Cost Recovery Frameworks for Geothermal Projects: Insights from Oil and Gas and Their Relevance to PLN’s Geothermal Operations in Indonesia

Abstract

Some of PLN’s Geothermal Working Area (GWA) has suboptimal resource quality, which leads to high exploration costs and longer development times that hinder national geothermal targets. To address this, PT Perusahaan Listrik Negara (Persero) (PLN) has established a strategic partnership model called the Geothermal Exploration & Energy Conversion Agreement (GEECA) to improve efficiency and share exploration risks with partners, including cost recovery schemes similar to those in oil and gas. The development processes for oil, gas, and geothermal projects are similar: identifying reserves, exploration drilling, facility development, production, and site closure. The risks associated with geothermal, oil, and gas projects share similarities. The cost recovery scheme and GEECA include a mechanism for reimbursing exploration costs to partners or contractors. While they share fundamental concepts, the reimbursement methods differ significantly. In the cost recovery system, reimbursement occurs from production income before profits are shared between the government and the contractor. In contrast, GEECA employs a more definitive approach, ensuring that PLN will reimburse all exploration costs within two years after the power plant starts commercial operations. In Indonesia's geothermal development, especially with PLN's GWA, GEECA can enhance the appeal of partnerships. For other GWAs, PLN should consider enriching the data to reduce uncertainty and attract more partners.