hydropower project built in a protected North Sumatran forest
is set to unlock the bankability of Indonesias renewable
Wampu Hydro Electric Power Project (Wampu) closed on July 10
and features a string of innovations, two of which make it a
pathfinder project for the country.
it is the first project to receive a government business
viability guarantee letter (BVGL) that has reached financial
close. This proves the BVGL scheme can succeed in attracting
financing to the power sector, despite the
questionable credit-standing of the countrys primary offtaker, state
Wampu is the countrys first project based in a protected
forest. It shows that Indonesias geothermal reserves
the worlds largest
can be tapped despite being primarily based in protected
Together, these make Wampu a
breakthrough for the development of Indonesias renewable
Independent Power Producer (IPP) industry.
think it will ease a bit of a log jam in the IPP industry.
We hope there will be a faster flow of projects now that
documents and processes have been created, said Norton
Roses Laurie Pearson who acted for project company PT
Wampu Electric Power.
BGVLs were introduced in August 2011, two other projects have
received the schemes guarantees which supports the
performance of off-taker PNL. But Wampu is the first to put the
guarantee through the rigours of a financing.
The terms and scope of coverage of the letter required
careful consideration by lenders Korea EximBank (Kexim) and
Sumitomo Mitsui Banking Corporation, said their counsel James
Murray of Milbank Tweed Hadley & McCloy.
There was also a process of consultation between
sponsors, lenders and Ministry of Finance and an opportunity to
help in the shaping of the letter, he said.
The fact lenders had input into the guarantee, and
that it was ultimately accepted, is a positive sign for the
countrys IPP sector, which is closely tied to BVGL
scheme. There are plenty of lenders out there that
otherwise would just not be able to finance a power project in
Indonesia, Murray said.
Completion of the first power project in a
protected forest is an equally important milestone.
Pearson said it was not possible to build a power
station in a protected forest until about two years ago.
The difficulty, it turns out, is that a substantial
amount of the countrys geothermal and hydropower is
contained inside protected forests, he said.
This is particularly important given Indonesia is
dominated by forest, has a critical power shortage, and its
government is pushing to use the countrys large coal
reserves for exports rather than fossil fuel.
In addition to these first-of-its-kind attributes, Wampu was the
countrys first IPP to reach financial close in more than
two years, and first hydro IPP in 15 years.
PLNs requirement for the project company connect
the plant to the utilitys existing transmission
infrastructure created another deal peculiarity. Wampus
remote location meant 42km of transmission lines had to be
Ive never known a power project to have to
do something so difficult - getting land rights for a 125
tower locations. It was a phenomenally difficult project
to develop so all credit to our sponsors who had a lot of
drive, said Pearson.
A project site in protected national forest presented
structuring challenges in terms of lender security interests.
The relevant land rights were forestry permits, title to which
cant be offered as security.
Because the project does not hold
conventional land rights, we had to get the lenders
comfortable with a different security structure,
As with most Indonesian projects, potential for
enforcement difficulties meant security was taken over shares
of the project company as well as its offshore holding company.
Otherwise, market-standard security was taken, including over
the power purchase agreement (PPA) and engineering procurement
and construction contract. The financing is on a limited
The BVGL was a condition of Kexim providing a
covered tranche of the financing. In this regard, Norton
Roses Stephen Begley echoed Murray on the necessity of
the guarantee. It would have been very difficult to
get financing for this project without the benefit of the
business viability guarantee letter, he said.
As PLNs first hydro PPA with international
sponsors in 15 years, water risk was a point of negotiation.
Under the final agreement, water flow credits are backstopped
The BVGL scheme is tied to the Ministry of Energy and Mineral
Resources so-called Fast Track 2 Programme. The
programmes 70 IPP and government-run projects are being
prioritised by the government for completion.
A project must be on this list to benefit from the
BVGL scheme, and Norton Rose arranged Wampus application
to receive BVGL support.
The project also generates carbon credits which are sold via a long-term off-take
agreement to a carbon fund in Korea.
$130 million financing of Indonesias Wampu Hydro Electric
Power Project reached financial close on July 10 2012. Korea
Eximbank and Sumitomo Mitsui Banking Corporate are funding the
45M development in North Sumatra, which is sponsored by a joint
venture formed between Korea Midland Power, POSCO Engineering
and PT Mega Power Mandiri.
purchase agreement with national utility company PLN was signed
in April 2011. The project documents are governed by UK and
Norton Rose was international counsel for the sponsors
with Susandarini & Partners providing local advice. The
lenders were represented by Milbank on international law and
ABNR on Indonesia law.