Paiton power politics<\/p>\n
President Abdurrahman Wahid's decision to stop all legal
\nactions taken against independent power producers in an effort to
\nresolve commercial disputes with major multinational companies is
\na welcome signal for foreign investors assessing the credibility
\nof the new Indonesian government.<\/p>\n
By ending the lawsuit which sought to void a power-purchase
\nagreement between state-owned electricity company PLN and PT
\nPaiton Energy Co., a consortium led by subsidiaries of Edison
\nMission Energy Co. and General Electric Co. of the United States
\nand Mitsui & Co. of Japan, Abdurrahman is telling the
\ninternational community that in good times or bad, Indonesia
\nhonors the sanctity of its contracts.<\/p>\n
Relations between PLN and its 27 independent power producers
\n(IPPs), entered into in the early 1990s as the country opened its
\nelectricity sector to private investors in order to meet the
\nelectricity needs of its booming economy, have been strained
\nsince the economic crisis hit Indonesia in late 1997.
\nParticularly harmful was the crash of the rupiah, because power
\nprices were set in American dollars while PLN's revenue was fixed
\nin rupiah.<\/p>\n
But the issue turned political after president Soeharto fell
\nfrom power in May, 1998. PLN, feeling as if it had been freed
\nfrom its political bondage, cried foul and alleged that most of
\nthe local partners of the IPPs were Soeharto's family members and
\ncronies, who had secured contracts with the IPPs through
\ncorruption, collusion and nepotism, known by the acronym KKN.<\/p>\n
The IPPs were then pressured to renegotiate the terms of
\ntheir contracts under the threat of having the deals canceled.
\nPaiton Energy, the first major IPP to come on stream, is partly
\nowned by Hashim Djojohadikusumo, whose brother is married to one
\nof Soeharto's daughters. The project was considered not only the
\nmost blatant case of KKN, but also the most uncooperative and
\nhence the first to be taken to court.<\/p>\n
However, the confrontational stance taken by PLN and tacitly
\nendorsed by then president B.J. Habibie horrified foreign
\ninvestors, bankers and governments. Prominent banks and insurance
\ncompanies from five major countries jointly warned Indonesia in
\nJuly that a failure to honor its power contracts would have
\ndisastrous implications for its economy, indicating it could lead
\nto a halt of government-to-government loans.<\/p>\n
Another IPP, majority owned by MidAmerican Energy Holdings
\nLtd. was also sued by PLN but the U.S. firm won the case, with
\nPLN ordered to pay more than US$570 million in damage. The
\ngovernments of the U.S. and Japan reportedly intervened to
\namicably settle other disputes involving billions of dollars.<\/p>\n
Abdurrahman apparently realized that the legal wrangling not
\nonly increasingly pitted the Indonesian government against its
\nsovereign donors, notably the U.S. and Japan, whose export credit
\nagencies and insurance companies financed the power projects, but
\nalso tainted the credibility of the Indonesian government in
\nhonoring legally binding contracts.<\/p>\n
However, PLN president Adhi Satriya and planning director
\nHardiv Situmeang, who resigned on Monday in protest over the
\nPresident's ruling, also had a legitimate point in opposing the
\nmajority of the deals with the IPPs. Honoring the original terms
\nof the contracts, which were largely forced on PLN, would bleed
\nthe state company and the nation for decades as the power rates
\nthey charged were prohibitively high.<\/p>\n
But entering into litigations or simply canceling the deals
\nwould drive foreign investors away from the country at a time
\nwhen foreign aid and investment is required to help lift
\nIndonesia from the economic crisis. After all, the sanctity of
\ncontracts is what keeps an economy running.<\/p>\n
Abdurrahman's decision certainly is designed to facilitate
\nout-of-court settlements that would help both parties salvage
\nsomething from this mess. For this goal to be realized, however,
\nboth parties, notably the IPPs, must negotiate in good faith even
\nthough the avenue of litigation has been closed. This requires
\ninvestors to understand the economic woes Indonesia is now facing
\nand PLN's huge power surplus resulting from lower than estimated
\neconomic growth. The IPPs should also realize that power projects
\nare long-term investments. As Indonesia's economy begins to
\nrecover, the IPPs will surely stand to reap the benefits as well.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/paiton-power-politics-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}