“This guarantee is meant to support financing for power plant projects. It will shield the developer from a possible default risk by PLN,” Agus told reporters in Jakarta.
The two projects would cost a total of $1.4 billion.
Under the agreement signed in Jakarta on Friday, Supreme Energy will sell the power from the Muaralaboh plant at 9.4 cents per kilowatt-hour to PLN. It will sell the power from the Rajabasa plant at 9.5 cents per kWh.
Currently, PLN sells its power at 8 cents per kWh on average.
The signing of the guarantee, witnessed by representatives of Supreme Energy, PLN and the government, paved the way for a 30-year power purchase agreement (PPA) between Supreme Energy and PLN. The signing of the PPA was mandatory before exploration drilling for geothermal resources could be kicked off.
Supreme Energy was awarded a concession for the two power projects in 2010, after a one-year feasibility study. Supreme Energy then set up a consortium with Japanese conglomerate Sumitomo and International Power-GDF Suez to develop the projects.
Supramu Santosa, Supreme Energy’s chief executive officer, said in Jakarta that each plant would be able to generate 220 megawatts.
“We will use internal cash and bank loans,” Supramu said about the $700 million needed to build each plant. He didn’t provide any further details.
He did say that Supreme Energy would start exploration drilling at Muaralaboh this month and at Rajabasa early next year.
Supreme Energy said it expected the plants to become operational in early 2016.
The Muaralaboh and Rajabasa projects are part of the government’s second fast-track 10,000-megawatt power program, of which around 4,500 MW should come from geothermal sources.
The government is aiming to improve the electrification rate in the country in the coming years. Currently, around 70 percent of Indonesians have access to electricity. Power shortages have been a persistent problem.
Sumitomo, one of Japan’s largest diversified business groups, said last month that it planned to invest more than $10 billion in Indonesia as it tried to take advantage of the archipelago’s growing needs for electricity.