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