An Examination of the Potential of the Public-Private Partnerships (PPPs) to Stimulate the Development of Geothermal Energy in Indonesia

Abstract

The conceptual framework underpinning this thesis is founded in the context of principal-agent relationships to highlight current issues of geothermal energy development in Indonesia. The most notable issues are high upfront investment in the absence of clear and transparent risk-sharing mechanisms to incentivise the private sector that bears a higher share of the risk than in other infrastructure investments. Therefore, the aim of the thesis is to develop a framework based on principal-agency theorising to identify the optimal allocation of risk between public and private parties in the PPP arrangements. Further, this thesis aims to identify the compatible level of incentives needed to be provided by the public sector (as principal) to the private sector (as agent) to encourage their participation in the projects. To address this aim, multi-method strategies were employed.

In the first stream, a case study approach is employed to examine the issues relating to current risk allocation for the Seulawah Agam geothermal PPP project and the resultant impact on the viability of the project. A combination of qualitative and quantitative data analysis approaches with emphasis on analysing project documents and cash flow evaluations using Monte Carlo simulation is undertaken to explore the contextual conditions of the project. The findings suggest that current risk allocation structures and the level of financial support involved in the project are insufficient to take the project to a viable level without increasing the electricity selling tariff.

The second stream discusses the perceived probability and impact of various type of risks involved in geothermal projects in Indonesia. A Delphi survey is adopted consisting of nine panellists with extensive experience and knowledge in geothermal energy development. This found that the panellists perceived four ‘high criticality’ risk factors including: (1) Reserves lower than expected; (2) Uncertainty in tariff regulation; (3) Exploration drilling risks; and (4) Unable to finance the exploration stages. The finding also indicates 9 ‘moderate’ and 14 ‘low’ criticality risk factors involved in Indonesian geothermal projects.

Finally, the Delphi survey is also employed to identify an optimal risk allocation between public and private parties in a PPP arrangement in the framework of principal-agent relationships. This found that all risk factors relating to permits and licenses should be assigned to the public sector. In contrast, operation and maintenance risks are perceived as risks that should be borne by the private sector/developers. Moreover, the risks relating resource/exploration, financial, and field development and construction should be shared between the parties with the public sector retaining higher risk-sharing levels for the risks with high criticality risk factors and low to medium risk-sharing levels for the risks with no high criticality risk factors involved.

The impact of exploration grants, interest rate subsidies and loan guarantees on project viability are also examined through a case study. This found that providing exploration grants or interest rate subsidies alone cannot take geothermal projects in Indonesia to the viability level without increases in the current tariff regime.

Date of Award	2020
Original language	English
Supervisor	Eric Bergmann (Supervisor) & Bruce Burton (Supervisor)