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)