Baker & McKenzie has advised on the Rajamandala 1 x 46.6 MW run-of-the-river hydroelectric power plant to be constructed in Citarum Basin, Cianjur Regency, West Java, Indonesia. The project, which achieved financial close in August 2014, is the first major power project in Indonesia in recent years to successfully raise international limited recourse project financing without the Government of Indonesia providing a business viability guarantee.
The project financing structure to fund the construction and development of the project incorporated an investment guarantee to the project lenders by the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group that promotes foreign direct investment into developing countries. This signals the return of MIGA guarantees for power projects in Indonesia and is the first since the Asian Financial Crisis in 1997.
The cross-border team involved lawyers from member firms Hadiputranto, Hadinoto & Partners in Indonesia and Baker & McKenzie.Wong & Leow in Singapore. The team has been involved in the project for approximately four years across the land acquisition, project development and financing phases.
Baker & McKenzie's offices in Tokyo and Amsterdam provided advice on the Japanese law and Dutch law aspects, respectively.
Luke Devine, Asia Pacific head of Baker & McKenzie's Energy, Mining and Infrastructure group, commented: "Baker & McKenzie has had a long history of advising on power projects in Indonesia and we are delighted to have worked with PT Rajamandala Electric Power on this landmark project. Indonesia's fast developing economy has led to a significant increase in demand for electricity generation and this is one of a number of energy-related projects Baker & McKenzie has advised on in the country in recent years."
"The project signals the ongoing trend in Indonesia to diversify energy production and reduce overall dependency on fossil fuels. This mirrors a wider trend in Southeast Asia and globally to develop electricity generation potential from low-carbon emission and renewable energy sources."
"The successful project financing of the Rajamandala project using a MIGA guarantee product also indicates there may be avenues other than the traditional Indonesian Government guarantees for sponsors and lenders to mitigate PLN default risk as they look for opportunities in the growing electricity infrastructure sector," Devine added. "The relative scarcity of government guarantees has long been cited as the reason why Indonesia's ambitious Independent Power Producer (IPP) program has not reached the lofty goals set by the Indonesian Government. However, the Rajamandala project shows that sponsors and international lenders do have other structuring options available to them, and these projects can be successfully project financed without a Government guarantee."
The transaction was led by Chew Chin (principal) and Erik Bégin (local principal) in Singapore, and Indri (Mita) Guritno (principal) and Luke Devine (foreign legal consultant) in Jakarta.
The wider team included Henry Cort (principal), Jeremy Saw (associate), Dennis Lim (associate), and Audrey Lim (associate) in Singapore, and Kirana Sastrawijaya (senior associate), Mesianti Tobing (associate) and Sonia Rivandari (associate) in Jakarta.
The project is being developed by Kansai Electric Power Co. (Kansai Electric) and PT Indonesia Power (a subsidiary of state-owned electricity distributor PT Perusahaan Listrik Negara (PT PLN)). It will be funded by way of a USD110,580,000 limited recourse project loan from the Japan Bank for International Cooperation (JBIC) and Mizuho Bank, Ltd. Kansai Electric and PT Indonesia Power will also contribute a proportion of equity (on a limited recourse basis) into the development of the project under the terms of the project loan.
Construction for the project (which is to include the power plant facilities, water tunnel and power transmission lines) is scheduled to start in the second half of 2014 with commercial operation scheduled to commence in 2017. The electricity produced will be sold to PT PLN under a long-term Power Purchase Agreement for 30 years.
