IPPs committed to renew contracts

IPPs committed to renew contracts

Moch. N. Kurniawan
The Jakarta Post
Jakarta

A greater number of independent power producers (IPPs) are
willing to re-negotiate their power project contracts with the
state-owned electricity company PLN instead of going to
arbitration, said PLN president Eddie Widiono.

"Restarting power projects will give IPPs more benefits than
going to arbitration," he told The Jakarta Post on Monday.

His comments came amid worries that a recent victory by Karaha
Bodas Co. in international arbitration would prompt other IPPs to
file charges against PLN, the government, or the state-owned oil
and gas firm Pertamina, which also co-signed on several
geothermal power project contracts.

The government suspended US$16.8 billion worth of power
projects owned by 27 IPPs in 1998, following the economic crisis.

The move was deemed necessary to keep PLN from bankruptcy.
Under the contract, the electricity firm must purchase power
produced by the IPPs at a relatively high price set in U.S.
dollar rates.

Since then, PLN has been trying to re-negotiate the power
purchase contracts with the IPPs.

Seven IPPs have renewed their contracts; four have closed out
the contracts, and another two are in the process of closing out
the contracts. In other words, completely abandoning the project.

But two IPPs went to the arbitration panel. California
Energy/Mid American Holdings, whose power projects are in Dieng
and Patuha; and Karaha Bodas Co., which owns a power project in
West Java, won a victory. The international arbitration ordered
PLN, the government and Pertamina to pay compensation.

The latest case is the Karaha Bodas case, in which Pertamina
has been ordered to pay some $261 million in compensation to the
IPP. But Pertamina is still seeking an appeal at the local court
to annul the arbitration ruling, and also offered Karaha to
resume the project.

The government recently issued a decree allowing the IPPs to
resume their power projects. In addition to help end dispute with
the IPPs, the move was also meant to accelerate power project
developments crucial to avoiding imminent power shortages in Java
and Bali in 2004.

PLN has promised to complete contract re-negotiations with the
IPPs by the end of this year.