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IPP and Corruption in Indonesia

IPP and Corruption in Indonesia. Fabby Tumiwa Institute for Essential Services Reform 14 th IACC Workshop CLEAN ENERGY 13 November 2010. Key Message.

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IPP and Corruption in Indonesia

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  1. IPP and Corruption in Indonesia Fabby Tumiwa Institute for Essential Services Reform 14th IACC Workshop CLEAN ENERGY 13 November 2010

  2. Key Message • Independent Power Producers (IPPs) projects (renewable and non-renewable) is expected to contribute significantly in electricity provision in Indonesia. • IPP project is usually complex, usually contract is granted through MoU/appointment between contractor and government or state-owned utilities without transparent and accountable competitive bidding process, price disclosure, therefore it is prone to corruption. • Regulatory malfunction and/or poor guidance in developing IPP project create opportunities for corruption of IPPs projects. • A standard transparent and accountable processes, standard contract , and strong regulatory body to evaluate IPP projects is required to ensure the integrity and corruption-free IPP Project.

  3. Case StudyPLN Renegotiation with 25 stalled IPPs • 25 PPA contracts were signed before 2007 • Delay in constructions and commissioning, contractor/owner request for revision in PPAs. • Options: Renegotiation vs. Bail-out/Termination • Renegotiation carry out by the PLN’s team, involved various government agencies: GoI Finance and Development Auditing Body (BPKP), GoI Procurement Agency, Attorney General Office (AGO), to review the renegotiation result. • Renegotiation of 2 PPAs is completed in Sept 2010, price escalates 30-40% than original PPAs, range of PPA: $ 0,07 – 0,085 per kWh • Question: • Does renegotiation is the best option for PLN? How decision was made? What was the basis for this decision? • Does involvement of various government agency improve the integrity of the project, and deter corruption?

  4. Regulatory Challenges • Regulatory institution (Directorate General of Electricity-MEMR) does not function as regulatory body. • Transparency in decision making process by the MEMR. • Poor regulation to govern the cost structure of IPPs, e.g: how much RoR is allowable for IPP’s investors? • Weak guidelines on granting direct award for RE plant, PP utilizing marginal gas, mine-mouth power, excess power, electricity supply crisis area (MEMR Regulation No. 1/2006)

  5. Improving Governance of IPP Projects • Strengthening regulatory institution to have effective function to oversee the electricity sector (SoE, IPP, others) • Standard procedural and process on IPP Projects: • Defining exact power capacity Government want to purchase from IPP • Standard PPA contract, covering main risks, clear guidelines and, review and/or dispute mechanism • Competitive bidding process is a must

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