Value creation by capitalizing goodwill: equity funding using shareholder loan scheme to reduce electricity cost of provision

Abstract

In order to support national economic growth, the government created a 35,000 MW program for Indonesia.. PT PLN (Persero) has assigned PT PJB to developed some projects under the IPP scheme as shareholders and project sponsors. PJB throughs its subsidiary, PJBI, has to carry out its role as a shareholder and project sponsor of projects with a 51% stake. PJBI could only deposit cash equity of 10% equity. The equity portion of 49% is the responsibility of the partner and 41% of the equity portion is fulfilled through loans. There are three equity funding scheme options discussed in this paper, namely a loan partner (option 1), shareholder loans (option 2), and bond issuance (option 3). It is assumed that the three options have the same project profiles. The feasibility indicators calculated in this paper are Net Present Value (NPV) and Internal Rate of Return (IRR) Project, IRR Equity, NPV of PJBI, and IRR of PJBI. The approach taken is to lock the tariffs of components A, B, C, D, and E on the three options, so that the effect of differences between schemes is generated in each output. Financial model calculations show that option 2 offers the largest NPV and IRR for PJBI, up to US$ 68,385,771 and 16.90%, followed by option 3 and option 1. Based on these calculations, option 2 is giving the greatest benefits to PJBI and suggested as the equity-funding schema.