NGOs demand government renegotiate IPP contracts

NGOs demand government renegotiate IPP contracts

A'an Suryana, The Jakarta Post, Jakarta

A group of non-governmental organizations (NGOs) said that the
cost of seven power projects that were recently relaunched by
President Megawati Soekarnoputri was still too expensive, and
demanded that the government renegotiate the deals with the
independent power producers (IPPs).

The NGOs, grouped in the Working Group on Power Sector
Restructuring, pointed out as an example that the power purchase
price agreed recently between the government and PT Paiton Energy
was still considered too high.

Under the deal, state-owned electricity company PLN will
purchase power from the Paiton I project at 4.93 U.S. cents per
kilowatt hour (kWh).

The government has been trying to renegotiate the power
purchase agreements (PPAs) with a number of IPPs over the past
couple of years. It has clinched a new deal with seven IPPs. The
agreement with Paiton was reached a day before Megawati
relaunched 13 megaprojects last week. The seven power projects
are part of these megaprojects.

But Fabby Tumiwa, a member of the working group, told a press
conference on Thursday that the 4.93 cent per kWh price deal with
Paiton was still expensive, because in reality PLN would have to
pay Paiton more.

He explained that under the deal, PLN was also obliged to
cover the restructuring costs and had to purchase the Paiton
electricity at higher volumes than it actually needed.

Citing a study made by energy expert I Nengah Sudja, he said
that in reality PLN would have to pay Paiton 6.62 cents per kWh.

"This is because in addition to paying the power price, PLN is
also obliged to pay arrears (restructuring costs) amounting to
US$4 million ... and other payments including the raising of the
capacity factor from 83 percent to 85 percent," said Fabby.

Meanwhile, Nengah Sudja also said that the Paiton I power
purchase price was much higher compared to the price for similar
projects in neighboring countries.

He pointed out that in Malaysia and Vietnam, the tariffs were
cheaper at 3.2 cents per kWh and 2.0 cents per kWh respectively.

"We should also learn from domestic experience such as the
Suralaya gas-fired power project case, where PLN was able to get
them down to 3.7 cents per kWh," Nengah Sudja said.

Based on these considerations, say the NGOs, the government
should renegotiate the power purchase price to between 3.64 cents
and 4.09 cents per kWh.

Nengah Sudja believed that the government could have succeeded
in reducing the power purchase price to more reasonable levels
should the government negotiators have had the courage to stand
their ground.

He said that reducing the power price to the 4 cents per kWh
level would help avoid the state suffering some $238 million in
financial losses per year just from the Paiton I project.

"This is only from Paiton I, and the savings could be bigger
if we could achieve success with the other six IPPs," he said.

"Renegotiating the contracts is important so that the public
will not have to bear a greater financial burden," said Tulus
Abadi from the YLKI consumer organization.

Another NGO grouping called the Defense Committee for
Indonesia's Economic Recovery had also earlier demanded that the
government seek a lower power purchase price from the IPPs.

The group questioned the obligation of PLN to purchase more
power than it actually needed.

It said that based on the Paiton I contract, the capacity
factor was 85 percent, while the NGO grouping said that the
realistic capacity factor should be set at only 75 percent.

Because of the higher capacity factor, PLN would be
effectively paying Paiton at 6.03 cents per kWh, according to the
group.

In response to the committee, Paiton president Ronald P.
Landry told The Jakarta Post: "Additional information that the
committee will not publish is the fact that PLN needs so much
power that PLN is dispatching Paiton Energy at levels above the
85 percent contracted factor and Paiton Energy is satisfying
PLN's requests.

"There's a totally separate payment made by PLN to Paiton
Energy for the amount PLN contractually owes to Paiton for
arrears. This payment settles the total amount owed by PLN to
Paiton Energy for the period from May 1999 through December 2001
in which PLN did not pay Paiton Energy in accordance with the
contract. This payment has absolutely nothing to do with
electricity produced and delivered today, and this payment is not
included in the tariff," he said in an e-mail.