Edison investigating its Indonesian power project

Edison investigating its Indonesian power project

NEW YORK (Dow Jones): Edison International has launched an
internal investigation into its US$2.5 billion power-plant
project in Indonesia, which has been plagued by charges of
corruption and excessive electricity tariffs, according to people
familiar with the inquiry.

They said the Los Angeles-based law firm of Munger, Tolles &
Olson has been conducting interviews with past and present
employees of Edison's independent power-plant unit, Edison
Mission Energy, about the Indonesia project.

The inquiry comes as Edison, of Rosemead, California, is in
negotiations with the Indonesian government over its contract
with the state-owned electric utility that had agreed to buy
power from the plant.

The Paiton power plant, located outside of East Java, is
Edison's biggest independent power project, and was the first
large-scale private project for Indonesia. The plant, 40 percent
owned by Edison, is scheduled to start generating electricity
within a few months.

Indonesia's economic crisis has thrown into question how much
Edison will get paid for the electricity -- or whether Edison will
get paid at all.

Edison signed a long-term contract in 1994 with government-
owned electric utility PT PLN, which agreed to pay more than
eight cents a kilowatt hour for the electricity. The government
now has told Edison it can't pay that rate.

Edison's inquiry is focusing, at least in part, on the
structuring of this electricity tariff, now under scrutiny
because it is much higher than other tariffs in the country.

The lawyers also have been asking questions about the
structuring of a carried-interest loan from Edison to an
Indonesia company, PT Batu Hitam Perkasa, which is owned by a
relative of former president Soeharto by marriage and a close
family friend. The loan gave a 15 percent stake in the project to
PT Batu without investing any cash, according to Edison officials
and project-related documents.

Edison owns 40 percent of the power project, and has invested
more than $300 million in capital to date, the company said.

General Electric Capital has a 12.5 percent interest, and
Mitsui & Co. of Japan owns 33 percent.

Edward Muller, president and chief executive of Edison Mission
Energy, said Edison made a proposal late last year for
restructuring the power-purchase contract that is "attractive for
us and the Indonesia government." He declined to comment on the
work of Munger, Tolles & Olson. "I have no intention of
discussing this law firm's work or nonwork on any matter," Mr.
Muller said. He said he doesn't know how the Indonesia project,
once expected to be a cash cow for the company, will affect
earnings, but added that Edison won't be taking a charge on the
project.

Former U.S. Secretary of State Warren Christopher, who sits on
Edison's board and consulted on the projected early on, also has
been negotiating with the government, Edison officials said.

Meanwhile, another company involved in major power projects in
Indonesia, CalEnergy Co., is in arbitration over one project,
people familiar with those negotiations said. Edison said it
hasn't yet filed for arbitration.