Government approves restructuring of PLN's $3b debt

JAKARTA (JP): After months of debate, the government finally approved on Wednesday the restructuring of some Rp 34.07 trillion (US$3 billion) debt of the state electricity company Perusahaan Listrik Negara (PLN) which would help the latter stay afloat.

Finance minister Rizal Ramli said that Rp 5.28 trillion in debt principal would be treated as a new 20-year loan to PLN with a two-year grace period, with an additional administrative cost of 4 percent per year.

Rizal said that interest and fines totaling Rp 28.78 trillion would be converted into government equity in PLN.

"We have discussed this several times with the Vice President, and today we have approved it," he told reporters following a limited Cabinet meeting on the economy led by Vice President Megawati Soekarnoputri.

Rizal added that as part of the deal, PLN would reevaluate its assets immediately, but did not give a date.

"The Vice President has also asked PLN to improve efficiency. We hope that the debt restructuring will improve PLN's cash flow," he said.

PLN debt to the government is the result of soft loans it took between 1998-2000.

The above debt workout, which had been proposed by PLN management several months ago, was initially rejected by Rizal, who was then coordinating minister for the economy and head of the PLN restructuring team.

Rizal feared the bailout would set a bad precedent triggering other indebted state enterprises to ask for similar concessions from the already cash-strapped government.

He instead called on PLN to boost efficiency and revaluate its assets, by which process the company could gain some Rp 10 trillion.

PLN had earlier refused the asset reevaluation measure, as the company would be forced to pay income tax for the "gain" obtained from the reevaluation.

The uncertainty over the restructuring of the PLN debt to the government had created concerns as the debt could eventually send the company into bankruptcy as the debt burden was already greater than the capital.

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

The electricity company has blamed its losses on the economic crisis, which significantly reduced power demand.

Another massive problem faced by PLN is the U.S. dollar denominated power purchase contracts it signed in the mid- nineties with 27 independent power producers (IPPs).

The plunge in the value of the rupiah against the U.S. dollar has significantly inflated PLN's payment to IPPs.

Under the contacts, the state company has to buy whatever power the IPPs generate at a fixed price regardless of market demand.

PLN is currently in the process of renegotiating the contracts, particularly the power selling price.

The government also aims to gradually increase the country's power rates so that by 2005 PLN can sell its power at a reasonable price of around 7 U.S. cent per Kilowatt hour (or about Rp 700 per Kwh), which company officials have said would be sufficient to cover production costs.

The government recently raised the power rates to consumers by an average of 17.47 percent as part of measures to help contain the 2001 state budget deficit. (dja/rei)