events; and failure of the Indonesian government support letter to remain in full force and
effect. Nonremediable events that remain uncured can lead to termination of the PPA. A party
receiving notice of a remediable event has 30 days to furnish the other party with a plan to
cure the event.
PLN can buy the plant at any time, whether or not a nonremediable event has occurred.
If PLN elects to buy the plant in the absence of a nonremediable event, or if the company
elects to sell the plant to PLN because of a nonremediable event, the purchase price before
full commercial operation is equal to principal and interest on senior debt facilities other than
the commercial bank facility, funded sponsor commitments and an agreed equity return. After
the beginning of commercial operations the purchase price is equal to debt obligations as
described above, plus the net present value of capacity payments attributable to the sponsors’
equity investment. PLN has the option, but not the obligation, to purchase the plant when
there has been a company-nonremediable event, for an amount equal to principal and interest
under senior debt facilities minus unfunded sponsor commitments.
Foreign exchange protection
PLN started with the position that there should be no foreign exchange protection in the PPA.
Then it indicated its willingness to provide rupiah-US dollar protection because most of the
country’s export earnings are in dollars, but resisted rupiah-yen protection because Indonesia
already had heavy yen exposure and the yen was strengthening. Under the PPA, Paiton
Energy enters into foreign exchange contracts on PLN’s behalf. If PLN does not like the rates
it can deliver dollars to Paiton. If Paiton for some reason is unable to convert its rupiah rev-
enues to dollars PLN has the responsibility to ensure that Paiton eventually gets the appro-
priate amount in dollars.
Environmental requirements
Environmental laws in Indonesia specified a maximum of ground-level sulphur concentration
for all eight units at the Paiton site. The sponsors had to persuade PLN to establish specific
environmental requirements for Paiton Energy’s two units. Otherwise Paiton Energy could be
penalised for emissions of the other units. This was a risk that lenders would be unwilling to
accept. The emission level that PLN defined was so strict that it gave Paiton Energy just two
alternatives: installing flue gas desulphurisation scrubbers at a high capital cost or using coal
with a very low sulphur content. The sponsors decided on the low-sulphur coal because they
knew that it could be supplied by the Adaro mine. However, in making that decision they
were aware of a risk; there was no other mine that could supply coal with similar quality. This
became an issue for the lending banks and the export credit agencies (ECAs), which were
used to seeing government-guaranteed fuel supplies. Because it would have been difficult to
finance the project if it were dependent on just one mine, the PPA provided environmental
relief in case force majeureprevented the Adaro mine from shipping coal to Paiton Energy.
Negotiating other contracts
The sponsors were reluctant to spend a lot of time negotiating the EPC, O&M, and fuel sup-
ply contracts, and requesting competitive bids for equipment, before the PPA was finalised.
PAITON 1, INDONESIA