Tue, 17 Apr 2001

Government agrees to bail out PLN

JAKARTA (JP): The government said on Monday it had accepted a proposal from state electricity company PLN to take over its Rp 29.9 trillion (US$2.76 billion) debts in a bid to prevent the state company from going bankrupt.

Coordinating Minister for the Economy Rizal Ramli said that the government would convert the Rp 29.9 trillion into equity in PLN.

"PLN's debt will be restructured, and the Rp 29.9 trillion in debts that it owes the government will be converted into state equity," he said, adding that the decision would not affect the state budget.

PLN had been urging the government to bail out its debt since last year. Its debt-to-equity proposal immediately gained support from Minister of Energy and Mineral Resources Purnomo Yusgiantoro, but was initially turned downed by Rizal.

Rizal feared that approving PLN's bid would have set a bad precedent for other state companies seeking similar treatment.

He suggested instead the state company revaluate its assets, by which process PLN could earn some Rp 10 trillion from adjusting its balance sheets alone.

"There will be a revaluation of PLN's audited assets along with the restructuring process," Rizal went on saying.

PLN had earlier refused to revaluate its assets, since it would have had to pay income tax on the estimated Rp 10 trillion gain from the revaluation.

Rizal said that a team would discuss the tax issue with both PLN and the tax office.

"We're setting up a draft of non-core assets which are not directly linked to production and distribution, so that PLN's liquidity can be improved," he said, without elaborating.

PLN, which has been in the red for the last three consecutive years, will suffer an estimated loss of about Rp 22 trillion this year alone.

The electricity company blamed its hardship on the economic crisis, which significantly reduced power demand and sent the rupiah plunging against the U.S dollar.

PLN, which sells its power in rupiah, signed in the mid nineties power purchase agreements with independent power producers (IPPs) denominated in U.S dollars.

As part of the IPP contracts, the state company has to buy whatever power they generate at the fixed price regardless of market demand.

But due to PLN's difficult financial situation, the IPPs later agreed to renegotiate their contracts.

Rizal further said that the government had agreed to change its electricity tariff policies to cope with a surge in power demand in the coming years.

"The Vice President has asked the minister of energy to project power demand and national power capacity for the next 5 to 10 years ahead, so that we know which regions may suffer from a power shortage," he said.

Minister of Energy and Mineral Resources Purnomo said that regional demand was on the increase and that the growth rate in some provinces such as South Sumatra and Lampung was almost catching up with that in Java.

PLN president Eddie Widiono said earlier that PLN had to raise its power tariff to generate enough earnings to expand its power capacity.

He said he hoped the government would approve an electricity tariff increase of between 20 percent to 25 percent this year.

Raising the power tariffs this year, he said, was part of PLN's strategy to gradually reach an average electricity price of 7 U.S. cents (about Rp 700) per kilowatt hour (kWh) by the year 2005.

An average power tariff of 7 cents per kWh will be sufficient to cover PLN's production costs, according to PLN.

Eddie said that the proposed tariff hike of 20 to 25 percent had yet to get approval from the House of Representatives.

Last year, legislators approved PLN's bid to raise electricity tariffs by an average of 29.43 percent.

The move, however, sparked immediate protest by various industries, which claimed to be unprepared for the hike. (bkm/dja)