Govt agrees to pay OPIC US$290 million claim

Govt agrees to pay OPIC US$290 million claim

JAKARTA (JP): State electricity company PT PLN said on
Wednesday that the government had agreed to pay the United States
owned Overseas Private Investment Corp. (OPIC) an outstanding
insurance claim worth US$290 million.

PLN president Kuntoro Mangkusubroto said despite the
agreement, the government had yet to negotiate the terms of the
payment.

"The government assigned PLN to conduct further negotiations
with OPIC," Kuntoro said in a seminar on independent power
producers (IPPs).

He said the government wanted the payment of the insurance
claim to follow terms and conditions outlined in the Paris Club
agreement signed by the government with creditors on sovereign
debt in April this year.

Kuntoro said that based on the Paris Club scheme, the
government would pay the OPIC claim in 20 years, including a
grace period of four years, with an interest rate of one percent
above the rate set by the U.S. Federal Reserve.

OPIC demanded payment from PLN following the state company's
inability to pay IPP MidAmerican Energy Holding $572 million in
compensation as ordered by an independent arbitration panel.

In Sept. 1998, MidAmerican filed arbitration proceedings
against PLN for its refusal to pay MidAmerican for its power
supplies from its geothermal power plant in Dieng, Central Java
and the government's move to suspend its power plant project in
Patuha, West Java.

PLN lost the arbitration proceedings last year and was ordered
to pay MidAmerican $572 million in damages.

As PLN refused to pay, MidAmerican called in its OPIC
insurance.

In his statement on Wednesday, Kuntoro did not explain why
OPIC demanded payment of only $290 million from the Indonesian
government.

U.S. Ambassador to Indonesia Robert Gelbard said that OPIC
paid MidAmerican the largest claim in its history.

Kuntoro further said that the Indonesian government might also
have to pay the World Bank's risk insurance arm, the Multilateral
Investment Guarantee Agency (MIGA), $15 million over suspension
of the 500-Megawatt power project owned by American IPP Enron
Corp in Pasuruan, East Java.

MIGA has paid Enron $15 million to settle its insurance claim
and Kuntoro believed the agency might demand the Indonesian
government reimburse the insurance claim payment.

The government canceled many power plant projects in late
1997, including the Pasuran power plant project, as part of
efforts to cope with the economic crisis.

PLN has signed power purchase contracts with 27 IPPs, under
which the state company has to buy power supplies from the IPPs
in dollars.

The sharp depreciation of the rupiah against the dollar made
PLN unable to buy the IPPs' power at the prices set in the
contract.

The state company is now renegotiating with the IPPs to cut
the power prices.

At present, he said, PLN has managed to reduce by 40 percent
the price for the power supplies from the geothermal power plant,
owned by American based Chevron and Texaco, in Darajat, West
Java.

According to him, the deal would enable PLN to save at least
$277 million throughout its 30-year-long contract with the owners
of the Darajat power plant.

He said PLN also had reached an interim agreement with PT
Paiton Energy, which operates the 1,230-MW Paiton power plant in
East Java, allowing PLN to buy the latter's power supplies at a
price below PLN's own power production cost.

"We're only paying for their coal plus some fixed fees," he
explained.

Kuntoro said that under the current power purchase agreements,
the government must pay a total of $133 billion to 27 IPPs for
their power supplies over 30 years.

"Our goal now is to reduce that amount by around 40 percent,"
he said. (bkm)