Arbitration agency PLN's best option

JAKARTA (JP): State electricity company PLN should ask an international arbitration agency to settle its dispute with gas and power suppliers over payment, an analyst said yesterday.

Energy analyst Iskandar Mandji said the move would be the best alternative for PLN, which has not been able to fully pay its gas and power suppliers following the rupiah's sharp depreciation against the dollar.

"PLN should declare itself in a force majeure situation and go to an arbitration agency for a solution to its dispute with gas and power contractors over payments," Mandji said.

Force majeure refers to a situation in which a party cannot fulfill a contract because of unexpected occurrences beyond its control.

All purchasing contracts with gas and power suppliers are based in U.S. dollars. The sharp fall in the rupiah against the U.S. dollar to 8,500 at present from 2,450 before the crisis has caused increases in gas and power prices in rupiah of more than 300 percent.

The government extended a subsidy of Rp 1.25 trillion (US$156 million) to PLN to help it settle gas and power payments, but the money was only enough to cover three months from January to March this year.

The government has advised PLN to renegotiate payments with its gas and power suppliers because it would not extend further subsidies to the company.

PLN president Djiteng Marsudi recently said negotiations had not amounted to anything because PLN insisted on paying its contractors at an exchange rate of Rp 2,450 to the U.S. dollar.

PLN has tried to increase its revenue amid the crisis by raising electricity tariffs by 7.78 percent as from April payments.

A PLN spokesman said the company would continue applying the new tariffs despite the government's delay in increasing fuel prices.

PLN has also proposed an increase in the basis for raising electricity tariffs but the government has yet to approve the proposal. (jsk)