Government targets IPP talks to end early 2001

Government targets IPP talks to end early 2001

JAKARTA (JP): The government expects to complete
renegotiations with independent power producers (IPPs) in the
first quarter of 2001 in a bid to remove the largest hurdle in
the construction of new power plants, a minister said here on
Friday.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said the ministerial team supervising state-owned electricity
company PT PLN's renegotiations with the IPPs agreed on Thursday
to accelerate the talks.

He said they would do this by setting up a secretariat that
would concentrate on finalizing the renegotiations.

"Unlike ministers who can attend to PLN's problems only in
their spare time, the secretariat's only job would be to get the
renegotiations done by the first quarter of next year," Purnomo
said.

PLN is managing the renegotiations with the IPPs, but reports
the results to the ministerial team, which is chaired by
Coordinating Minister for the Economy Rizal Ramli.

Other members of the team include Minister of Finance Prijadi
Praptosuhardjo, Minister of Foreign Affairs Alwi Shihab and
Purnomo.

Purnomo said the secretariat would be under the National
Development Planning Agency and its members would be exempted
from their current duties at the agency.

In the early 1990s, the government signed power purchase
agreements with 27 IPPs, anticipating increased demand as a
result of the then expanding economy.

But during the economic crisis power demand dropped and the
rupiah fell sharply against the U.S dollar, thus raising the
price of power sold by the IPPs to PLN.

Under the 27 contracts, PLN is required to purchase
electricity from the IPPs at an average price of 6 U.S. cents per
kWh (about Rp 540 at the current exchange rate), as compared to
its average selling price of Rp 240 per kWh.

PLN has been negotiating with the IPPs to reduce their U.S-
dollar dominated power prices.

The state company said the 30-year contracts with the 27 IPPs
would result in electricity bills totaling US$133 billion for
PLN.

According to the company, thus far it has finalized
renegotiations with four IPPs.

Among them is PT Amoseas Indonesia, which operates the
geothermal-fired Darajat power plant in West Java.

As a result of the renegotiated contract, PLN must now pay
Amoseas 2.27 U.S. cents per kWh instead of the 4.54 cents per kWh
under the original contract.

It said the lower prices would translate to savings of more
than $277 million over Amoseas' 30-year long contract with PLN.

PLN president Kuntoro Mangkusubroto said the company had been
ordered by Rizal to finalize renegotiations by the first quarter
of 2001.

Kuntoro said that by that time, PLN must have reached long-
term agreements with all existing IPPs.

With the IPPs that have already begun operations, PLN will
seek to lower their power prices, he explained.

While those IPPs that have not yet begun construction on their
plants, PLN could terminate their contracts if they could not be
renegotiated, he said.

Kuntoro added that it was possible the government would sign
more IPPs contracts in the future to anticipate power shortages,
adding that the government did not have the funds to build more
power stations.

PLN has warned that with a current growth rate in power demand
of about 12 percent, Java could face a power shortage by 2003.

But according to Purnomo, investors are currently reluctant to
enter the local electricity industry because of the lower power
prices PLN is seeking.

"The present renegotiation process with the IPPs is also
discouraging them," he added.

Purnomo added that the government would give IPPs whose
contracts had been terminated priority if opportunities for
future projects opened up. (bkm)