Analysts laud PLN for canceling deal

Analysts laud PLN for canceling deal

JAKARTA (JP): State-owned electricity company PLN's move to
unilaterally annul a power purchase contract with PT Cikarang
Listrindo received backing from analysts yesterday, but there was
silence from the power industry.

Economist Hartojo Wignjowijoto and industry analyst Iskandar
Mandji even called on PLN to annul all its power purchase
contracts with independent power producers (IPPs), saying they
landed the contracts through corruption, collusion and nepotism.

"I give two thumbs-up to PLN," Hartojo said. "PLN should not
only annul Cikarang Listrindo, but all contracts with the
existing IPPs because they will only cause losses on PLN and PLN
was pressurized to sign them."

Iskandar, a former legislator from the ruling Golkar
functional group, said: "PLN's move is a bit late, but better
late than never."

PLN president Djiteng Marsudi announced Saturday that he had
notified Cikarang Listrindo, an independent power producer owned
by former president Soeharto's cousin Sudwikatmono, that PLN
would stop buying power from Cikarang beginning June 15.

PLN was obliged to buy power from Cikarang Listrindo for 20
years under a contract signed in 1996. Cikarang Listrindo runs a
150-MW gas-fired power plant in Bekasi, West Java.

Members of Cikarang Listrindo's board of management were not
available for comment yesterday.

"All directors are in a meeting right now," Vina, an employee
of the firm, told reporters at its office.

Hartojo, who claims to have served as financial advisor to
several IPPs, said he knew many IPPs obtained the contracts
primarily through political connections and collusion.

"I know for instance that a Chinese company which offered only
4 U.S. cents per kilowatt hour (kwh) lost in one bidding to a
certain company which offered higher prices only because it
didn't have political connections," he said.

Hartojo dismissed accusations that PLN's move would worsen the
country's battered investment climate in the monetary crisis,
saying many companies were ready to replace them.

He also said the IPPs would restrain themselves from filing a
lawsuit against PLN for fear the court sessions would reveal
their involvement in corruption.

Lawyer Todung Mulya Lubis told The Jakarta Post that under the
existing law, a party was allowed to annul a contract made under
political and psychological duress. But the annulment of a
contract had to be made in courts, unless the contract itself
mentioned other forums.

"I can't make much comment on PLN's move until I see the
contract itself," he said.

Djiteng indicated he might take unilateral action against IPPs
which refused to renegotiate contracts to alleviate PLN's
financial burdens in the crisis.

PLN has repeatedly asked the IPPs to renegotiate the contracts
in the wake of heavy financial burdens resulting from the sharp
depreciation of the rupiah against the U.S. dollar.

PLN suffered a loss of more than Rp 500 billion (US$45 million
at current rates) last year and predicted losses this year would
exceed Rp 2 trillion due to the rupiah's sharp depreciation.

The rupiah's fall has tripled the company's dollar-based
spending, including for power purchase and foreign debt payment.

PLN buys power from IPPs at an average price of 6.4 U.S. cents
or Rp 640 per kilowatt hour, compared with its average selling
price of Rp 234 per kilowatt hour.

The company has signed contracts with 26 IPPs, most of which
are owned by international power companies in partnership with
Soeharto's family and cronies.

Djiteng noted PLN actually did not need most of the private
projects but the company was forced to enter into the contracts.

IPPs management including PT Energy Sengkang, which runs a
135-MW power plant in South Sulawesi, and PT Jawa Power, which is
developing a 1,220-MW power plant in Paiton, East Java, refused
yesterday to discuss PLN's move.

"No comment," said Jawa Power's president Gerald H.
Falgenhauer.

Jawa Power is owned by Germany's Siemens, Britain's Power Gen,
and Soeharto's son Bambang Trihatmodjo; Sengkang Energy is owned
by Australia's Energy Equity, El Paso of the United States and
Soeharto's daughter Siti Hardijanti Rukmana. (jsk)