House backs Tanjung Jati B buyout

House backs Tanjung Jati B buyout

JAKARTA (JP): Cash-strapped state-owned electricity company PT
PLN gained on Thursday full support from the House of
Representatives (DPR) to proceed with its plan to buy out the
Tanjung Jati B power plant in Central Java with US$1.5 billion in
a Japanese loan.

All members of the House's Commission V for industry, mines
and energy said at a hearing with PLN that the company should go
ahead with the plan despite criticisms launched by several
analysts, former PLN officials and other House members.

The legislators said the buyout option was "a breakthrough and
the best way out" for PLN to solve its financial problems and
settle protracted disputes with the independent power producers
(IPPs) over contracts.

"The commission recommends PLN to proceed with the plan,"
commission vice chairman Anthonius Rahail said at the conclusion
of the hearing.

Legislators Djusril Djusan and Priyo Budi Santoso, who are
known as staunch critics of PLN, also gave their thumbs up to
PLN's buyout plan.

"We were at a loss over ways to lower the price of power
supplied by the IPPs for a long time. Now, we can show the world
that we are finally able to reduce prices," Djusril said.

"I have always criticized PLN, but today I tip my hat to the
company for the buyout plan," Priyo said.

The hearing was held following PLN's controversial plan to buy
out the 1,330 Megawatt (MW) coal-fired power plant in Jepara
using a Japanese loan of $1.15 billion.

The construction of the plant was 70 percent completed when
the owner, PT HI Power Tubanan, suspended the construction due to
a lack of funds.

The government has officially requested the loan, which
carries a 0.75 percent interest rate with a grace period of 10
years and a maturity period of 40 years. But, the Japanese
government has yet to approve the request.

PLN's president Adhi Satriya explained that under the power
purchase agreement (PPA), signed by PLN and Tanjung Jati B's
owner in 1994, PLN has to pay the company $530.3 million annually
for its power supplies from Tanjung Jati B.

But, if PLN bought out the power plant, it would only spend
$218.3 million per year, he said.

"The buyout will enable PLN to save $312 million in operating
costs annually, which is very significant for cash-strapped PLN,"
Adhi said.

He said the buyout would also reduce the price of power
supplied from Tanjung Jati B to 2.3 U.S cents per kilowatt hour
(kwh) from 6.45 cents under the PPA.

Adhi said PLN would delay construction of the power plant for
some years to allow the plant to operate by 2003 when the
country's economy and power demand was expected to recover.

The legislators asked PLN to continue negotiations with Power
Tubanan to reach the lowest selling price for its Tanjung Jati B
power plant.

They said that as a result of the planned buy out of Tanjung
Jati B plant, the Tanjung Jati A power plant, located nearby, had
been put up for sale by the Bakrie Group at $150 million cheaper
than Tanjung Jati B, despite their similar capacity.

Adhi said PLN had yet to talk with the Bakrie Group about the
offer.

Paiton

Adhi added PLN would use Tanjung Jati B's price of 2.3 cents
per kwh as the benchmark in renegotiating with PT Paiton Energy
Co., which has built a 1,230 MW coal-fired power plant in
Probolinggo, East Java, on contractual terms.

The commission supported the plan.

The Paiton I power plant is owned by the American companies
Mission Energy and General Electric in partnership with Japan's
Mitsui and PT Batu Hitam Perkasa, which is controlled by Hashim
Djojohadikusumo.

Under the 30-year PPA signed in 1994, PLN has to buy power
from Paiton I company at 8.4 cents per kwh in the first six
years, at 8.2 cents during the next six years and 5.4 cents for
the remaining 18 years.

"The price was marked up excessively. PLN will not accept any
price higher than the price offered by Tanjung Jati B," Adhi
said.

Adhi said Paiton Energy has been operating one unit of its
power plant with a generation capacity of 615 MW since May this
year. But, PLN has thus far refused to accept the power supplies,
citing the current power oversupply on its the Java-Bali power
network.

Nevertheless, Adhi said, under the take-or-pay clause of the
PPA, PLN must pay the company $995 million per year.

"The amount of the annual payment is equal to the budget for
the development of two power plants," Adhi said.

Adhi noted there was no basis for Paiton Energy to set such a
high price for its power supplies given the fact that the company
could reduce its construction costs by building its facilities in
a power plant complex owned by PLN.

"What is the basis for the company to set such a high price?
They have built their facilities on land owned by PLN and the
generation capacity of their power plant is not higher than
Tanjung Jati B," Adhi said. (jsk)