New Procedures for the Granting of Government Guarantees for the Acceleration of Electrical Infrastructure Development

The Ministry of Finance (“Ministry”) has issued Regulation No. 130/PMK.08/2016 on Procedures for the Granting of Government Guarantees for the Acceleration of the Development of Electrical Infrastructure (“2016 Regulation”).
 
The 2016 Regulation basically implements a number of articles under Presidential Regulation No. 4 of 2016 on the Acceleration of Electrical Infrastructure Development,[1] which required further directives regarding procedures for the granting of government guarantees (jaminan pemerintah) in order to accelerate the development of electrical-power infrastructure (pembangunan infrastruktur ketenagalistrikan – “PIK”) as organized by the Indonesian State Electricity Company (“PLN”).
 
Previously, similar matters were regulated under Ministry Regulation No. 173/PMK.011/2014, however these only focused on the granting of business feasibility guarantees to PLN for the development of electrical power plants fueled by renewable energy, coal and natural gas through cooperation agreements with private electricity developers (“2014 Regulation”).
 
The 2016 Regulation is of relevance to PLN, businesses working in the electrical sector, financial institutions and the government.
 
Government Guarantees
 
There are two types of fiscal guarantees which can be provided by the government in order to support the acceleration of PIK projects, namely:[2]
 

a.

Loan guarantees, in order to guarantee the repayment of loans made under loan agreements between financial institutions (creditors) and PLN for PIK acceleration projects organized by PLN under self-management (swakelola) schemes;[3]

b.

Business-feasibility guarantees in order to guarantee PLN’s ability to comply with its payment obligations regarding purchases of electricity and/or non-electricity under electrical-power sale and purchase agreements (perjanjian jual beli tenaga listrik – “PJBTL”) signed for the acceleration of PIK projects organized by PLN under cooperation schemes with various electricity provider businesses (badan usaha penyedia tenaga listrik - “BUPTL”). PIK projects are limited to geothermal or non-geothermal power-plant projects.[4]

 
A given loan guarantee is valid from its issuance date until all outstanding payments made by PLN to their creditors have been settled. Alternatively, loan guarantees will automatically become invalid upon the expiry or termination of the loan agreement.[5] Meanwhile, the validity periods for business feasibility guarantees differ based on the type of project involved (i.e. geothermal and non-geothermal power plants), although all expire at the end of the given loan period, as specified under Owner Estimates made by PLN.[6]
 
Note that both types of guarantee can only be granted to PIK projects which have been included on a list which has been drawn up by PLN, which have been officially approved by the Ministry of Energy and Mineral Resources, and which have been forwarded to the Directorate General of Risk and Financing Management (“Directorate General”).[7]
 
Securing Guarantees
 
Each type of guarantee is granted based upon a request being made by PLN and after the relevant procedure has been completed, as specified under Section I of Appendices I and II to the 2016 Regulation,[8] as follows:
 

Loan Guarantees

Business Feasibility Guarantees

1. PLN consults its plan for the obtaining of loans and a guarantee from the Directorate General; 2. PLN submits an application to the Ministry via the Directorate General, enclosing a number of supporting documents (e.g. loan funds allocation plans, creditor candidate profiles); 3. The Directorate General will then evaluate the application before issuing principal approval and the Directorate General forwards the evaluation results and the recommendation for the issuance of such approval to the Ministry only if the application is deemed complete; 4. Upon receipt of the result and the recommendation outlined above, the Ministry then has 25 days in which to issue the aforementioned principal approval; 5. Once principal approval has been secured, PLN will notify the Directorate General outlining its readiness to sign the loan agreement with its creditors, as well as its readiness to abide by the loan’s terms and conditions, while also enclosing the required supporting documents (e.g.   final-loan agreement, mitigation plan in the case of possible repayment failure) in order to be verified; 6. Based on the results of this verification , the Directorate General forwards a recommendation to the Ministry approving the proposed terms and conditions for the loan; 7. Once the Ministry has approved the loan terms and conditions, the Directorate General will notify PLN’s president director of such approval, and PLN may then sign the loan agreement with its creditor; 8. After signing the agreement, PLN must file an application to the Directorate General asking for the issuance of a loan guarantee and also enclose the signed loan agreement which verifies if its terms and conditions conform with the terms and conditions which are set out in the draft; 9. The Directorate General will then forward the evaluation results and a recommendation to the Ministry for the ultimate issuance of the loan guarantee; 10. Upon receiving the verification results and the above recommendation, the Ministry will then issue the loan guarantee.

The procedure for the granting of business feasibility guarantees is similar to the procedure for the granting of loan guarantees: from the consultation stage to the issuance of principal approval by the Ministry.   Once such approval has been secured, PLN will also notify the Directorate General of its readiness to sign the PJBTL with the BUPTL candidate. During this stage, PLN is also required to enclose the necessary supporting documents and send them to the Directorate General for verification. The types of these documents differ based on the type of electrical infrastructure which is to be developed (i.e. geothermal or non-geothermal power plants).   After this stage has been completed, the Directorate General will then forward the verification results, along with a recommendation to issue the relevant business feasibility guarantees, to the Ministry. Upon taking receipt of said results and recommendation, the Ministry will then issue the requested guarantee.

 
Disbursement of Guarantees
 
In general, the Ministry will only disburse the aforementioned guarantees if PLN fails to fulfill its obligations, as specified either under a loan agreement or a PJBTL.[9]
 
In the case of loan guarantees, PLN must first admit its inability to meet its obligations to the Ministry and the relevant creditors.[10] Based on said information, the creditors should then file a written claim to the Ministry, enclosing copies of the loan agreement, loan-guarantee approval and relevant documents specifying PLN’s outstanding financial obligations.[11]
 
On behalf of the Ministry, the Director General of Risk and Financing Management will then verify the creditor’s claim and draw up a verification report which must be signed by both the creditors and by PLN.[12] The Ministry will only reimburse the claims in accordance with prevailing laws and regulations if:[13]
 

a.	The claimed amount conforms with the amount of PLN’s outstanding obligations; and
b.	No complaints emerge from PLN and there are no disputes between PLN and the creditors regarding the claim.

 
Regarding business feasibility guarantees, PLN must firstly notify the Ministry regarding any possibility of the company failing to fulfill its outstanding financial obligations to BUPTL, along with information relating to the initial measures which will be taken in order to prevent such a possibility arising. The Ministry will then take the necessary measures in accordance with the prevailing laws and regulations in order to ensure that PLN maintains its financial capabilities, including the disbursement of the allocated business feasibility guarantees.[14]
 
The 2016 Regulation repeals and replaces the 2014 Regulation.
 
The 2016 Regulation has been in force since 24 August 2016._MS