Michael D. Twomey, an adviser at SSEK Legal Consultants since 1992, talks to TOGY about the uncertainty of doing business in Indonesia’s oil and gas industry as well as the difficulties in hiring expatriates in the industry. The Indonesian legal firm focuses on the energy and oil and gas industries in the country.
What is the status of current regulations that encourage investment in power projects?
Recent regulations have attempted to streamline the public-private partnership (PPP) process and shorten the time required to apply for and obtain a government guarantee for a private power project. However, notwithstanding these and other improvements to the PPP process, the government needs to provide the necessary resources so that the process can be implemented. The PPP process is still time consuming and full of uncertainty.
Furthermore, all levels of government need to have the same power project development objectives and these objectives have to be clearly communicated to officials who will actually implement the process.
There is also a real concern as to whether or not the government and industry have the human capital necessary to support the policies calling for the increase in generating capacity of 35 GW by 2019.
How can the government improve investor confidence in power projects?
It would be encouraging to all if the government could get one PPP power project up and running and set achievable goals for the process. While the Central Java power plant is a PPP, due to land acquisition problems construction has not started even though the PPA was signed in 2011.
Turning to the 35-GW power programme, the government has said it wants to complete this in the next five years, which does not appear to be feasible due to the amount of time it takes to put a consortium together for a project; negotiate the PPA and obtain the land required for the power plant; obtain financing and acquire all the permits necessary to carry out a project.
Once land permits are acquired and financing is secured, construction can take 18-36 months, depending on the size of the plant. Even assuming financing is available for all projects, there may not be enough capacity in Indonesia to simultaneously construct and then commence operation of plants capable of generating 35 GW of power.
The government needs to set realistic, tangible goals to encourage investors. It needs to prioritise one project and complete it in order to have a successful project to show investors.
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