CASE STUDIES

Following are several case studies which provide a more detailed outline of the manner in which SSEK successfully met its client's needs.


  • Central Java Model Power Project

    The Situation

     

    The Asian financial crisis of the late 1990s resulted in the termination of a number of private power projects in Indonesia under development in cooperation with the state owned electricity provider PT Perusahan Listrik Negara ("PLN") and halted investment in the private power sector of South East Asia's largest economy.

     

    Over the past decade since the crisis, the Government of Indonesia has positioned Indonesia as an attractive investment destination and private investors have been encouraged to partner with the Government on infrastructure projects, such as toll roads, airports, drinking water and power generation. Despite this, however, private power investment remained stagnant and the country was increasingly facing an electricity supply crisis.

     

    In 2008, SSEK began advising the International Finance Corporation ("IFC") in connection with the USD 3 billion Central Java Model Power Project for PLN. The main objective of the project is to upgrade all of the tender procedures and documentation, as well as the standard form Power Purchase Agreement, in line with international bankable standards, at the same time as actually implementing a large private power project. This work proceeded in parallel with the establishment of the Infrastructure Guarantee Fund and a suitable form of project guarantee by the Ministry of Finance Risk Management Unit which should promote private investment in Public/Private Projects (PPP) in Indonesia.

     

    The Project

     

    PLN decided to add a 2 x 1000 MV coal fired power plant to the grid in Central Java. The project was designated as the model for this new and innovative approach to PPP investment in Indonesia and the exemplar for private power projects in the future.

     

    To encourage private investment in this project and future projects, PLN sought to refine its tender process and documentation to the highest international quality. PLN's pre-crisis Power Purchase Agreement ("PPA") did not adequately address the allocation of risks and other issues relating to bankability, making projects unattractive to lenders. The IFC, with the legal guidance of SSEK and international counsel Norton Rose, advised PLN on how to improve the process, documentation and creditworthiness of the project.

     

    SSEK also advised the IFC for its client PLN on a wide variety of Indonesian legal issues regarding private sector investment in Indonesia's power sector including regulatory matters, corporate law, land acquisition, environmental laws, the Power Purchase Agreement and risk sharing arrangements, and issues related to the Infrastructure Guarantee Fund.

     

    The Result

     

    Not only was the project successfully realized, but the PPA and tender documentation for this project serves as a model for other private power projects in Indonesia. The Government of Indonesia is currently pursuing a crash-program between PLN and private investors to build power plants with a combined capacity of 10,000 MW valued at $8 billion dollars over the coming years.

     

    The Government also successfully established PT Indonesia Infrastructure Finance with a number of multilateral lenders as shareholders to provide Rp 30 trillion in funding for infrastructure projects across the country. The fund acts as a source of finance for Indonesian infrastructure projects in situations where commercial banks are reluctant to provide loans due to the perceived high-risk nature of the projects. The aim is to attract foreign investors based on the security of financing from this fund and fulfill the government's goal of dramatically increasing private investment in Indonesia's infrastructure.

     

    Our lead attorneys in the Central Java Model Power Project were Ira A. Eddymurthy, senior partner, and Richard D. Emmerson, a senior foreign legal advisor to SSEK since 1996.


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  • Integrated Mining & Infrastructure Project

     

    The Situation

     

    Accounting for 48.5% of Indonesian coal production, South Sumatra was one of the seven "champion" provinces selected by the Indonesian Capital Investment Coordinating Board (BKPM) in 2010 for accelerated foreign investment.

     

    However, insufficient infrastructure to transport and ship coal resources has often limited the scope for extraction in Indonesia. The India-based conglomerate Adani Group, which has interests in coal, oil and gas, power generation and logistics, sought to build a US$1.6 billion integrated infrastructure and mining project to capitalize on Indonesia's significant coal resources and favourable investment climate.

     

    The Action

     

    Throughout 2010, SSEK advised Adani Group and its Indonesian subsidiary, PT. Adani Global (together, "Adani") in connection with the USD1.6 billion rail & port infrastructure project in South Sumatra. The project consists of (i) a 270 km coal railway from Tanjung Enim to Tanjung Carat/Tanjung Api-Api, (ii) a coal terminal in Tanjung Api-Api, and (iii) the Tanjung Api-Api port and industrial estate. SSEK was also involved in the negotiation of the Heads of Agreement for the realization of the Project, which was entered into by and among Adani, PT. Bukit Asam, Tbk, a state coal mining company and the Regional Government of South Sumatra in August, 2010.

     

    The total planned investment for (i) the construction of the coal railway and terminal, (ii) the port, and (iii) the industrial estate are valued at approximately US$ 1.6 billion, Rp. 8 trillion (around US$ 800 million) and Rp. 54,271 trillion (around US$ 5.4 billion), respectively.

     

    Ms. Ira A. Eddymurthy led SSEK's advisory team on the integrated infrastructure project. Ms. Eddymurthy and Mr. Denny Rahmansyah assisted Adani on the closure of the agreement entered into by and among the above parties.

     

    The Result

     

    With construction expected to be completed by 2014, the project will have the capacity to transport 35 million tons of coal annually. It is also expected to provide 100,000 jobs and drive economic growth in Indonesia, which is already one of the world's top coal exporters.

     

     


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  • East Jakarta Water Project

    Introduction

     

    In the mid 1990s the Indonesian government wanted to improve Jakarta's water infrastructure to keep up with growing demand. As with many large projects, capital and expertise from private investors was needed. Thames Water Overseas Limited is a UK utilities company which, with the help of Indonesian investors, took over the East Jakarta Water Project from the state owned water utilities operator, Pam Jaya on a BOT basis. Set up as a Public-Private Partnership (PPP), this was the first major water infrastructure privatization project in Indonesia.

     

    The Project

     

    SSEK acted as Indonesian counsel to Thames Water Overseas Limited in all aspects of the project, from its inception in 1996 to the subsequent sale of the operating company years later. SSEK continues to represent the operating company for the buyers.


    Pam Jaya, with the support of the Jakarta Regional Government, approved a 30 year concession of the East Jakarta water utilities. PT Thames Pam Jaya was established as the operating company by Thames Water Overseas Limited with minority Indonesian investors. A Cooperation Agreement was signed between Pam Jaya and PT Thames Pam Jaya, whereby PT Thames Pam Jaya took over all existing assets and employees, and planned to retrain employees, update accounting systems and maintenance procedures, and provided for scheduled investments to improve the water system throughout the 30 year concession. An employee arrangement further stipulated that employees of Pam Jaya transferred to the private company still maintained their civil service status and benefits.


    Hundreds of miles of distribution pipes were replaced, new water filtration systems were introduced, and operational problems such as illegal water connections and unqualified suppliers were addressed. SSEK acted as legal advisors for all corporate affairs, financing, agreements and regulatory requirements for the new company throughout this time. The Asian Financial Crisis of the late 1990s presented a major challenge as the predictability of interest rates and exchange rates collapsed. In response, the Cooperation Agreement was successfully re-negotiated and has been amended several times over the years in response to evolving circumstances.


    The Thames Water Group was acquired by the RWE Group of Germany in a global transaction. Eventually, RWE sold the Indonesian operating entity, PT Thames Pam Jaya, to a group of Indonesian investors who requested that SSEK continue to represent the operating company under new ownership.

     

     

    Results

     

    As the first major drinking water privatization project in Indonesian history, this PPP project was instrumental in identifying the opportunities and challenges for future PPP infrastructure projects. Our experience with ongoing operations of the project and negotiations of the Cooperation Agreement and its amendments over the years has resulted in an improved understanding of the optimum allocation of risks in BOT infrastructure development projects and highlighted the need for better enforcement of certain regulations such as those governing deep water wells and illegal connections and opportunities for improvement of existing regulations to better determine the roles and obligations of each party. SSEK is proud to be involved in projects like the East Jakarta Water Project which have not only resulted in improved infrastructure but have also contributed to the development of the legal framework for public-private partnerships.

     

    Richard D. Emmerson, a senior foreign legal advisor at SSEK since 1996, worked on this project with an Indonesian partner.


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