PLN still struggles to recover from financial crisis<\/p>\n
Johannes Simbolon, The Jakarta Post, Jakarta<\/p>\n
This year, public utility PT PLN continued to struggle to cope
\nwith the problems and difficulties that have been confronting the
\ncompany since the start of the economic crisis in the middle of
\n1997.<\/p>\n
Last year, the company was busy seeking to renegotiate the
\npower purchase agreements (PPA) that it had signed with
\nindependent power producers (IPP) prior to the crisis, so as to
\nalleviate the financial burdens caused by the crisis.<\/p>\n
The sharp depreciation of the rupiah against the dollar caused
\nsevere financial problems to the company, which sells its power
\nto the public in rupiah but pays most of its operating costs,
\nincluding the purchase of equipment, debt servicing and the
\npurchase of power from IPPs, in dollars.<\/p>\n
The good news is that negotiations between the state company
\nand some IPPs bore fruit this year. The state company had signed
\nPPAs with a total of 27 IPPs prior to the crisis.<\/p>\n
PLN clinched deals with Amoseas on the new price for power
\nfrom the latter's geothermal power plant in Drajat, West Java;
\nand with PT Energi Sengkang on the new price for its power from
\nthe combined cycle power plant in Sengkang, South Sulawesi.
\nAmoseas is owned by American energy firm ChevronTexaco, while
\nEnergi Sengkang is a consortium comprising El Paso of the United
\nStates, Energy Equity of Australia and Trisharsa Sarana Jaya
\nPurnama, controlled by the daughter of former president Soeharto,
\nSiti Hardiyanti Rukmana.<\/p>\n
PLN agreed with Amoseas to reduce PLN's power price to 4.2
\nU.S. cents per kilowatt hour (Kwh) from 6.8 cents on the original
\ncontract, while the new price for power from Energy Sengkang has
\nbeen agreed at 4.28 cents, compared to 6.7 cents on the original
\ncontract.<\/p>\n
Tough negotiations are now in progress between PLN and PT
\nPaiton Energy Co., which is controlled by American firm Mission
\nEnergy and Japanese firm Mitsui, on the new price for power from
\nthe latter's power plant in Paiton, Problinggo, East Java. Yet,
\nboth parties said they were optimistic about reaching a deal in
\nMarch next year.<\/p>\n
PLN had offered a similar price that had been agreed upon with
\nEnergi Sengkang and Amoseas, but Paiton insisted on a price of
\n4.9 cents for its power, which is actually much lower than the
\nprice set on the original contract. Under the 30-year original
\ncontract, Paiton, which was the first IPP to sign a PPA with PLN,
\nset the price for its power at 8.4 cents in the first five years,
\n8.2 cents for the sixth to twelfth year of operation and 5.4
\ncents for the last 18 years of operation.<\/p>\n
PLN has also signed a deal with Sumitomo Corporation of Japan
\non the resumption of the US$1.65 billion coal-fired project in
\nTanjung Jati, Central Java, which, along with dozens of IPP
\nprojects, was put on hold by the government in late 1997 as part
\nof efforts to cope with the economic crisis.<\/p>\n
The project, which is popularly known as the Tanjung Jati B
\nproject, will restart construction next year with a power
\ngeneration capacity of 1,320 Megawatts.<\/p>\n
Under the new agreement with Sumitomo, PLN will pay between
\n2.26 and 3.25 cents per Kwh to Sumitomo for power supplied from
\nthe power plant, compared to more than 6 cents on the original
\ncontract.<\/p>\n
PLN and the government have also reached an agreement this
\nyear on the payment of insurance claims worth $260 million
\ndemanded by Overseas Private Investment Corporation (OPIC), which
\nis the insurance arm of the United States government. The
\ninsurance claim resulted from the loss experienced by PLN in the
\ninternational arbitration court that examined its dispute with
\nAmerican energy firm CalEnergy.<\/p>\n
CalEnergy filed arbitration proceedings against PLN and the
\ngovernment put its geothermal power projects in Dieng, Central
\nJava and Patuha in West Java on hold in 1997.<\/p>\n
PLN and the government have also agreed to pay $15 million in
\ninsurance claims demanded by Multilateral Investment Guarantee
\nAgency (MIGA), an insurance arm of the World Bank, in
\ncompensation for postponing the power project owned by American
\nfirm Enron Corp in Pasuruan, East Java.<\/p>\n
PLN have also agreed with several IPPs, including the owners
\nof the Tanjung Jati A power project, on the termination of their
\ncontracts.<\/p>\n
The power industry looked \"quieter\" this year as PLN and the
\nIPPs stopped using the media to blame each other for their
\nrespective problems.<\/p>\n
In previous years, PLN loved to blame the IPPs for its
\nfinancial problems, accusing them of acquiring their contracts
\nthrough corruption, collusion and nepotism, pointing out the fact
\nthat almost all the IPPs were partners with Soeharto's family and
\ntheir cronies.<\/p>\n
In response to this, the IPPs, which are mostly big
\ninternational corporations, threatened PLN with arbitration
\nlitigation while applying pressure, through their respective
\ngovernments and multilateral lenders, on PLN and the Indonesian
\ngovernment to honor the PPAs.<\/p>\n
While optimism has been growing that PLN will be able to
\nsettle its disputes with all the IPPs, a new problem has emerged:
\npower shortage.<\/p>\n
PLN warned on many occasions this year that it would impose
\nrotating power cuts in some parts of the country due to a
\nshortfall of supplies.<\/p>\n
Former PLN president Kuntoro Mangkusubroto said in a seminar
\nin Medan, North Sumatra in February this year that there are
\nabout 29 \"critical\" areas across the country prone to rotating
\nblackouts. PLN had even instituted rotating power blackouts in
\nthe provinces of South Sumatra and Lampung, he added.<\/p>\n
So far, there have been no reports of power blackouts on the
\nJava-Bali grid this year, but director general of electricity at
\nthe Ministry of Energy and Mineral Resources Luluk Sumiarso has
\nwarned that the power supplies on the grid had been in a critical
\nstate.<\/p>\n
Power plants on both islands have a total power generation
\ncapacity of 15,297 MW, while both islands need a total of 16,828
\nMW capacity to operate in a safe margin. The grid needs a reserve
\ncapacity of at least 30 percent in order to operate safely. This
\nis to anticipate a sudden surge in demand, potential technical
\nfailure in one power plant or maintenance works.<\/p>\n
Power demand on both islands could exceed supply by 2003, when
\nthe peak load is expected to hit 15,441 MW compared with the
\ninstalled capacity of 15,285 MW, Luluk said.<\/p>\n
PLN needs around $28.45 billion in new investment over the
\nnext 10 years to build new power plants and a power network to
\nstave off a power crisis in Java, Bali and other parts of the
\ncountry, Luluk added.<\/p>\n
PLN has no money to make such an investment as it has remained
\nin the red since the economic crisis began. It posted losses of
\nRp 0.6 trillion in 1997; Rp 9.2 trillion in 1998; Rp 11.4
\ntrillion in 1999 and Rp 23.4 trillion in 2000. This year, its
\nlosses are projected at Rp 8.5 trillion.<\/p>\n
The government has tried to help lift it from its financial
\ndifficulties by allowing it to raise power prices by an average
\nof 30 percent last year and 22 percent this year. However, the
\ncompany still has to rely on government subsidies to continue
\noperating. Next year, the government has allocated Rp 4.1
\ntrillion in subsidies.<\/p>\n
PLN tried to solve the power crisis in several areas, such as
\nSouth Sumatra and Lampung, by buying second-hand power plants
\nfrom Malaysia's Tenaga Nasional Berhad. But, the measure could
\nonly provide a temporary solution rather than a long-term remedy.<\/p>\n
For PLN and the government, the only solution is to seek
\noffshore loans or invite foreign investors into the country.
\nUnfortunately, this has not been easy.<\/p>\n
Kuntoro said the lingering dispute between PLN and the IPPs
\nhave eroded the bankability of PLN, making it difficult for the
\nstate company to raise funds from the international market.<\/p>\n
The disputes have also discouraged foreign investors in the
\ncountry, while the low power tariff set by the government has
\nbecome a disincentive.<\/p>\n
Some analysts are optimistic that foreign investors will
\nregain confidence in the country and will finally be willing to
\nreturn to the country's power sector, citing PLN's success in
\nsettling its disputes with the IPPs and the government's
\ncommitment to allowing PLN to gradually raise power prices to a
\neconomically profitable level. The government has allowed PLN to
\nraise power prices by an average of six percent for every quarter
\nnext year.<\/p>\n
Yet, some people say foreign investors or lenders are not
\nlikely to regain their confidence in the country's power sector,
\ngiven the serious damage caused by the dispute between PLN and
\nthe IPPs on the country's reputation.<\/p>\n
During the seminar in Medan, Kuntoro voiced optimism that the
\ncentral government would be able to find solutions to the power
\ncrisis in the short term. As such, he said, regional
\nadministrations should be active in thinking up ways to ensure
\npower supplies in their respective jurisdiction.<\/p>",
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