Harvard Group to help PLN

JAKARTA (JP): State-owned electricity company PT PLN has appointed Harvard Negotiation Group to assist the troubled company in renegotiating its contracts with 26 independent power producers (IPP), mostly controlled by foreign electricity giants.

A deputy of the state minister for the empowerment of state enterprises, Sofyan Djalil, said yesterday the U.S. consultants would boost the negotiation skills of PLN's restructuring team of eight.

He added that PLN had also appointed an international litigation counsel to help in the renegotiation process.

"The contract renegotiation will be the highest priority of PLN's new president," said Darwin Silalahi, a senior official at the state minister's office.

The government appointed Adhi Satriya as PLN's new president yesterday, replacing the outspoken Djiteng Marsudi. Five other directors were also removed.

PLN signed contracts with the 26 IPPs between 1995 and 1997 to purchase 11,000 MW at U.S. dollar rates.

But the sharp depreciation of the rupiah in the past year left PLN with no hope of fulfilling the contracts.

In June, Djiteng sent shock waves through the sector by unilaterally canceling PLN's contract with PT Cikarang Listrindo and threatening to follow suit with the other IPPs.

Many of his superiors were reportedly displeased by the move and his frankness in revealing that many contracts were granted due to influence peddling during the presidency of Soeharto.

"Such a move is popular in the eyes of the people, but this will kill ourselves," Sofyan said, stating that unilateral cancellation of the contracts would leave the country with difficulties from unresolved matters with 70 international banks committed to the projects, international litigation lawyers and overseas exim banks.

Renegotiation in light of the country's financial woes would be the best approach, he said.

"We'll just have to show that our wallet is empty." He believed foreign electricity giants would take into account PLN's difficulties because they had long-term business plans in the country.

Sofyan said the Harvard consultants would set out to minimize PLN's burden from the power purchasing contracts.

He explained that of the 26 IPPs, only seven had completed their power generating facilities, 12 companies might not be able to start the projects because due to lack of financing and seven others had made financial closing but had not started their projects.

Sofyan said Thursday the negotiation team would renegotiate with the first group of seven IPPs to formulate a new power purchasing payment system feasible for PLN and the government.

Temporary project termination would be an option for the other IPPs through providing them with a reasonable compensation fee, he added.

PLN is projected to suffer a record loss of Rp 14.7 trillion this year, and larger losses over the next couple of years due to the rupiah's fall. The company will go bankrupt if the government fails to provide a massive Rp 117 trillion in subsidies in the next four years.

Restructuring the company, including renegotiating the IPP contracts, was a must to prevent bankruptcy, Sofyan said.

Electricity tariff

Separately yesterday, Minister of Mines and Energy Kuntoro Mangkusubroto said he was unsure whether to delay the 18 percent increase in electricity tariffs in August following pressure from various groups.

"This is the President's (B.J. Habibie) decision and it should be implemented ... However, it is up to PLN whether to delay the increase," he said.

The government in May increased the tariff by 20 percent, but the hike for small household customers was canceled in June after widespread complaints of the inaccurate billing system.

Kuntoro said the minister of communications had also asked for a cheaper electricity tariff for the state-owned train company Perumka.

The minister of trade and industry requested a lower tariff for steel companies, he said.

"We still have to see whether we can fulfill these requests."

The government in May decided to also increase electricity tariffs by about 18 percent in November to reduce the state subsidy, which is earmarked at Rp 8.2 trillion in the 1998/1999 State Budget.

Darwin said separately that if the government decided to increase the tariff in August, the budget subsidy would be lowered to Rp 5.7 trillion. (rei)