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9 March 2010

Japanese lender to offer $1,215m loan Indonesia’s Paiton project expansion

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The Japan Bank for International Cooperation (JBIC) and PT Paiton Energy (PE) Monday signed a project financing loan agreement worth the equivalent of $1,215 million to fund the Paiton thermal power plant expansion project, state news agency Antara reported.

JBIC President & CEO Hiroshi Watanabe signed the agreement with a representative of PT Paiton Energy (PE), an Indonesian company in which Mitsui & Co., Ltd. (Mitsui) and the Tokyo Electric Power Company, Inc. (TEPCO) have equity stakes.

The loan would be provided in cofinancing with the Bank of Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, Sumitomo Trust and Banking Co, Ltd., Tokyo Branch of BNP Paribas Bank, Tokyo Branch of Credit Agricole Corporate and Investment Bank, the Tokyo Branch of ING Bank N.V., and Tokyo Branch of Hong Kong and Shanghai Banking Corporation, Ltd. JBIC would provide a political risk guarantee for the cofinanced portion.

In the project, PE would construct an additional 815 MW power plant to expand the capacity of the currently operating 1,230 MW Paiton power station in Paiton, East Java, which is also funded by JBIC.

The electricity generated by the plant would be sold to PT PLN, the state-owned electricity company, for 30 years.

According to the government’s long-term power sector plan, Indonesia`s power demand is projected to grow at an annual average of approximately 9.0 percent through 2027. Infrastructure development in the power sector is thus an urgent issue on the national agenda.

In the project, Mitsui and TEPCO would undertake to develop Indonesia`s large power sector infrastructure as an all-Japan package that covers the overall project, including development, operation and management.

As Japanese firms are conducting business operations in a broad range of sectors, including natural resources, infrastructure and manufacturing in Indonesia, JBIC has provided financial support for them.

Through this process, JBIC has built up a firm relationship of trust with the Indonesian government.

In the power sector, JBIC signed the Umbrella Note of Mutual Understanding for promoting Independent Power Producer (IPP) projects with the Ministry of Finance of Indonesia in September 2006.

Further, in February 2010, JBIC and the Indonesian government agreed on holding consultation meetings on a regular basis that focus on IPP and geothermal power generation, areas where Japanese firms will have significant business opportunities, as part of the effort to further strengthen bilateral dialogue.

This project was made possible through policy dialogue between JBIC and Indonesian government.

Since power generating facilities in this project adopt new technologies that produce fewer CO2 emissions than the conventional ones, JBIC`s support for this project is provided under the JBIC Facility for Asia Cooperation and Environment (FACE), launched in April 2008, as well as the Leading Investment to Future Environment Initiative (LIFE Initiative), announced by the Japaness government in March 2009.

With the prospect of high trend growth, Indonesia and other Asian countries are projecting increasing demand for infrastructure development. This has provided Japanese firms with major business opportunities.

Under these circumstances, JBIC is committed to supporting Japanese firms for expanding overseas infrastructure development business and for maintaining and improving their international competitiveness through continued dialogue with the Indonesian government, project structuring by drawing on its variety of financial tools and its risk-assuming functions in individual projects.

In March 1995, JBIC extended a cofinancing loan in the aggregate amount of 900 million US dollars to PE to finance the procurement of power generating equipment for the Paiton thermal power project.


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