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)