JAKARTA, May 28 (Reuters) - Indonesia will begin construction next month of its long-delayed $1.6-billion Sarulla project, the world's biggest geothermal power plant, the country's chief economic minister said on Wednesday.
Southeast Asia's largest economy, home to the world's largest geothermal resources, is racing to meet power demand growth of more than 7 percent a year, with plans to add 60 gigawatts of capacity to its existing grid by 2022.
But the sector has struggled to attract investment because of complex regulations and difficulties securing project finance. A government plan to derive 12 percent of the country's energy mix from geothermal power by 2025 seems unrealistic.
"The Sarulla groundbreaking will be very soon," Coordinating Economic Minister Chairul Tanjung told reporters, adding that the project had reached financial closing and the government expected construction to begin next month.
He declined to give further details.
The project was originally initiated in 1990 but ground to a halt during the Asian financial crisis in 1997. Its first phase is expected to begin operation in 2016, with the next two phases to follow within 18 months of the first phase.
The 330-MW Sarulla project is envisioned to provide clean power to an Indonesian grid dominated by fossil-fuel energy. Sarulla is expected to reduce 1.3 million tonnes of carbon dioxide emissions a year when completed in 2018.
The financing of the project has been heralded as a breakthrough for Indonesia's largely undeveloped 29 gigawatts of geothermal potential.
The banks involved in the financing are the Japan Bank for International Cooperation (JBIC) and the Asian Development Bank (ADB) along with Bank of Tokyo-Mitsubishi UFJ Ltd, ING Bank NV (a unit of ING Groep NV ), Societe Generale, Sumitomo Mitsui Banking Corportation, Mizuho Bank Ltd and National Australia Bank Ltd.
The project is sponsored by Itochu Corporation (25 percent), Kyushu Electric Power Company (25 percent), PT Medco Power Indonesia (37.5 percent), a unit of Medco Energi Internasional and Ormat International, a unit of Ormat Technologies Inc (12.5 percent).
The Sarulla plant's recent financial close makes it Indonesia's first geothermal project to gain financing since Star Energy's 227-MW Wayang Windu plant commenced in 1997. (Reporting by Fathiyah Dahrul and Fergus Jensen; Editing by Clarence Fernandez)