Cablegate: Embassy Jakarta

VZCZCXRO2522
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #1348/01 2261115
ZNR UUUUU ZZH
R 141115Z AUG 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3073
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLL
RUEHJS/AMCONSUL SURABAYA 2499
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001348

SENSITIVE
SIPDIS

DEPT FOR EAP/MTS AND EEB/ESC/IEC/ENR
DEPT FOR EEB/TPP/BTA AND OES/ENV
COMMERCE FOR 4430/NADJMI AND 6930/HUEPER
DOE FOR PI-32 CUTLER AND EERE/ED WALL
TREASURY FOR T RAND AND G RAO
STATE PASS TO USTR EHLERS AND WATSON
STATE PASS TO EPA MARK KASMAN
STATE PASS TO EXIM GUTHRIE

E.O. 12958: N/A
TAGS: ECON ETRD ENRG EAID EFIN KGHG ID
SUBJ: DOC CLEAN ENERGY ROUNDTABLE SEEKS RENEWABLE ENERGY
OPPORTUNITIES, HIGHLIGHTS OBSTACLES

JAKARTA 00001348 001.2 OF 002

1. (SBU) Summary. Stephen Jacobs, Acting Assistant Secretary for
Market Access and Compliance, led an interagency and private sector
delegation to Jakarta for a Clean Energy Policy Roundtable and
government meetings July 27-29. Government meetings focused on
policy obstacles to developing renewable energy. Indonesia may lift
the investment restriction on power generation under 10 MW. Power
sector tendering and pricing issues remain problems to investors.
Bilateral financing facilities would help companies enter the
market. End Summary.

2. (U) More than 100 participants attended the Department of
Commerce's Clean Energy Policy Roundtable, held on July 28. Three
panels, composed of U.S. and Indonesian officials and private sector
representatives, discussed Indonesia's policy goals, technical
capabilities, and the state of the industry. The panels focused on
geothermal energy, other renewable energy, and financing renewable
energy projects.

3. (U) In subsequent government-to-government meetings, AA/S Jacobs
met with Minister of Energy and Mineral Resources Purnomo
Yusgiantoro; Ministry of Energy staff; Rudiantara and Yogo Pratomo
of Indonesia Electricity Corporation (PLN); and Bacelius Ruru,
Executive Secretary of the National Team for the Advancement for
Export and Investment (PEPI). AA/S Jacobs' meetings focused on the
primary obstacles to developing renewable energy, including
Indonesia's investment restriction on power generation under 10 MW,
problems with the public tendering process, and difficulties
negotiating power purchase agreements (PPA) for independent power
producers (IPP). Indonesian officials also welcomed the inclusion
of renewable energy under the bilateral Energy Policy Dialogue, and
were receptive to cooperation such as Methane to Markets and the
International Partnership for Geothermal Technology.

10 MW Investment Restriction May Be Lifted
------------------------------------------

4. (SBU) Bacelius Ruru stated that PEPI had already formally
recommended that the President remove the investment restriction on
power generation under 10 MW. Ruru acknowledged that the intended
aim of the investment restriction - to stimulate small and medium
sized enterprise investment in the power sector - had not happened.
The Ministry of Energy and Mineral Resources recognized that foreign
investors were necessary to develop renewable energy and had
proposed the regulatory change.

5. (SBU) Ruru cautioned that problems remain, because the newly
proposed regulatory language only refers to a "partnership" between
a large investor and an Indonesian small or medium-sized company.
It does not contain a clear definition of a joint venture or equity
levels so the new rule may not provide sufficient clarity. AA/S
Jacobs stressed that a rule without clarity does not provide a
better investment climate.

Tendering Process Remains a Concern
-----------------------------------

6. (U) The tendering process remains a particular concern to foreign
companies operating in Indonesia. Under Indonesian law, local
governments must tender identified renewable energy resources.
However, local governments rarely have the capacity to manage the
process or evaluate credible bids, so these tenders often pick
winners who are not able to go forward with a project. PLN, as the
monopoly purchaser of electricity, is under no obligation to accept
the electricity price from the tendering company's winning bid. In
many cases, winning companies must negotiate for business licenses
or PPAs for years after winning a renewable energy project bid.

7. (U) Geothermal Director Sugiharto stressed that the primary goal
of the tendering law was transparency, which he believed the current
process achieves. However, PLN Vice President Rudiantara agreed
that capacity building programs that help facilitate local
government tenders would be helpful. They also mentioned that a
commercial law development program might also help build capacity to
run tenders, and AA/S Jacobs agreed to look into Commerce Department
programs.

Electricity Pricing Also an Obstacle
------------------------------------

JAKARTA 00001348 002.2 OF 002

8. (U) The Indonesian subsidized electricity market limits the
viability of renewable energy projects by constraining the prices
that PLN can pay for electricity. PLN operates at a deficit, which
the Indonesian government must then reimburse as a subsidy,
amounting to $8 billion in 2008. Each PPA must be approved by PLN,
the Ministry of Energy, and the Ministry of Finance, and the
overlapping authorities delay PPA approval even when prices are
reasonable for the Indonesian market.

9. (SBU) Renewable energy IPPs often require prices of $0.07 per
kilowatt hour or more. Coal IPPs typically sign contracts for
around $.045 per kilowatt hour (kWh). The price differential makes
it difficult to justify to the Ministry of Finance. Rudiantara
cited one renewable energy tender in which the winning bid required
$0.17 per kWh. Despite being below PLN's operating cost for the
region, PLN could not conclude a PPA at that price, because it was
so far above the rates that it usually pays to IPPs. PLN would like
to publicize ceiling prices for renewable energy, but Rudiantara
acknowledged that even this step would not make it easier to approve
projects whose price tags came in under the ceiling but above
competing energies.

Financing Facility Would Help
-----------------------------

10. (SBU) PLN officials stated that financing facilities, such as
through ExIm or OPIC, could help address some of the pricing and
risk obstacles between PLN and potential IPPs. They cited an
Indonesian-Japanese Umbrella Note of Mutual Understanding that
provides letters of comfort to Japanese IPPs to reduce the risk
premium on financing. Rudiantara indicated that Indonesia is
negotiating a similar agreement with China. Indonesia will not
offer sovereign guarantees to IPPs, he said.

Energy Efficiency Is an Opportunity
-----------------------------------

11. (U) Energy efficiency offers potential benefits, according to
Minister Purnomo. He noted that Indonesian policy historically
emphasized maximizing supply of all energy and minimizing the cost
to the consumer. Indonesian officials have only begun to consider
demand-side management. There are currently no incentives for
efficiency, but Purnomo welcomed companies to develop the sector.
Subsidized fuel and electricity limits efficiency's appeal to the
private sector, but the government would welcome innovations that
would reduce its costs.

12. (U) This cable has been cleared by the Office of the Pacific
Basin at the International Trade Administration.

HUME

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