VZCZCXRO6431
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2866 2840541
ZNR UUUUU ZZH
R 110541Z OCT 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6642
RHMFIUU/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0944
RUEHBY/AMEMBASSY CANBERRA 1356
RUEHBJ/AMEMBASSY BEIJING 4399

UNCLAS JAKARTA 002866 
 
SIPDIS 
 
DEPT FOR EAP/MTS AND EB/ESC/IEC 
DEPT PASS OPIC, EXIM, TDA 
DOE FOR CUTLER/PI-32 AND GILLESPIE/PI-32 
COMMERCE FOR 4430/BERLINGUETTE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EINV PREL EFIN ID
SUBJECT: Chinese Investors Win Power Project Guarantees 
 
 
¶1. (SBU) Chinese investors, reportedly with high level backing from 
Vice President Jusuf Kalla, won full guarantees for power projects 
under the Government of Indonesia's (GOI) Fast Track electricity 
building program.  Previously, the GOI was only willing to concede 
vague offers of partial support.  In a new presidential regulation 
issued on September 7 but only made public in the first week in 
October, the GOI said it would fully guarantee the debt that state 
electricity company PLN will use to fund the power projects.  Our 
contacts tell us that the Chinese state-owned enterprises and, to a 
lesser extent, the Japanese Bank for International Cooperation, 
which will finance 6900 MW of electricity projects, had insisted on 
the full guarantee. 
 
¶2. (SBU) The Fast Track program's goal is to bring 10,000 MW of new 
generation capacity on-line by 2009.  It aims to replace high cost 
diesel generation, which currently accounts for more than 50% of 
installed capacity, with lower cost coal-fired plants.  Announced in 
January 2006, the Fast Track program attracted few bidders until 
Vice President Kalla won an internal battle to force the GOI to 
offer partial guarantees to bidders, according to our contacts. 
Finance Minister Sri Mulyani had been leading the fight against GOI 
guarantees, preferring to a market-driven approach and a defined, 
transparent process for assessing the level of risk the GOI should 
provide. 
 
¶3.  (SBU) The new regulation (Presidential Regulation 91/2007) 
amends two articles in a previous regulation (86/2006) that created 
the Fast Track program.  The revised text clearly promises that "the 
government hereby provides full guarantees of the payment of the 
liabilities of PLN to creditors that provide funding in the form of 
bank loans." The previous one said only that "the government may 
provide guarantees."  The new regulation states that Mulyani's 
Finance Ministry will administer the details of the guarantees 
through a ministerial decree. 
 
¶4. (SBU) Chinese interests prevailed after more than a year of 
lobbying, according to an expat consultant to the Finance Ministry. 
He said the Chinese played hardball with the GOI after winning 
contracts for 85% of the Fast Track power projects.  A long-time 
expat electricity analyst told us that PLN welcomes the extra 
capacity the Fast Track program will bring but the acclerated 
process precluded them from doing feasability studies for most of 
the Chinese projects.  In their zeal to respond to the wishes of the 
Vice President to get extra power on-line before the 2009 election, 
said our contact, PLN will need to spend extra funds to get these 
plants hooked into the Java-Bali grid.  Proper planning would have 
allowed them to site the projects close to the existing wheels of 
the grid, saving millions on new infrastructure. 
 
HEFFERN