ENERGY NEWS

INDONESIA'S GEOTHERMAL DEVELOPMENT

(Date of Report: February 15, 2002)

Summary

Although Indonesia is among only a handful of countries to develop geothermal energy, utilization of geothermal potential has proceeded very slowly and is currently facing difficult challenges and uncertainty. Over a span of 20 years, Indonesia developed only 787 MW of geothermal power, or 4 percent of 20,000 MW of geothermal potential. The early 1990s saw the awarding of eleven contracts for development of geothermal power plants, with a total committed capacity of 3,417 MW and original completion dates between 1998 and 2002. As a result of the 1997-1998 financial crisis, the Government suspended nine conventionally powered Independent Power Projects (IPPs) and seven geothermal projects. The government is now attempting to resuscitate the seven contracts but with little progress.

Private sector development of geothermal projects differs from Independent Power Project (IPPs). While Presidential Directive (PD) 37 of 1992 forms the legal basis for IPPs, PD 45 of 1991 authorized private sector development of geothermal potential with fundamentally different terms. PD No. 45/1991 outlines two alternative paths for geothermal energy development in Indonesia. Under the first, Pertamina or its joint operation contractors develop and operate the steam field only, selling the steam to PLN or other parties for electricity generation. The second alternative allows Pertamina or its contractors to generate electricity as well as develop and operate the steam field, with the electricity produced sold to either PLN or other consumers. A Joint Operating Contract (JOC) governs the contractor's relationship with Pertamina. PLN buys electricity on the basis of an Energy Sales Contract (ESC), which is normally denominated in dollars and obligates PLN to purchase electricity on a take-or-pay basis for a period of 30 years or more. So far, Joint Operation Contractors of Pertamina have added 405 MW to geothermal generation capacity. U.S. companies that are or have been involved in geothermal development projects in Indonesia include Unocal, Amoseas (a wholly owned subsidiary of ChevronTexaco), Mid-American (formerly California Energy), Magma Power Co., Caithness, and Florida Power & Light. (We provide a detailed project-by-project description and update in Section VII.)

The new oil and gas law, passed in October 2001, removes geothermal as an area of regulation, requiring the Indonesian Government to develop a new legislative basis quickly. A Parliamentary commission is examining the Indonesian Geothermal Association's December 2001 submission of a draft geothermal law. The law's drafters hope it will open up new opportunities for geothermal development. In the meantime, Presidential Decree No. 22/1981, amended by PD No. 45/1991, continues to regulate geothermal energy exploitation.

PLN understands that geothermal's future development will depend on its competitiveness against other electricity generation. High capital costs and the associated electricity tariff required remain core problems. In addition, unresolved decentralization issues, uncertainties in security and contracts, and the potential regulatory changes of a planned geothermal law discourage investment in geothermal projects. In the long run, Indonesia still presents one of the world's most attractive geothermal regions, but the Indonesian Government must develop new approaches to maximize its potential.
end of summary.

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