Bank of China participates in $2.6 billion syndicated loan for 2GW Java 9 and Java 10 Coal-Fired Power Plant Complex Construction Project

On July 17, 2020, PT Indo Raya Tenaga — a special purpose vehicle and joint venture of the PLN-owned Indonesia Power (51%), Barito Pacific (34%) and KEPCO (15%) — signed a USD $2.6 billion syndicated loan agreement with a group of 11 banks for the 2GW Java 9 and Java 10 Coal-Fired Power Plant Complex Construction Project. The transaction reached financial close on November 6, 2020. Participants in the syndicate included the Development Bank of Singapore (DBS), Korea Development Bank (KDB), Korea Export-Import Bank (KEXIM), Hana Bank, CIMB, Maybank, Bank of China, Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, Indonesia Eximbank. The loan carries a 15.25-year maturity and an unknown interest rate. It is secured by (i.e. collateralized against) a pledge of shares in PT Barito Wahana Tenaga. Indonesian banks were reported to have contributed to 50% of this loan. The expansion was estimated to cost USD $3.5 billion. The purpose of the project is to expand the existing Suralaya coal-fired steam power plant (CFSPP) by adding two additional power generation units (Unit 9 and Unit 10). Each unit will have a capacity of 1GW. The Jawa 9 and 10 plants will use Doosan Heavy Industry’s ultra-supercritical (USC) technology for electricity generation. Doosan’s boiler technology has higher output efficiency than a conventional boiler that uses subcritical technology. It operates at temperatures and pressures above the critical point of water and hence uses less coal per MWh, resulting in lower emissions and a low cost of production. The Siemens SST-6000 series steam turbine will be installed in the two units. The turbines are characterized by their short start-up times, operational flexibility and low maintenance costs. The power plant will also be equipped with electrostatic precipitator (ESP), advance low NOx burners, selective catalytic reduction and flue gas desulphurisation (FGD) equipment to dislodge dust particles and to control sulphur emissions. Black & Veatch and AF Consult were appointed as the technical advisers for the project, and Tokyo Electric Power Services Co., Ltd. (TEPSCO) and PT Connusa Energindo served as the technical consultants. The Korea Electric Power Corporation (KEPCO) were contracted to provide specialized technical services for the project. AECOM, Environmental Resources Management (ERM), and Pöyry PLC did environmental consulting for the project. The project is backed by a power purchase agreement (PPA) with offtaker PLN, while state-owned coal producers Bukit Asam, Adarno Energy and Kideco Jaya Agung will supply the coal. A conditional PPA was signed with Perusahaan Listrik Negara (PLN) in June 2017. PLN will purchase power capacity on a take-or-pay basis from the power plant for a period of 25 years. The power plant is located in the city of Cilegon within Pulomerak District and Banten Province (exact locational coordinates: -5.8892179, 106.0336018). Korea's Doosan Heavy Industries was awarded an EPC contract in September 2018. PT HutamaKarya is also one of the project’s EPC contractors. A formal groundbreaking ceremony took place in December 2017. However, construction did not begin until early- to mid-2021. As of May 2022, the project had achieved a 50% completion rate. Jawa 9 was originally expected to be commissioned in the fourth quarter of 2023, while Jawa 10 was scheduled for commissioning in the first quarter of 2024. However, this project has become a source of controversy and protest. As construction began on the Unit 9 & 10 expansion, residents complained about already high levels of air pollution from the plant and damage to the sea and local fishing industry. In August 2019 three residents of Banten and civil society groups from the State of Ginseng, South Korea sued the project's potential funders in South Korea's Level 1 Court to stop financing for the plant on the grounds that building it would be irresponsible toward future generations. These funders are Korea Development Bank (KDB), the Korea Export-Import Bank (Kexim), and Korea Trade Insurance Corporation (K-Sure). A report published by Greenpeace in November 2019 modeling the health impacts of the project suggested that Jawa 9 and 10 would cause 4,700 premature deaths over its lifetime. In August 2020 WALHI called on the Governor of Banten to revoke the environmental permits for Jawa-9 and Jawa-10 on the grounds that the plants were not in compliance with Regulation No. 15/2019 concerning emissions, that public participation in the permitting process had been inadequate, and that the Environmental Impact Assessment (AMDAL) contained misinformation. In November 2020, WALHI filed a lawsuit against the project's environmental permit at the Serang State Administrative Court as the construction of Jawa 9 & 10 ‘would worsen the quality of the environment and public health around the plant and fails to comply with the latest emission standards that have been in effect since 2019.’ Then, in 2020, Indonesia Corruption Watch (ICW), a Jakarta-based NGO, found major discrepancies in coal purchase agreements throughout the Indonesian power system. At the Banten Suralaya power plants, ICW said it could not account for 1.24 trillion rupiah ($88 million) in coal every year. Demonstrations against the Jawa 9 & 10 expansion took place in January and April 2021. Not only are activists opposing the environmental harms that will be caused by expanding the power station, they are also questioning the need for more electricity in the Java-Bali electrical grid. In 2020, the Java-Bali grid had a 46.6% surplus, suggesting that 2,000 MW of expanded coal-fired capacity at the Banten Suralaya power complex may not be necessary.

Additional details

1. DLA Piper provided legal counsel to the sponsors while Milbank provided legal counsel to the lenders. 2. It was reported that 50% of the funding came from Indonesian banks. The exact contribution from the Bank of China is unknown. Assuming equal contribution, the remaining USD 1.3 billion was divided among the remaining eight financing agencies. 3. Given that Indonesia Power (a subsidiary of Indonesian state-owned utility PLN) holds a majority in the borrowing institution and PLN was also the offtaker, the deal required a bespoke corporate governance solution to satisfy lender concerns. 4. This project is also known as the 2,000MW Jawa 9+10 Power Project and the PLTU Jawa 9 & 10 Project.

Number of official sources

3

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