The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Kim Yong-hwan, “Korea Eximbank”) announced on October 13 that it signed a Memorandum of Understanding (MOU) on financing power plant projects in Indonesia with the country’s power utility Perusahaan Listrik Negara (“PT. PLN”)* on October 11.

* PT. Perusahaan Listrik Negara (PT. PLN): Indonesia’s state-owned electric power corporation with monopoly over power transmission and distribution. Oversees 56 percent of Indonesia’s power generation capacity.

The signing of the MOU is expected to bolster the already wide-ranging relationship of cooperation between the two institutions, by paving the way for a significant increase in Korea Eximbank’s financial support for projects initiated by PT. PLN.

Chairman Kim of Korea Eximbank met with CEO Nur Pamudji of PT. PLN at the latter’s Jakarta headquarters and signed the MOU.

Chairman Kim remarked at the occasion, “By setting the stage for a long-term relationship of cooperation with PT. PLN, this MOU will enable Korean companies to win more contracts in the Indonesian power market. We will keep exploring diverse financial tools to support the entry of Korean businesses into high-potential markets such as Indonesia.”

Korea Eximbank has made changes to its loan policy in order to effectively support Korean companies in their move into the Indonesian power market: it waived the requirement for an Indonesian government guarantee as a condition for approving loans to PT. PLN.

Emboldened by its rising sovereign credit rating, the Indonesian government is increasingly leaving PT. PLN to finance power plant projects on its own, without the backing of government guarantees.

Korea Eximbank’s move comes at a moment when export credit agencies (ECAs) of other countries are still just considering the possibility of assuming PT. PLN’s credit risk, and is likely to give Korean firms a head start in capturing a share of the Indonesian power generation market.

* The total value of projects to be launched and financed by PT. PLN on its own credit until 2020 is estimated at USD 38 billion.

The Indonesian government has been initiating large-scale infrastructure projects to lay the foundation for its continued economic growth. In particular, it is planning to host USD 67.8 billion worth of power plant projects until 2020 to resolve the country’s severe power shortage, making it potentially the largest power plant market in Southeast Asia.

“As Indonesia is heavily dependent on foreign capital to finance its large-scale infrastructure projects, the ability of a country’s ECA to provide financing at competitive terms translates directly into that country’s competitiveness in exporting power plants to Indonesia”, explained a Korea Eximbank official.

Korea Eximbank has since 2010 provided a total of KRW 560 billion in financing for three power plant projects in Indonesia including the Cirebon Coal-fired Power Plant, and is currently considering to finance 7 projects worth a total of KRW 7.75 trillion, including the Grati Combined Cycle Power Plant project.