Alsthom agrees to cut cost of power project

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)