Alsthom agrees to cut cost of power project

JAKARTA (JP): French-based engineering, construction and procurement company Alsthom has agreed to develop the Kediri power transmission project in East Java at a cost equal to a similar project in Depok, West Java, said the president of state electricity company PT PLN Kuntoro Mangkusubroto.

But Kuntoro said Alsthom demanded nine conditions to significantly lower the cost of the project, including eliminating the requirement to use local content, local contractors and the counter purchase provision.

"The figures from Alsthom are very attractive. I hope the government will accept it," he told the House of Representatives Commission VIII on energy and mining at a hearing on Tuesday, which was also attended by Minister of Finance Prijadi Praptosuhardjo.

Kuntoro said it would be up to Coordinating Minister for the Economy Rizal Ramli whether to accept the conditions demanded by Alsthom.

The Kediri power transmission project and a similar project in Tasikmalaya, West Java, became controversial after PLN revealed recently that there were strong indications of markup practices in the costs of the two projects.

The Kediri project is being developed at a proposed cost of Rp 342.28 billion (US$3.68 million), and the Tasikmalaya project at Rp 386.91 billion. A similar project called Depok III, which will be developed later this year, will cost some Rp 136.7 billion.

The Kediri project is developed by a local consortium of PT PP and PT Indokomas. The Depok III project was built by a consortium which also includes Alsthom.

Kuntoro said Siemens, the engineering contractor of the Tasikmalaya project, also sent a new proposal but it was "not as clear" as what Alsthom had proposed.

There had been a suggestion for PLN to cancel the two projects, but Kuntoro recently warned that delaying the Kediri project would risk causing a shortage in the power supply in East Java.

Kuntoro said a new tender would set back the Kediri project by eight months, during which the power demand would outstrip PLN's present capability to distribute power.

He said by then, independent power producer Paiton II would have completed its power plant, but would not have an adequate transmission infrastructure to distribute the power.

The projects are part of 17 power transmission projects to be built by PLN to anticipate a surge in power supply, following the completion of power plant projects developed by 27 independent power producers (IPPs).

The high-profile Indonesian Corruption Watch recently revealed that there had been cost markups in 15 of the projects.

The 15 projects cover Java, North Sumatra, West Sumatra and South Sulawesi.

Kuntoro said PLN's legal division was still studying the possibility of canceling some of the projects.

He said a decision by legal experts was expected to come on Thursday or Friday.

"We must be very careful in making decisions so that there will be no legal consequences," he said.

Kuntoro also said there was a possibility of canceling some power generating projects developed by the IPPs, particularly those which had not yet been started.

"If the power is not needed, we'll cancel the projects," he said.

PLN has signed power purchase agreements with 27 IPPs, under which the former will buy power from the latter in U.S. dollars. But the sharp depreciation of the rupiah against the dollar caused PLN to be unable to meet the purchase agreements. PLN is trying to renegotiate the power price. There has also been allegations that the IPPs marked up the cost of the projects causing the power price to be high.

Many of PLN's power projects went to companies linked to the family and friends of former president Soeharto. The cost of the projects had been significantly higher than the international standard.(rei)