Enron seeks to revive US$525m power project

Enron seeks to revive US$525m power project

JAKARTA (JP): Enron International, a major American energy
company, is seeking to revive its US$525 million power project in
East Java which the government postponed in September as part of
spending cuts forced by the currency crisis.

The Houston-based Enron, through its subsidiary Enron Java
Power Corp, has invested $25 million to lay the groundwork for
the project in Pasuruan, East Java, which would have become the
first independent natural gas-fired power plant in Java.

The gas was to have come from a field in the Strait of Madura
which was being developed by Mobil Oil Corp of the United States
for Pertamina, the state-run oil company. The plant had
originally been slated to begin production in 2000.

The 500-MW combined cycle gas-fired power plant was one of
dozens of projects canceled in September in order to save foreign
exchange and ease pressure on Indonesia's balance of payments.

Enron International chief executive officer Rebecca Mark said
yesterday that she fully understood the Indonesian government's
decision, and had initially accepted it.

But since then, several power projects, which were canceled
along with Enron's Pasuruan plant, had been revived, at the
initiative of PLN, the state-run electricity company. These
include three 1,320-MW plants at Tanjung Jati and several
geothermal projects.

Mark questioned PLN's decision to sideline Enron's project,
arguing that by all economic and environmental considerations,
her project should be the first to be revived.

The Pasuruan plant would not only provide far cleaner energy
than from coal-based power plants, but it would also be far more
economical, with a net cost of 4.6 U.S. cents per kWh.

This compares with more than 8 cents for some coal and
geothermal plants, and from 5.73 to 6 cents for the Tanjung Jati
plants, Mark said.

Enron's project has all contracts and permits completed. It
was only days from closing the financing, she said.

PLN had reportedly responded to Enron's queries by saying that
Java, the target market for the Pasuruan plant, had excess in
capacity with all the new coal power projects underway.

"I'm just puzzled by their decision," said Mark, who is in
town to discuss the fate of the Pasuruan plant with officials.

The state electricity company has come under severe criticism
these past few weeks about some of its decisions in awarding
power contracts. PLN president Djiteng Marsudi publicly admitted
last week that many of the decisions were influenced by third
parties.

Enron began negotiations for the project as far back as 1993
when it received investment approval.

It formed a joint venture called PT East Java Power with
Indonesian investors that included big names in business such as
Anthony Salim, Ibrahim Risyad, Johannes Kotjo and Bambang
Trihatmodjo.

Contracts

Enron also assisted PLN and Pertamina in drawing up the
contracts for the unprecedented gas arrangements and helped
formulate the pricing of gas and many associated technical
aspects.

In November 1996, PT East Java Power signed a power purchase
agreement with PLN. In May this year, it received the central
bank's approval to obtain foreign commercial loans. And as late
as Sept. 11, it signed a gas sales agreement with Pertamina.

Nine days later, Enron was formally notified of the
postponement.

"We were just days from concluding the financial
arrangements," Mark said. There was no previous warning
beforehand, she said. "All the loan documents were being signed."

Still bewildered, the Enron CEO has not given up hope.

"We have a fairness argument," Mark said, noting that in
February, the government is scheduled to review again whether or
not to allow those projects shelved in September to continue.

Mark said she feared the PLN's decision to develop the coal
power plants would minimize the likelihood of the Pasuruan
project getting the go-ahead.

Asked if Enron was considering a lawsuit against the
Indonesian government, Mark said: "Legal consideration won't help
anyone. We're not looking at the legal aspects. We want to find a
solution."

Mark is no stranger to solving disputes in developing
countries.

The Harvard MBA graduate led Enron's one-year long campaign to
revive a 2450-MW power plant in Dabhol village in the Indian
state of Maharasthra which had been canceled in 1995 by the state
government. Her persistent lobbying paid off and the Dabhol
project is now near completion.

Enron, which runs various gas and power projects worldwide,
including the largest gas pipe network in North America, is
looking at other investment opportunities in Indonesia, she said.

Indonesia is one of five emerging market countries where Enron
is focusing its activities.

But future investment in the country hinges on the outcome of
the Pasuruan project. "It's our first, and we hope it will not be
our last project in Indonesia," she said. (emb)