Govt pledges to honors power purchase deals

JAKARTA (JP): The government has pledged that it will honor power purchase contracts between state electricity company PT Perusahaan Listrik Negara (PLN) and independent power producers (IPPs).

In making the pledge yesterday, Minister of Mines and Energy I.B. Sudjana said the IPPs should take into account PLN's difficulties in fulfilling the terms of the contracts given the sharp appreciation of the U.S. dollar over the past several months.

"In principle, we never want to make investors suffer losses. We shall never break the power purchase agreements we have signed," Sudjana told The Jakarta Post

Sudjana said a team consisting of officials from several ministries was working to solve a dispute between PLN and its private partners regarding power prices.

"But I hope, and I believe, the investors can understand the financial problems which have made PLN unable to fully pay for their power," Sudjana said.

"The government is now looking for a solution which will at least prevent investors from suffering losses and make them still able to operate," said Sudjana.

He could not provide any details on such a solution.

PLN buys power from IPPs in U.S. dollar rates from between 5.74 cents and 8.4 cents (Rp 460 and Rp 670) per kilowatt-hour (kwh) while it sells the power to the public at an average of Rp 170 per kwh.

PLN has reportedly refused to buy power from the IPPs at the existing currency rate due to financial problems caused by the crisis. Instead it continues to pay according to the pre-crisis exchange rate of Rp 2,450 per dollar.

"PLN doesn't have enough money to pay for the IPPs' power at the current rate," PLN president Djiteng Marsudi said at a hearing with the House of Representatives last week.

He said the company suffered a loss of Rp 334 billion in the second half of last year and has projected a Rp 1.3 trillion loss this year.

Director General of Electricity and Energy Development Endro Utomo Notodisuryo said the government would probably provide PLN with financial assistance to meet its obligations to the private power companies.

"But I don't like to name it a subsidy. The word is not nice to hear right now," Endro said.

PLN has also been buying gas for its power plants at the old conversion rate, said Endro.

Endro said PLN's refusal to pay at current currency rates has infuriated electricity and gas contractors, adding that at least two companies -- Unocal Geothermal of Indonesia, which owns the Salak geothermal power plant in West Java, and Arco, which sells gas to PLN -- have filed complaints over PLN's move.

They accused PLN of breaking its contracts which require PLN to pay for power and gas at current currency rates.

PLN has signed power purchase agreements with 26 IPPs. Only two of them -- the Sengkang combined cycle power plant in South Sulawesi and the Salak geothermal power plant in West Java -- have started selling power to PLN.

PLN has tried to renegotiate with the IPPs on the pricing scheme over several months, but its efforts have been unsuccessful.

Endro said the government team would work with PLN and the private power companies to determine power prices acceptable to both of them.

If the IPPs insist on a price level too high for PLN, the government will temporarily help PLN with additional funds to pay for the power, Endro said.

"The principle is that the government won't let PLN and its contractors stop operations. But both parties, as business partners, are expected to be willing to share the financial burden resulting from the economic crisis," Endro said. (jsk)