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Panax Geothermal to benefit from Indonesian increase in electricity tariff for geothermal projects

Panax Geothermal to benefit from Indonesian increase in electricity tariff for geothermal projects

Panax Geothermal (ASX: PAX) stands to be a beneficiary of the the Indonesian Government’s decision to increase the electricity tariff for geothermal projects.

The Company will enjoy improved project economics for its geothermal energy projects in Indonesia.

Tariffs in Java will increase by about 33% to US$120 per megawatt hour while the tarrif on the island of Flores has increased by 20% to US$150 per megawatt hour.

Indonesian Energy and Mineral Resources Minister Jero Wacik said the increased tariff was aimed at attracting more investment into the country’s geothermal sector.

He also flagged further incentives such as tax holidays during the exploration phase of projects.

Separately, Panax expects the electricity pricing at its Dairi Prima project in North Sumatra to increase to $US170 per megawatt hour from the current US$150.

Not surprisingly, this is expected to lead to an increase in economic returns for Panax’s Dairi Prima, Sokoria and Ngebel projects.

Panax is targeting to start electricity production at the Dairi Prima, which will be capable of generating up to 55 megawatts of power, by late 2013.

The Sokoria project in Flores has planned capacity of 30MW while the Ngebel project, which Panax is earning a 35% stake from its partner local partner PT Bakrie Power, will be capable of producing up to 165MW.

Full steam ahead

Panax is currently expecting power purchase agreements for Sokoria and Dairi Prima to be finalised soon, which will in turn allow it to finalise project financing.

The Indonesian Government is also looking at the possibility of increasing the initial generating capacity of the Ngebel to 220MW, a big increase from the current plan to increase production in phases up to the planned 165MW.

Panax and Bakrie are also likely to be granted the rights to develop the transmission-related aspects of the Ngebel geothermal project in East Java, giving them an increased electricity tariff as well as increased certainty over the timing and deliverability aspects of the project.

Other events that have bolstered Panax’s position in the couple of months include confirmation that geothermal and renewable energy investments would not be impacted by the Indonesian Government’s changes to resource ownership laws and the restoration of the country’s debt rating to investment grade.


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