Harvard Group to help PLN

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)