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)