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.