Court warns Paiton over seeking arbitration

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)