Government renegotiates IPP contracts

Fitri Wulandari, The Jakarta Post, Jakarta

The government has completed renegotiations with 26 independent power producers (IPP), raising optimism that there will be no power crisis in the future.

"With the completion of the renegotiations with the IPP, we are ready to move forward. There will be no more power crises next year as some of the IPP projects will enter the stream," Coordinating Minister for the Economy Dorodjatun Kuntjoro-jakti said in a hearing with House of Representatives Commission VIII for energy, environment and science and technology.

Dorodjatun said the dispute with Karaha Bodas Company is the only case left to settle.

"The case is still under litigation by the legal representative of the Indonesian government and Pertamina. An out of court settlement is being pursued by a facilitation team," Dorodjatun added, referring to the state oil and gas company Pertamina.

Known as Tim Keppres 133, after the Presidential Decree No. 133/2001 issued to establish the team, the team was tasked to renegotiate power purchase agreements (PPA) signed by state electricity company PLN and 27 IPPs prior to the economic crisis.

The government put on hold many of the projects in late 1997 as part of the retrenchment program to cope with the economic crisis. PLN, which was financially troubled by the crisis, asked to renegotiate the PPAs, especially with regards the price.

Following the postponement of the project, some of the IPPs decided to file arbitration proceedings against PLN, Pertamina and the government, while others were willing to renegotiate the contracts.

PLN's president Eddie Widiono said PLN would save more than US$5.5 billion in costs thanks to the contractual renegotiations.

Of the 26 IPPs, 14 IPPs agreed to continue their projects under a new pricing scheme, while seven agreed to terminate the PPAs. The government and PLN each agreed to take over two projects, while Pertamina took over one project. The 26 IPPs have a combined power generation capacity of 10,615 megawatt.

As for the seven terminated PPAs, Eddie said, the government is likely to offer them to new investors.

Of the 14 IPPs, who agreed to resume their projects, seven projects are still in process and are scheduled to be finished by 2006/2007. The seven are Amurang power plant, Sibolga, Sibayak, Asahan, Paiton I, Paiton II and Sengkang.

According to Eddie, most of the 14 IPPs have agreed to sell their power at an average of 4.6 U.S. cents per kilowatt per hour (KwH) except for the diesel fired Pare-pare power plant in Makassar at 5.7 U.S. cents and Paiton at 4.9 U.S. cents.

Eddie did not disclose why Paiton would sell at a higher price for its power supply but in the case of the Pare-pare power plant, Eddie said the price was higher because it used diesel fuel.

"Diesel is more expensive than other types of fuel," he said.

Legislator Priyo Budisantoso of the Golkar party praised the completion of the renegotiation, while voicing concern that the new power price agreed upon with the IPPs were still higher than that of other Southeast Asian countries.

"It (the new price) is still not competitive. But it is better than the initial 8 U.S. cents per KwH. Thus, we appreciate the effort," he said.

Status of 27 IPPs

Name Contract status

1. Darajat Continued 2. Tanjung Jati A Terminated 3. Tanjung Jati C Terminated 4. Cilacap Terminated 5. Serang Terminated 6. Cilegon Terminated 7. Pasuruan Terminated 8. Paiton 1 Continued 9. Paiton 2 Continued 10. Pare-pare Continued 11. Sengkang Continued 12. Tanjung Jati B Continued 13. Salak Continued 14. Amurang Continued 15. Sibolga Continued 16. Palembang Timur Continued 17. Cikarang Continued 18. Asahan Continued 19 Sibayak Continued 20. Bedugul Continued 21. Cibuni acquired by PLN 22. Wayang Windu acquired by Pertamina 23. Sarulla acquired by PLN 24. Dieng acquired by government 25. Patuha acquired by government 26. Kamojang terminated 27. Karaha Bodas Under legal dispute