IPP and Corruption in Indonesia Fabby Tumiwa Institute for Essential Services Reform 14 th IACC Workshop CLEAN ENERGY 13 November 2010

Key Message Independent Power Producers (IPPs) projects (renewable and non- renewable) is expected to contribute significantly in electricity provision in Indonesia. IPP project is usually complex, usually contract is granted through MoU/appointment between contractor and government or state- owned utilities without transparent and accountable competitive bidding process, price disclosure, therefore it is prone to corruption. Regulatory malfunction and/or poor guidance in developing IPP project create opportunities for corruption of IPPs projects. A standard transparent and accountable processes, standard contract, and strong regulatory body to evaluate IPP projects is required to ensure the integrity and corruption-free IPP Project.

Case Study PLN Renegotiation with 25 stalled IPPs 25 PPA contracts were signed before 2007 Delay in constructions and commissioning, contractor/owner request for revision in PPAs. Options: Renegotiation vs. Bail-out/Termination Renegotiation carry out by the PLN’s team, involved various government agencies: GoI Finance and Development Auditing Body (BPKP), GoI Procurement Agency, Attorney General Office (AGO), to review the renegotiation result. Renegotiation of 2 PPAs is completed in Sept 2010, price escalates 30-40% than original PPAs, range of PPA: $ 0,07 – 0,085 per kWh Question: – Does renegotiation is the best option for PLN? How decision was made? What was the basis for this decision? – Does involvement of various government agency improve the integrity of the project, and deter corruption?

Regulatory Challenges Regulatory institution (Directorate General of Electricity-MEMR) does not function as regulatory body. Transparency in decision making process by the MEMR. Poor regulation to govern the cost structure of IPPs, e.g: how much RoR is allowable for IPP’s investors? Weak guidelines on granting direct award for RE plant, PP utilizing marginal gas, mine-mouth power, excess power, electricity supply crisis area (MEMR Regulation No. 1/2006)

Improving Governance of IPP Projects Strengthening regulatory institution to have effective function to oversee the electricity sector (SoE, IPP, others) Standard procedural and process on IPP Projects: – Defining exact power capacity Government want to purchase from IPP – Standard PPA contract, covering main risks, clear guidelines and, review and/or dispute mechanism – Competitive bidding process is a must