Fri, 03 Dec 1999

Court warns Paiton over seeking arbitration

JAKARTA (JP): The Central Jakarta District Court ordered independent power producer PT Paiton Energy on Thursday to desist from pursuing arbitration against state electricity company PT PLN while examination of the parties' dispute was in progress in the court.

The court threatened Paiton with US$600 million in penalties if it did not comply with the ruling.

It made the provisional ruling at the request of PLN, which sued Paiton following the latter's refusal to renegotiate with the state company on its power purchase contract.

"Indeed, we are happy to hear of the ruling. The Central Jakarta District Court has made a provisional ruling as requested by PLN, and Paiton has to comply with the ruling," PLN's president Adhi Satriya said in a statement.

"This means Paiton is not allowed to make efforts related to the arbitration process, including appointing the head of the arbitration panel."

Paiton sent a letter to PLN on Oct. 8, 1999, notifying the firm that it would start the arbitration process against the state company.

Paiton made it after the lawsuit was filed by PLN in the Central Jakarta court.

In the lawsuit, PLN demanded the court nullify the 30-year power purchase agreement (PPA) awarded by PLN's former management to Paiton in 1994.

During the news conference on the lawsuit in October, Adhi described the PPA as "unlawful, unfair and not transparent" and said the court should declare the contract "void and non enforceable".

Adhi said the lawsuit was the last resort by PLN after failing to persuade to Paiton to amend the "unfair" terms of the contract, including reducing the price for its power, during seven months of negotiations.

Paiton Energy is owned by Japan's Mitsui (32.5 percent), Edison Mission of the United States (40 percent), General Electric, also of the U.S. (12.5 percent) and local firm PT Batu Hitam Perkasa (15 percent), controlled by tycoon Hashim Djojohadikusumo.

The company has developed a 1,230 Megawatt (MW) coal-fired power plant, called Paiton Swasta I, in Probolinggo, East Java.

Adhi said PLN has enough evidence of corrupt practices conducted in the awarding process of the contract.

PLN has been seeking to renegotiate all the 27 PPAs signed by its previous management to ease its financial burden caused by the sharp fall of the rupiah against the dollar.

Under the PPAs, PLN has to buy power in dollars, but it sells the power to the public in rupiah.

Under the PPA, Paiton sells its power to PLN at a price of 8.5 U.S. cents per kilowatt hour (kWh) for the first year to sixth year, with the price to progressively fall to 5.5 cents for the 13th to 30th year.

Adhi said on Thursday PLN was still ready for negotiations with Paiton, saying that Indonesian law determined that two parties involved in a dispute were still able to settle their dispute out of court if a suit was ongoing.

The court adjourned the hearing of the lawsuit until Dec. 16 to issue a preliminary decision on the demand made by Paiton in the previous hearing. (jsk)