bank) and the Asian Development Bank (ADB)
have established a fund for lending to renewable energy projects in Indonesia, including
those developed by Pertamina, PLN, as well as the private sector. The funds will be used
to nance 880 MW of geothermal development, as well as biomass projects.
Clean Development Mechanism (CDM)
Indonesia has a high potential for CDM projects, particularly in the elds of biomass,
geothermal and other renewable energies.
The CDM is an arrangement under the Kyoto Protocol allowing industrialised countries with
a greenhouse gas reduction commitment (called Annex 1 countries) to invest in ventures
that reduce emissions in developing countries (which includes Indonesia) and claim credit
for the emissions that the project achieves. For example, an industrialised country may
invest in a waste-to-energy project (eg, using palm kernel shell) in Indonesia that replaces
electricity that would otherwise have been taken from the grid (most of which is produced
from coal or oil). The industrialised country can then claim credit for the emissions that have
been avoided, and use these credits to meet its own target. The credits are a market based
instrument and are a key incentive for the development of renewable projects in Indonesia.
At least 18 CDM projects have already been registered in Indonesia in the area of renewable
energy generation and include geothermal, biomass, natural gas and biogas recovery projects.
Geothermal
Indonesia is estimated to have geothermal resources sufcient to generate 28 GW of electricity,
which equates to 40 per cent of the worlds geothermal reserves. However, only 1,196 MW
has thus far been developed. The most readily accessible geothermal resources are located
in Sumatra and Java, while smaller pockets are found scattered across the archipelago. The
existing projects are located at Darajat (260 MW), Dieng (60 MW), Kamojang (200 MW), Gunung
Salak (377 MW), Sibayak (12 MW), Lahendong (60 MW) and Wayang Windu (227 MW).
Major geothermal producers in Indonesia include PT Pertamina Geothermal Energy (PGE),
PLN, Geo Dipa Energi (all state-owned), Chevron and Star Energy (both privately owned).
Electricity
The GoI is encouraging geothermal energy production in its second 10,000 MW Fast Track
Programme. The programme includes 3,977 MW of geothermal projects of which PLN will
build 880 MW and the rest will be built by IPPs. Of the former, PLN plans to build the plants
itself and utilise steam produced by Pertamina. Indonesia is now making steady progress
towards these goals with the signing of several recent deals, which we will explain below
after rst setting out some comments on the history of the geothermal industry in Indonesia.
Historical development
The GoI began awarding joint operating contracts to private developers in 1991. A total
of 11 contracts were granted to exploit up to 3,000 MW of energy. Further projects were
allotted to Pertamina for development, totalling 1,500 MW of potential capacity.
The projects have been traditionally developed under three different models. Under the
rst model, Pertamina subsidiary, PGE, and its joint operating contractor operated the steam
production plant and supplied steam to PLN or IPPs who generated electricity (and sold it
to PLN). PLN is thought to hold 380 MW of geothermal projects under this structure.
Under the second model, PGE and its joint operating contractor, operated both the steam
production plant and the power generation project and sold the power to PLN. The majority
of geothermal projects have been developed under this model.
Since 2002 there is a third model where Geo Dipa Energi, a joint venture between PGE and
PLN, undertakes the combined project development. Geo Dipa Energi is currently working
on two projects at Dieng in Central Java and Patuha in West Java.
Now there is a fourth model where the GoI looks to the private sector to undertake all aspects
of geothermal exploration, development and power generation.
Only a small number of the original projects awarded came on line before the Asian nancial
crisis stalled the process in 1997. There was little activity until the GoI passed the new
Geothermal Law (Law No. 27 of 2003) (Law 27). Even now, regional administrations have
so far only been able to award a limited number of geothermal working areas.
Law 27 provides a broad outline of the change in policy, but leaves key details to be settled
in regulation. Law 27 governs the upstream side of geothermal development and leaves
the downstream aspect of electricity generation to the more general electricity legislation
(Law 30). Law 27 transfers Pertaminas regulatory authority to the MEMR and requires that
future steamelds be competitively tendered. To date, few regulations have been passed
in connection with Law 27, which leaves uncertainty.
Regulation 11 of 2009 provides guidelines for carrying out geothermal business activities
(Regulation 11). It sets out the process for applying for a geothermal mining permit. A permit
may be granted for a maximum period of 35 years, which is comprised of an exploration
period of three years (which can be extended twice for a period of one year each),
a feasibility study valid for a maximum of two years and an exploitation period, valid for
a maximum period of 30 years after exploration has ceased. Regulation 11 sets out terms
and conditions applicable to applicants or holders of geothermal mining permits, including
typical provisions relating to annual approval of work plans and budgets, relinquishment
of working areas and decommissioning and environmental restoration of working areas.
Various factors continue to impede the full potential that geothermal offers for Indonesia.
Law 27 shifts the onus of conrming geothermal resource onto provincial governments.
However, these governments often lack the expertise and funding to acquire the required
data and deal with international tendering standards. The initial capital costs for exploration
and development are high, which presents a major risk when weighed against an uncertain
tariff and inadequate data on the eld itself.
Unlike some other geothermal producing countries, Indonesia does not provide a feed-in
tariff for geothermal power. Regulations promulgated in 2007 and 2008 have xed a tariff
for geothermal projects, which vary based on capacity. Plants greater than 55 MW will
receive 85 per cent of PLNs production cost and plants greater than 10 MW but less than
55 MW will receive 80 per cent. The tariff for smaller projects will be provided under separate
regulations. This has created some uncertainty regarding the tariffs that will be offered to
developers. However, under regulations introduced in December 2009, a ceiling price for
geothermal power of 9.7 US cents/kWh has been introduced, which encourages PLN to
accept a tariff for geothermal projects higher than less capital intensive coal-red projects.
The bid process for geothermal also leaves room for improvement. The government agency
that conducts the tender process for the geothermal mining permit does so without reference
to PLN. Bidders are not required to negotiate a standard PPA prior to bid submission. Even
where a bidder is awarded a geothermal mining permit, there is no certainty that PLN will
agree to purchase the power produced from the project. This means that successful bidders
have limited contractual obligations and negotiations post-award can be protracted. We
understand that PLN intends to develop a standard form PPA for geothermal projects. To
eliminate the offtake risk, the Gol has plans to issue a presidential decree requiring PLN
to purchase the power produced from these geothermal projects. The decree is expected
shortly.
One of the hurdles that has stood in the way of geothermal development has been
Indonesias forestry protection legislation. A signicant portion of the countrys geothermal
resources are located in conservation forests. Indonesian law distinguishes between
protected forests and conservation forests, the latter receiving the highest level of protection.
The only human intervention allowed in conservation forests is for education or research.
Under a presidential decree, which took effect on 1 February 2010, power plants and other
projects deemed strategically important can now take place in protected forests. However,
no change has been made in respect of conservation forests. The GoI has proposed that
geothermal wells could be drilled in conservation forests, but geothermal power plants
would have to be built outside of these areas. Further regulation is awaited.
Geothermal under the Fast Track Programme
In furtherance of the second phase of the Fast Track Programme, the MEMR has issued
26 new geothermal working areas. Of that number seven have been tendered, six are in the
bidding process and a further 13 are ready to bid. Up to 50 working areas are expected to
be offered at a later date. In total, there are 44 geothermal projects included in the second
phase of the Fast Track Programme, of which approximately 30 are intended to be awarded
to IPPs.
Electricity
The rst geothermal project in the second phase of the 10,000 MW Fast Track Programme
is the Patuha geothermal project developed by Geo Dipa Energi. The project is located in
Patuha, Bandung, West Java and will have a capacity of 55 MW. The project has secured
nancing from a club of Indonesian banks consisting of Bank Negara Indonesia, Bank
Mandiri and Bank Rakyat Indonesia.
In January 2010 the MEMR awarded three projects in West Java, consisting of projects
in Tangkuban Perahu (220 MW), Cisolok Sukarame (45 MW) and Tampomas (50 MW).
Raser Technologies Inc was awarded the Tangkuban Perahu project and expects to start
exploration in 2012, after completing a two-year preliminary geophysical study. PT Wijaya
Karya Geothermal Power, the winner of the Tampomas working area, is in part owned by
the West Java Provincial Government.
Star Energy plans to build two new geothermal power units in Pangalengan in the regency
of Bandung, West Java, with a total capacity of 190 MW. The two units will be the third and
fourth units of the Wayang Windu IPP and are scheduled to become operational in 2014.
Star Energy issued the rst Indonesian project bond in February 2010 for US$350 million,
with a ve year tenor. The funds will be used to renance existing loans for the construction
of units one and two, as well as preparation work for unit three.
In March 2010 the GoI awarded geothermal mining permits for projects at Kamojang and
Lumut Balai, both of which are located in protected forests. PGE has secured loans from the
Clean Technology Fund and the Japan International Cooperation Agency to develop the Lumut
Balai geothermal project in South Sumatra. The geothermal reserve is thought to be large
enough to support a 300 MW power project.
In April 2010 PLN and the consortium of Medco Energi Internasional, Ormat International,
Itochu Corp and Kyushu Electric Power signed an agreement conrming a renegotiated tariff
for the US$1 billion Sarulla project in North Sumatra. The 330 MW project was awarded
to a consortium of PT Medco Energi Internasional, Ormat Technologies and Itochu in 2006,
but the project had stalled pending resolution of a request for a revision of the tariff. The
renegotiated tariff provides a levelised payment of 6.79 US cents/kWh. An energy sales
contract is expected to be signed shortly. The project is expected to seek nancing from
JBIC and ADB.
In April 2010 PGE and PLN signed cooperation agreements to develop four geothermal
power plants, being unit four of the Lahendong power plant in North Sulawesi (20 MW),
units one to four of the Kotamobagu power plant also in North Sulawesi (80 MW total),
unit one and two of the Hulu Lais power plant in Bengkulu (110 MW) and unit one
and two of the Sungai Penuh power plant in Jambi (110 MW). In recent months PLN
awarded the EPC contracts to Sumitomo Corporation to build Lahendong (IV) (20 MW)
and Ulu Belu (Units 3 and 4) (110 MW).
Also in April 2010, the MEMR awarded geothermal mining permits to PT Golden Spike (for
the Ungaran Mountain project in Central Java), PT Supreme Energy (for projects at Rajabasa
Mountain in Lampung and Solok, West Sumatra) and PT Sokoria Geothermal Indonesia
(for a project in Ende, East Nusa Tenggara).
Hydro
Indonesia has vast hydroelectric power potential, but has not yet engaged in large scale
projects like some of its regional counterparts. Experts claim that Indonesia has a hydro
power potential of 75 GW, considerably more than the current installed capacity of 3,200
MW. Most of the potential is in Kalimantan, Sumatra and Sulawesi.
Factors that have thus far impeded the development of hydro power include land acquisition
problems and the need to invest in transmission lines. In both cases, the responsibility
falls on the developer. For these reasons, it is likely that micro projects and run-of-the-river
projects will attract the most interest in the short term.
Indonesias largest hydroelectric project is the 1,008 MW Cirata project in West Java operated
by PT Pembangkitan Jawa Bali. The project commenced operations in 1998.
International Nickel Indonesia (Inco) operates two hydropower projects that supply power for
Incos nickel smelter at Saroako, South Sulawesi. Larona, the rst project, has a capacity of 195
MW and the second project, Balambano, has an installed capacity of 140 MW. Inco is planning
to build a third hydro power plant at Karebbe in South Sulawesi with a capacity of 90 MW.
PLN and PT Indonesia Power also operate substantial plants in Indonesia.
The Asahan 1 project is a run-of-the-river project with installed capacity of 2 x 90 MW and
located in North Sumatra. The project is under construction and is scheduled to operate
commercially in mid 2010.
A Japanese/Indonesian consortium operates 426 MW of hydroelectric power plants at
Sigura-gura and Tangga, known as Asahan 2, at the outfall of Lake Toba. The projects service
a 225,000 ton per year aluminium smelter in Asahan, North Sumatra.
PLN plans to build the third unit of the Asahan hydro power plant under the second phase
of the Fast Track Programme. Initially PLN had intended owning and operating the 174 MW
project itself, but PLN has recently said that it would consider procuring the project as an
IPP provided the tariff was comparable to that of PLNs. JBIC is thought to have committed
nancing to the project.
Biomass
Biomass also has huge potential in Indonesia given the large agricultural and timber sectors.
The best sources of biomass are thought to derive from palm oil, sugar, wood waste, rubber,
copra and rice sources. The estimates of biomass production in Indonesia vary, but are thought to
exceed 1 billion tons of per year, which has the potential to generate some 94 GW of electricity.
Current installed capacity is thought to be about 450 MW, much of which is off-grid and utilised
by associated industry. So far biomass has not been developed in a large scale fashion.
The GoI is studying the use of biomass as a source of energy in many remote areas currently
untouched by the PLN network.
The GoI is aiming to have 100 MW of biomass projects coming on line in 2010. Already
seven projects have been registered as CDM projects. PLN has also entered into PPAs with
two biomass projects with a total capacity of 20 MW.
Electricity
Solar, tidal
Indonesia offers good potential for tidal and solar projects, but there has been very
little development.
Wind
Indonesia has very little installed wind capacity. The potential to harness wind for power
generation is limited in Indonesia due to modest wind speeds, however, there may be
potential for up to 450 MW of wind powered capacity. Of this, most developments are
expected to be small off grid developments.
Captive projects
With a shortage of generating capacity and limitations in the transmission system,
captive power projects have been an important source of energy for Indonesian industry.
Captive projects are thought to represent as much as 13.5 GW of Indonesias installed
generating capacity.
The Indian state-owned aluminum producer, National Aluminum Company (Nalco) is planning
a 1,250 MW coal-red power plant to service its planned 500,000 ton per year aluminum
smelter at Tanjung Api-api in South Sumatra. The project is said to be stalled pending
conrmation of sufcient coal supply. The cost of the project is thought to be US$4 billion
including a port and railway system.
Transmission and distribution
PLN is planning to build a US$2.2 billion power transmission network that will link the
Sumatra system with the Java Madura Bali system. The project includes 700 kms of
underwater power cables with a capacity of 3,600 MW. The cables will be linked to six coal-
red power plants in South Sumatra and to PLNs distribution network in West Java. PLN is
expected to issue a tender for the project in mid 2010 and is aiming for completion by 2016.
PLN is planning to issue US$300 million of bonds this year to (partially) fund its transmission plans.
PLN and Tenaga Nasional of Malaysia signed an agreement in late 2009 to build a US$400
million interconnector between Indonesia and Malaysia. The interconnector would be used
to transfer 300 MW of power in either direction to take account of peak timing differentials
between the two countries. The parties aim to complete the project in 2015.
PLN announced late last year that it would soon be opening bidding on the US$300 million
upgrade of electricity distribution networks in Jakarta, which is backed by export credit nancing.
The ADB and Agence Francaise de Developpement have recently agreed to provide a
$100 million loan to Indonesia to nance the Java Bali electricity distribution performance
improvement project. The project aims to rehabilitate the overburdened distribution network
of Java and Bali, as well as supporting the introduction of new energy efcient lighting.
Denitions
Term Denition
ADB Asian Development Bank
bbl/d Barrels per day
bcf Billion cubic feet
BOOT Build-own-operate-transfer
BPMIGAS Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi
BPH MIGAS Badan Pengatur Hilir Minyak dan Gas Bumi
BUMD Local government business enterprise
BUMN State owned business enterprise
CBM Coalbed methane
CDM Clean Development Mechanism
US$ US dollars, lawful currency of the USA
DPR Peoples Representative Assembly
EOR Enhanced oil recovery
EPC Engineering, procurement and construction
FEED Front end engineering and design
FPSO Floating production storage and ofoading
FTP First tranche petroleum
GoI Government of Indonesia
HDPE High-density polyethylene
IOC International oil company
IPP Independent power project
JBIC Japan Bank for International Corporation
Denitions
Term Denition
JILCO Japan Indonesia LNG Company
Law 22 Oil and Gas Law No. 22 of 2001
Law 27 Geothermal Law No. 27 of 2003
Law 30 Electricity Law No. 30 of 2009
LNG Liqueed natural gas
LPG Liqueed petroleum gas
mcf/d Million cubic feet per day
MEMR Ministry of Energy & Mineral Resources
mmboe Million barrels of oil equivalent
mtpa Million tonnes per year
MW Megawatt
OPEC Organisation of Petroleum Exporting Countries
Pertamina PT Pertamina (Persero)
PGE PT Pertamina Geothermal Energy
PGN PT Perusahaan Gas Negara (Persero) Tbk
PLN PT Perusahaan Listrik Negara (Persero)
PPA Power purchase agreement
PSC Production sharing contract
PTBA Tambang Batubara Bukit Asam
Regulation 11 Regulation 11 of 2009 Concerning Guidelines
for Carrying Out Geothermal Business Activities
tcf Trillion cubic feet
UNCITRAL United Nations Commission on International Trade Law
Norton Rose Group
Norton Rose Group is a leading international legal practice. We offer a full business law
service from our ofces across Europe, the Middle East and Asia Pacic.
Knowing how our clients businesses work and understanding what drives their industries
is fundamental to us. Our lawyers share industry knowledge and sector expertise across
borders, enabling us to support our clients anywhere in the world. We are strong in
nancial institutions; energy; infrastructure and commodities; transport; and technology.
We have over 1800 lawyers operating from 30 ofces in Abu Dhabi, Amsterdam, Athens,
Bahrain, Bangkok, Beijing, Brisbane, Brussels, Canberra, Dubai, Frankfurt, Hong Kong,
London, Melbourne, Milan, Moscow, Munich, Paris, Perth, Piraeus, Prague, Rome, Shanghai,
Singapore, Sydney, Tokyo and Warsaw and from associate ofces in Ho Chi Minh City,
Jakarta and Riyadh.
Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia and their
respective afliates.
Contacts
London
Simon Currie
Head of Energy
Norton Rose LLP
Tel +44 (0)20 7444 3402
simon.currie@nortonrose.com
Bangkok
Somboon Kitiyansub
Partner
Norton Rose (Thailand) Limited
Tel +662 263 2811
somboon.kitiyansub@nortonrose.com
Beijing
Tom Luckock
Partner
Norton Rose LLP
Tel +86 (10) 8448 8881
tom.luckock@nortonrose.com
Hong Kong
Chris Redden
Partner
Norton Rose Hong Kong
Tel +852 3405 2323
chris.redden@nortonrose.com
Shaun McRobert
Partner
Norton Rose Hong Kong
Tel +852 3405 2333
shaun.mcrobert@nortonrose.com
Ho Chi Minh City*
Geoff Sutherland
Senior Foreign Counsel
Vision & Associates Legal
Tel +84 (0)8 3823 6501
geoff.sutherland@nortonrose.com
Jakarta*
Rebecca Mohr
Foreign Legal Counsel
Susandarini & Partner
Tel +62 (0)21 2550 2510
rebecca.mohr@nortonrose.com
Melbourne
James Morgan-Payler
Partner
Norton Rose Australia
Tel +61 3 8686 6503
james.morgan-payler@nortonrose.com
Singapore
Alex Cull
Partner
Norton Rose (Asia) LLP
Tel +65 6309 5310
alex.cull@nortonrose.com
Nick Merritt
Partner
Tel +65 6309 5318
nick.merritt@nortonrose.com
Jeff Smith
Partner
Tel +65 6309 5312
jeff.smith@nortonrose.com
Laurie Pearson
Senior Associate
Tel +65 6309 5391
laurie.pearson@nortonrose.com
Sydney
Vincent Dwyer
Partner
Norton Rose Australia
Tel +61 2 9330 8238
vincent.dwyer@nortonrose.com
Toyko
George Gibson
Partner
Norton Rose Gaikokuho Jimu Bengoshi Jimusho
Tel +81 (0)3 5218 6823
george.gibson@nortonrose.com
*associate ofce
Contacts
www.nortonrose.com
Norton Rose Group is a leading international legal practice. We offer a full business
law service from ofces across Europe, the Middle East and Asia Pacic. We are
strong in nancial institutions; energy; infrastructure and commodities; transport;
and technology.
Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia and their
respective afliates. The Group has over 1800 lawyers in 30 ofces worldwide.

Indonesian Energy Report PDF 468 KB 30287

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Indonesian Energy Report PDF 468 KB 30287

Caricato da

Copyright:

Formati disponibili

Indonesian

Potrebbero piacerti anche