Indonesia Advisory

State power company, PT PLN, will push ahead with its plan to issue bonds in the local market later this year, despite the current financial market turmoil, president director Fahmi Mochtar said Tuesday, Dow Jones reported.

PLN, however, will halve the planned bond size to Rp1.5 trillion ($125 million), with Rp500 billion in shariah bonds (sukuk), Mochtar said.

The company originally planned to issue rupiah-denominated bonds worth Rp3 trillion and dollar-denominated bonds worth $1 billion (about Rp13 trillion) this year.

PLN has named PT Trimegah Securities, PT Indopremier Sekuritas and PT Danareksa Sekuritas as co-lead underwriters.

It will use the proceeds to help finance construction of several power plants in cooperation with various investors.

Analysts said PLN will likely target local institutional investors, such as state-owned pension funds, to sell the bond.

"I think there will still be buyers for the bond as PLN has a good track record in honoring its obligations to bond holders," a bond analyst with a local securities company said. But investors may ask for high yields, the analyst said.

PLN is seeking loans to finance its ongoing massive effort to complete a 10,000-MW power plant program to meet the increasing demand for electricity in the country.

About 6800 MW of this capacity is to be located in Java and Bali, provided by 10 new power plants, while the rest is located outside the Java-Bali system and will be generated by about 20 smaller power plants.

To complete the program, PLN needs $4.4 billion and Rp17.33 trillion to build power stations and $934 million and Rp13.15 trillion for transmission systems.

As of October, the company had secured $1.5 billion and Rp13 trillion from both local and foreign banks.

Meanwhile, the Indonesian Chamber of Commerce and Industry (Kadin) has called on national banks to provide financial support for the program.

"The electricity supply in the country only covers about 64% of the population. This means that there is still 36% of the population who do not yet enjoy electricity supply," Kadin chairman for energy and mineral resources affairs, Dito Ganinduto, said on Tuesday.

"Kadin is also proposing to the government to optimize the use of gas and coal, whose reserves are still large, as fuel for power generators," he said.
Investment in the energy and mineral resources sector in 2007 stood at Rp14.754 trillion, consisting of Rp10.08 trillion for oil and gas, Rp3.32 trillion for electricity and Rp1.35 trillion for coal and geothermal. Total 2008 investment is estimated at $21.7 billion.