Fri, 14 Jan 2000

Kuntoro urges Paiton to revoke arbitration case

JAKARTA (JP): President of state electricity company PT PLN Kuntoro Mangkusubroto urged independent power producer PT Paiton Energy on Thursday to revoke its arbitration claims against the state company as a condition of starting out-of-court talks to solve their dispute.

Newly-installed Kuntoro said PLN had demonstrated its goodwill to negotiate with Paiton by dropping its lawsuit against the company at the Central Jakarta District Court.

Paiton should make a proper response to the move by dropping its arbitration claims as well, Kuntoro said.

"If everyone (PLN and Paiton) has good intentions to avoid court and arbitration solutions, I'm sure we can solve our problems," Kuntoro said after a meeting with mines and energy minister Susilo Bambang Yudhoyono.

PLN sued Paiton in October last year after months of unsuccessful negotiations on the changes in the terms of their power purchase contract, particularly those regarding the price of Paiton's power supplies.

PLN demanded the court nullify its contract with Paiton, charging it with obtaining its contract through corrupt practices and marking up its power prices. Paiton responded to the action by filing an arbitration litigation in Stockholm.

The government stepped into the dispute last month, ordering PLN to drop its lawsuit. Then PLN president Adhi Satriya and the company's planning director Hardiv Situmeang tendered their resignation in protest of the policy.

Kuntoro said PLN would now honor its contract with Paiton.

Asked how he would face Paiton during the renegotiations, Kuntoro answered, "With a smile."

With regards to PLN's restructuring program, he said he would ask the government to reduce the price of gas from Pertamina.

"There are indications that PLN pays too much for gas," Kuntoro said.

He said PLN would negotiate with the government to obtain a price cut on gas, citing that the petrochemical and fertilizer industries paid less than PLN.

PLN pays Pertamina's gas at market prices of between US$2 to $3 per million British thermal unit (MMBTU).

Petrochemical and fertilizer industries, however, enjoy government-subsidized gas prices, which hover between $1 and $2 per MMBTU.

Kuntoro also assured that in the restructuring of PLN he would not conduct massive layoffs, as he once did in publicly-listed state tin mining company PT Tambang Timah. He laid off thousands of workers at the company under a restructuring program.

"There will be no layoffs, except for thieves," Kuntoro said, apparently referring to corruptors at PLN.

According to the Arthur Andersen's audit of PLN, inefficiencies in PLN's investment and operations cost the company about Rp 5.26 trillion (US$720 million) per year from 1995 to 1998. (03)