Construction of $2.6b power plant begins

Construction of $2.6b power plant begins

By Frits H. Pangemanan

PROBOLINGGO, East Java (JP): PT Paiton Energy Company began
constructing its US$2.6 billion power plant here under loan
commitments worth $2.05 billion from international financial
institutions.

Under the umbrella of a consortium of Indonesian, Japanese and
American firms, PT Paiton embarked on its 1,230-megawatt (MW)
coal-fired power plant at a ceremony officiated by East Java's
Governor Basofi Sudirman on Saturday.

"Until today (Saturday), financing commitments have reached
$2.05 billion. It clearly shows that our power project is very
attractive," PT Paiton's chief commissioner Hashim S. Djojo
hadikusumo said at State Electricity PT PLN's Paiton power
generation complex.

The ceremony was attended by the secretary general of the
Ministry of Finance, Jusuf Anwar, the U.S. ambassador to
Indonesia, Robert L. Barry, and representatives of the
international financial community.

According to Hashim, who is also the son of senior economist
Sumitro Djojohadikusumo and brother-in-law of one of President
Soeharto's daughters, those involved in the project's financing
include the Export-Import Bank of the United States, Japanese
Exim Bank, multilateral financial institutions and eight
commercial banks.

Robert M. Edgell, Executive Vice President of Mission Energy
Company, said that $1.4 billion of the $2.05 billion committed
will come from the United States Export-Import Bank and Japan's
Exim Bank, $50 million from multilateral financial organizations,
such as the Manila-based Asian Development Bank, the U.S.
International Finance Corporation in Washington D.C., and $200
million from the Overseas Private Investment Corporation.

In addition, some $400 million will be provided by eight
commercial banks, Gerloff said.

The eight lead arranger banks for the commercial syndication
are, among others, Credit Lyonnais of France, Barclay's De Zoete
Wedd of the United Kingdom, Union Bank of Switzerland and
Industrial Bank of Japan.

Responding to a question about possible interest rates offered
by the financial institutions for the project, Gerloff said that
everything related to the interest terms are now being
negotiated. "But, they will be very competitive interest rates,"
he assured.

The consortium is expected to invest its own equity of around
$550 million for the project.

Purchase

Upon completion of the project, which is the first major plant
built, operated and owned (BOO) by a private company in
Indonesia, PT Paiton will sell its 1,230-MW electricity output to
PLN under a 30-year power purchase agreement.

"The agreement, which was signed on Feb. 12, is based on a
three-tiered rate for the duration of the contract," Hashim said.

"Our selling price has been set at 8.56 U.S. cents per
kilowatt hour (kWh) for the first six years, 8.41 cents for the
next six years and at 5.54 cents for the remaining 18 years," he
said.

The project, set up under the BOO scheme and billed to be the
biggest in the world, is scheduled to begin commercial operations
in 1998.

PT Paiton is 32.5 percent controlled by Mission Energy BV of
the Netherlands, a unit of the U.S. Mission Energy Co., 32.5
percent by Mitsui & Co. Ltd. of Japan, 20 percent by General
Electric Funding Corp. of the United States and 15 percent by PT
Batu Hitam Perkasa, a domestic company controlled by Hashim.

Hashim said that coal for the power plant will be supplied
from Adaro coal mining in South Kalimantan. Adaro mining is owned
by Batu Hitam and foreign partners including New Hope Corp. of
Australia and Empersa Nacional Adaro SA of Spain.

"We need around 4.3 million tons of coal per year for our
project," he said, adding that Adaro contains estimated deposits
of some three billion tons of coal.

Following in PT Paiton's footsteps, Siemens AG of Germany and
Power Gen of Britain in cooperation with the Bimantara Group will
also construct two coal-fired power generation units with a
combined capacity of 1,200 MW at a total cost of $2.1 billion.

The Siemens plant will be located next to PT Paiton's station.

Kurt W. Pfeiffer, chief representative of Siemens for
Indonesia, told The Jakarta Post recently that his consortium is
now in final negotiations with the government, hoping that the
construction can start next year.

He said that his consortium, which has an agreement to sell
its power output for 30 years to PLN, will likely sell its
electricity at a lower price, some 7.5 cents per kWh, than that
of PT Paiton.

His consortium is 50 percent owned by Siemens, 35 percent by
Power Gen and 15 percent by Bimantara, a group of companies owned
by a son of President Soeharto.

PLN has also operated the first two units of the coal-fired
power station located near Paiton Energy's site on the northern
coast of East Java with a combined capacity of 800 MW.

The plant was built with an estimated investment of around
$1.1 billion. The State Electricity Company also plans to
construct another two-unit coal-fired station with a combined
capacity of 800 MW.

Commenting on new power plants run by the private business
sector, Peter A. Jezek, a senior power consultant to the
directorate general of electricity and energy development, told
the Post that the government has thus far done little to
encourage private investors to join power projects.

"I would say that Indonesia still has no sufficient regulatory
framework for guiding investors toward a competitive situation in
the power business," he argued.

The government seems to prefer thinking politically rather
than commercially for the business, he added. (fhp)