First Wellhead IPP Consortium Agreement

Andalas Energy and Power Plc

(‘Andalas’, or the ‘Company’)

Signs First Indonesian Wellhead IPP Consortium Agreement with State-Owned Enterprise

Andalas Energy and Power plc (AIM:ADL) is pleased to announce that it has signed a legally binding Consortium Agreement (‘Agreement’) with PT PP Energi (‘PPE’), a subsidiary of PT PP (Persero) Tbk (‘PTPP’), the Indonesian state owned construction and engineering company, to develop the Jambi-1 30+MW independent gas-fired wellhead power facility in Jambi Province, South Sumatra, Indonesia and to procure gas from Pertamina, the global fortune 500 national oil company.

The Agreement represents a major milestone for Andalas as it is a binding agreement to develop the first of the three projects that were planned in the Framework Agreement signed between the Company and PPE on 17 July 2017.

Highlights:

• Andalas (49%) and PPE (51%) to co-develop Jambi-1 wellhead power project with first power targeted for end 2019
• The proposed facility will be a minimum of 30MW and is expected to generate revenue in excess of US$10m per annum (gross) for 20 years
• Next steps for Jambi-1 involve finalising the gas purchase terms, grid study evaluation and commencement of a FEED study
• Andalas and PPE will review project financing options with PPE’s existing Indonesian and international banking relationships
• Andalas has presented a further two projects to PPE in accordance with its obligations under the Framework Agreement and further updates will be provided as appropriate

David Whitby, CEO of Andalas Energy & Power, commented, “This Agreement is a value trigger event for Andalas.  With our internal forecasts indicating project revenue in excess of US$10m per annum, the Jambi-1 project has the potential to transform the business and sets the platform to develop further power projects in tandem with PPE. 

“PPE is a strong and motivated partner to Andalas, being the power division of PTPP, the state owned entity.  Since 2012 the PTPP group has constructed over 14 power plants for PLN, the state electricity company, and we therefore believe their participation strengthens the consortium’s ability to deliver in the Jambi-1 project. 

“Our work to date has identified a significant number of potential projects for development, with PPE, Pertamina and also with others.  We are therefore confident that Jambi-1 will be the first of a series of similar opportunities for Andalas, as we seek to roll out our standardised gas to power development model and rapidly scale up the business.” 

Overview of Jambi-1 Wellhead Independent Power Producer (“IPP”) Project

Andalas and PPE have agreed to develop an independent gas-fired power facility in the province of Jambi, Sumatra, Indonesia.  Jambi-1 was selected as the first project following detailed technical evaluation and due diligence.

A preliminary assessment of the Jambi-1 project indicates a project with total installed capacity of 30MW base load with potential to offer PLN the opportunity to purchase additional generating capacity subject to negotiation.   The precise size and configuration of the facility will be determined as part of the PLN procurement process and front-end engineering and design (“FEED”).

The power facility will be located adjacent to the proposed central processing facilities for the gas field supplying the project.  The gas field is currently in production and a preliminary location has been proposed, which is located to the north-west of the two nearest substations.  Previous studies have indicated that these substations have existing capacity to take power from this project.

Power Sales

Andalas and PPE propose to sell the power generated by the project to PLN. 

The project is expected to qualify for direct appointment (i.e. without public tender) under Regulation No. 11/2017 (see prior announcement dated 27 February 2017).  The power price under direct appointment is agreed with PLN through an open book negotiation that determines the price based on the capital and operating costs of the project and an economic return for the owners.   The forthcoming FEED study is designed to provide the various cost components for the open book negotiation. 

Next Steps

There are a number of key contractual, technical and financial project milestones to be achieved prior to the consortium making its final investment decision (“FID”).  The consortium will commence execution of these milestones immediately, starting with a detailed project scoping study and the selection and appointment of the FEED engineer.  Completion of FEED, which is the pre-curser to FID and construction, is being targeted for H22018.  The Company will make further announcements on milestones in due course.

Consortium Agreement Terms

The key terms of the consortium agreement provide:

• PPE and Andalas establish a consortium for the purpose of developing an IPP facility;
• PPE shall have 51% and Andalas shall have 49% participation interest in the IPP project;
• The IPP facility shall be located at the wellhead;
• The parties will seek regulatory approval for the construction of the IPP facility in accordance with Regulation No. 11/2017 which provides that power projects may be procured without public tender if they meet certain requirements;
• Each party shall bear its own internal costs but third party costs shall be shared by the parties in proportion to their respective participation interests.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR).  Upon the publication of this announcement via a Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

For further information, please contact:

David Whitby	Andalas Energy and Power Plc	Tel: [phone]
Sarah Wharry	Cantor Fitzgerald Europe (Nominated Adviser and Joint Broker)	Tel: [phone]
Jon Belliss	Beaufort Securities Limited (Joint Broker)	Tel: [phone]
Frank Buhagiar Susie Geliher	St Brides Partners Limited	Tel: [phone]

**ENDS**

Notes for Editors:

PT PP (Persero) Tbk (“PTPP”) – Indonesia’s state owned engineering and construction group

PTPP is the parent company of PT PP Energi (“PPE”).  PTPP, is an Indonesian state-owned enterprise that is listed on the Indonesian Stock Exchange with a market capitalisation of approximately US$1.4 billion and generated revenue of US$1.2 billion in 2016.  The PTPP group is one of the largest construction and investment groups in Indonesia and is considered a preeminent engineering procurement and construction (‘EPC’) contractor of Indonesian independent power producer projects.  PTPP group has a strong relationship with the national power company, PLN, having constructed 14 power projects for PLN totalling 2,168 MW since 2012.

PT Pertamina (Persero) (“Pertamina”) – Indonesia’s World Class National Oil Company

Today Pertamina is ranked 230 on the Global Fortune 500 of companies generating over US$41 billion in revenue and with some US$45.5 billion in assets in 2015.  It has interests in over 230,000 square kilometres of acreage, has over 5 billion barrels of oil equivalent (‘boe’) in Proven + Probable (2P) Reserves, and in 1H 2016 its production reached 640,000 boe per day, equating to over 50% of Indonesia’s total hydrocarbon production.

Pertamina’s business is fully integrated and includes a significant power business.  Pertamina are the lead developer of the recently approved Jawa-1 (1,760MW) power plant and have a further 235 MW of geothermal power plants in operation or being commissioned throughout Indonesia.

PT PLN (Persero) – Indonesia’s National Utility

PLN is a state-owned company responsible for the majority of Indonesia’s power generation.  It has exclusive powers over the transmission, distribution and supply of electricity to the public and it is responsible for the procurement of independent power production. 

PLN employs circa 51,000 employees across the archipelago and PLN’s total generating capacity (produced by many different plants across Indonesia) at 31 December 2015 was reported at around 40,265MW.

PLN is focusing their efforts and investments to fulfilling the Governments ambitious targets of adding 35,000 MW of generating capacity by 2019 in order to increase the electrification ratio of Indonesia to levels comparable with other ASEAN nations.