Directory of Innovative Financing: Indonesia

Indonesia

Project Title: Paiton Energy

Country: Indonesia

Project Costs: Approximately $2.5 billion

Sector: Power generation

Status: Closed April, 1995

Sponsors/Lead Manager: PT Paiton Energy Co., a project company sponsored by a consortium of Mission Energy, GE Power Funding, Mitsui and Co., and PT Batu Hitam Perkasa, with Chase Manhattan Bank and Industrial Bank of Japan as advisers and syndication lead managers.

Purchaser: Indonesian state electrical utility PLN, under a 30-year power purchase agreement.

Financing Package: A BOO structure with $680 million in equity split equally among the four sponsors and nearly $1.9 billion in debt from both official and commercial sources, divided as follows: a) a $900 million, 16.5-year JEXIM loan, $360 million of which carries partial political and commercial risk insurance from MITI; b) a $540 million, 4.5-year US EXIM construction loan at 175bp over LIBOR with full political risk insurance; c) an uncovered $180 million 8.5-year commercial loan at 200bp over LIBOR during construction and 225bp over LIBOR after construction; and d) and a $200 million, 16-year OPIC-guaranteed commercial loan.

Innovation: This is the first IPP to be financed in Indonesia, and one of the largest to have closed to date anywhere. Although the project's revenue stream is based on a local currency power purchase agreement without a sovereign guarantee, commercial lenders agreed to provide a high level of limited recourse debt after less than a year of negotiations. A combination of bilateral agency cover, a government "comfort letter" supporting PLN payment terms and rupiah/dollar conversion mechanism indexed to prevailing exchange rates, fixed price turnkey construction contract, and the strength of the project persuaded the lenders that the rewards of making the loans outweighed the accompanying risks.

Brief: A 1,230 MW coal-fired power project, Paiton became the country's first IPP to reach closure when all papers were signed at an April ceremony. Indonesia, which maintains an investment grade BBB rating, steadfastly refused to provide a full guarantee of PLN's contractual obligations, as that would have counted against its debt exposure limitations. But the financial strength of the country, the project and purchaser was enough for the US and Japanese sponsors to line up three critical sources of official support: JEXIM, USEXIM and OPIC.

Financial advisers Chase and IBJ then joined with six other lenders (Bank of America, Barclays, Credit Lyonnais, Fuji Bank, Sakura Bank and UBS) in a $180 million commercial loan syndication called a "sweet and sour" because it had some elements that were covered by official agencies and some that were not. These eight banks then syndicated the loan to 44 others. Although similar in size and complexity to the Hub River project in Pakistan, because of its lower country risk Paiton's financing was closed in a fraction of the time and did not require a World Bank guarantee.

CSFB has been mandated to arrange an investment grade long-term capital markets refinancing of the uncovered commercial bank loan for Paiton. It expects to bring that transaction to market by the end of this year.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07