Wampu Electric Power has received US$130mn loan backed by Korea Eximbank for the construction of a hydroelectric power plant in Indonesia.

Korea Eximbank provided cover as well as part of the 16.5-year, US$130mn financing, along with SMBC, who also acted as financial adviser. International law firm Norton Rose advised Wampu, a project company jointly owned by Korean firms Korea Midland Power and Posco Engineering, and Indonesia’s Mega Power Mandiri.

The project’s total cost is US$174mn, with the remaining US$44mn covered by equity. The power produced at the plant will ultimately be sold to Perusahaan Listrik Negara (PLN), the Indonesian state-owned power utility responsible for electricity distribution.

Laurie Pearson, senior associate at Norton Rose Singapore, tells GTR that the project had to overcome a number of challenges to get funding, due to Indonesia’s newly introduced ‘business viability guarantee letter’, which covers all of PLN’s obligations in the deal.

“Our project was the first project to ever reach financial close based on this new form of government guarantee, which was introduced for the first time last year, so we had to take the lenders through the due diligence process for the first time on one of these guarantees.

“[The letter] was considered critical for Korea Eximbank to provide the cover, so we knew we had to get one but it was difficult to get it, it took a long time and negotiations with the ministry of finance. We had to review and renegotiate the terms so that the lenders could get comfortable with it,” she says.

Pearson adds that the location of the plant inside a protected forest made it even more complicated to close the deal.

“It’s the first project to be built inside a protected forest in Indonesia, and you have to obtain a special permit to be allowed to operate [that kind of project]. It is challenging, partly because of getting the permit, which is difficult, and also to make the lenders comfortable with the fact that they have less security rights,” she says.

“It’s a relatively small project but it punches above its weight, as it is the first power project to reach financial close in Indonesia for over two years, and the first hydroelectric project in 15 years,” Pearson concludes.