Indonesian government is preparing a guarantee scheme for independent power producers (IPPs) involved in the second-phase of 10,000 megawatt (MW) power project. The government is yet to clarify on the way guarantee would be formulated and the extent to which it would give cover. The second-phase is expected to start in 2012 with power generation starting in 2014. Total project capacity will be about 9,963 MW out of which 40% will be generated by IPPs.

The second-phase crash program would involve a significant proportion of alternative energy sources, with 4,733 MW from geothermal energy, 1,174 MW from hydro-power, and 4,056 MW from coal and gas. $15.32 billion was required for the program.

The government would back the state power firm PT Perusahaan Listrik Negara (PLN) in case the latter failed to pay for electricity utilization, another format would simply comprise of an acknowledgement.

“We will study the form of guarantee that we will produce,” Energy and Mineral Resources Ministry Purnomo Yusgiantoro said.

“We will evaluate all the possibilities and [once decided] we will include this in a specific presidential regulation,” Purnomo added.

Purnomo said that the presidential regulation would ensure the mandate for PLN to organize the second-phase 10,000 MW project. The regulation will also specify the power plant projects included in the program.

J.Purwono, the director general for electricity and energy utilization at the Energy and Mineral Resources Ministry, said that the regulation was expected by the end of March 2009.

The first-phase program was launched in 2006 to meet the increasing demand for power, especially for the Java-Bali system. All the power plants in the first-phase belong to PLN, with contractors enjoying government guarantees that PLN would fulfill all its obligations.

Some IPPs are of the view that there should be a similar guarantee for contractors working on the second-phase project

Stewart W.G. Elliot, president director of PT Energi Sengkang suggested that the government should also give a similar letter of comfort for IPPs involved in the second-phase program.

“The [guarantee produced for) the first phase is working very well. In the first phase the government provided a letter of comfort which guaranteed the obligations of PLN. It’s not a full guarantee. It’s good for the Indonesian government and it’s good enough [for us to seek loans] from banks,” Elliot said.

Elliot said that PT Energi Sengkawang, which was currently operating a power plant with a total capacity of 200 MW, was looking forward to take a part in the second-phase program.