INTERVIEW

　

　

Indonesia’s power demand is projected to grow at an annual average rate of 8.5 percent over the next decade, and the infrastructure development for electric power is underway. On the other hand, the Government of Indonesia is making much effort for measures to counter global warming, aiming to reduce greenhouse gas (GHG) emissions by 26% in 2020 compared with the level in 2005, and is actively working on the development of renewable energy starting with geothermal power generation. The government is also focusing on the development of hydro power generation as a promising clean energy source with the many mountains and rivers in Indonesia.

JBIC has received a request for financing of the project in 2010. “Although this is a small to medium-sized power generation project, the Indonesian government has high expectations towards this renewable energy project. At the same time, it’s a new initiative for Japanese power companies who are mainly in the domestic business to excavate and promote their own overseas power generation projects, and JBIC has decided to actively support the project. It’s the first PF loan for hydro power projects since 1998 for JBIC,” explained Deputy Director Sakashita. The environment surrounding Japanese power companies has drastically changed due to the Great East Japan Earthquake in March 2011, but KEPCO continued this project from the viewpoint of strengthening its future earning power. Responding to KEPCO’s zeal and the expectations of the Indonesian

government, JBIC has financially supported the project. “Hydro power plants tend to have longer service life than thermal power plants, and therefore return on investment tends to be spread out over longer periods. We had to be mindful of such characteristic of hydro power projects. For example, we assessed carefully whether this project has a system that ensures long term sustainability of the plant, such as maintenance of power generation facilities and waterways. We also had to be creative in terms of financing structure,” Deputy Director Sakashita continued. “Speaking of the characteristics of hydro power generation, confirmation of water use rights was also important. Processes surrounding water use rights are usually complicated and time consuming due to the fact that water is also used for many other purposes by local people. So it’s important to ensure that water use rights are already obtained or that the prospects for acquiring them are obvious,” added Deputy Director Yoi. Overcoming these issues, JBIC signed the PF loan agreement to REP in June 2014, and the Rajamandala Hydro Power Plant is expected to complete construction and commence its operation in 2017.

“This project is to finance the construction and operation of the run-of-the-river hydro power plant with a capacity of 47 MW located in the Citarum basin in Rajamandala, Cianjur Regency, West Java Province, Indonesia. The electricity produced is going to be sold to PT. PLN (Persero) for 30 years. On the Citarum River, there are already dam-type power stations in upper- and down-streams of this project site, and it will generate electricity utilizing the steep drop between two existing dam-type power stations. The run-of-the-river hydro power plant does not require large structure such as a dam, and therefore can be built with smaller project cost, and can also minimize environmental and social impacts.” Deputy Director Yoi said, explaining the project’s overview. KEPCO has started the on-site feasibility study (business assessment) in 2003, and its consortium obtained the exclusive development rights in 2007. KEPCO has hydro power plant technology and expertise as it has extensive track record within Japan, such as “Kuroyon Dam” in Kurobe River basin. While domestic hydro power development opportunities have become scarce due to lack of suitable sites, KEPCO is taking advantage of the technology and expertise by deploying them on this overseas project. KEPCO has established REP in joint investment with Indonesia Power, a local company, and plans to engage in the operation and management of hydro power plants over the long term.

The project is for PT. Rajamandala Electric Power (REP), an Indonesian company invested by The Kansai Electric Power Co., Inc. (KEPCO), to build and operate the run-of-the-river hydro power plant with a capacity of 47 MW located in the Citarum basin in Rajamandala, Cianjur Regency, West Java Province, Indonesia. REP acquired the exclusive development rights from the Ministry of Energy and Mineral Resources of Indonesia in 2007, and plans to proceed with construction, with the goal to complete construction and start operation in 2017. Thereafter, REP will sell the electricity produced to PT. PLN (Persero) for over 30 years. JBIC signed in June 2014 a loan agreement in project financing totaling up to approximately USD66 million (JBIC portion) with REP, cofinancing with Mizuho Bank, Ltd., (with the total cofinancing amount of about USD110 million). JBIC made the first project financing loan for a hydro power project in 16 years since 1998.

Project Financing for Rajamandala Hydro Power Plant Project in IndonesiaSupporting Hydro Power Plant Business of Japanese Companies

Talking with Deputy Director Yuichiro Yoi* and Kohei Sakashita, Division 2,Power and Water Finance Department, Infrastructure and Environment Finance Group

JBIC signed in June 2014 a loan agreement in project financing totaling up to approximately USD66 million (JBIC portion) with PT. Rajamandala Electric Power (REP), an Indonesian company invested by The Kansai Electric Power Co., Inc. (KEPCO), for financing the Rajamandala Hydro Power Plant Project. The loan is cofinanced with Mizuho Bank, Ltd., bringing the total cofinancing amount to about USD110 million.

Overseas Hydro Power Generation Business by Japanese Power Company

Responding to KEPCO’s Zeal, and Expectations of Indonesian Government

Supporting Clean Power Generation Projects GloballyWorldwide, hydro power plant projects can be effective in terms of renewability, stability, and diversity of energy sources, and thus there are business opportunities for Japanese companies. The loan financially supports the participation of Japanese companies in overseas hydro power plant projects thereby contributing to maintaining and strengthening the international competitiveness of Japanese industries. “I had also worked on supporting power plant projects in Thailand and Vietnam prior to this project. In Indochina, the Lao People's Democratic Republic is focusing on the business of selling electricity generated by hydro power plants to neighboring countries as it’s called the “battery of the Mekong.” As JBIC, we hope to see Japanese companies thriving in this region utilizing their technology and expertise. We will continue to actively support such movement,” concluded Deputy Director Yoi.

Project Financing Loan to Rajamandala Hydro Power Plant Project

Deputy Director Sakashita

Deputy Director Yoi

Picture of the Citarum River

*Deputy Director Yoi is now in Treasury Department, Corporate Group and was in Infrastructure and Environment Finance Group at the time of the project.