OPIC and PLN reach agreement
JAKARTA (JP): State electricity company PT PLN and the United States government-owned insurance firm Overseas Private Investment Corp. (OPIC) have reached an agreement on the payment scheme for a US$290 million insurance claim arising from the former's failure to honor power purchase contracts.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Monday that PLN and OPIC have agreed to use the Paris Club payment scheme for the payment of the insurance claim.
OPIC also agreed to cut the insurance claim to $260 million, he said without explaining why OPIC agreed, saying that negotiations had been conducted entirely by PLN.
Both parties reached the agreement during recent negotiations in New York, he said.
"What's left to be done is finalizing some legal paperwork, which isn't urgent however," Purnomo told reporters during a New Year's Eve inspection at the Java-Bali power transmission and load center in Gandul, South Jakarta.
Paris Club is a group of creditors for Indonesia that early last year agreed to reschedule $5.8 billion in sovereign debts.
Under the agreement, the government can pay the debt in 20 years, including a grace period of four years, with an interest rate of one percentage point above the rate set by the creditors' respective central banks or monetary authorities.
PLN has long offered to pay the insurance claim using the Paris Club payment scheme, but OPIC kept rejecting the offer.
It remains unclear why OPIC changed its stance.
OPIC's insurance claim surfaced after PLN failed to pay independent power producer (IPP) MidAmerican Energy Holding $572 million in compensation, as ordered by an arbitration panel in 1999.
PLN was brought to the panel because it refused to pay MidAmerican for power supplies from its geothermal power plant in Dieng, Central Java after the government suspended MidAmercian's power plant project in Patuha, West Java.
The financially strapped PLN could not pay the compensation, thus prompting MidAmerican to call in OPIC insurance.
U.S Ambassador to Indonesia Robert Gelbard accused the Indonesian government several months ago of showing reluctance in paying OPIC's claim.
The U.S. government was losing patience and Indonesia risked having its assets impounded by the U.S. government, Gelbard warned.
Former coordinating minister for the economy Kwik Kian Gie denied the charges, but former finance minister Bambang Sudibyo admitted that he was against paying the claim without the approval of the House of Representatives.
But the new Cabinet formed in September last year appeared to have no objections to paying the insurance claim.
Dieng and Patuha are among the 27 IPPs the government had signed contracts with to meet rising power demands in the early nineties.
But the economic crisis in 1997, which left PLN financially crippled, forced the government to renegotiate most of the IPPs contracts.
The government is seeking to cancel contracts of power projects that have not begun construction yet, and renegotiate payment conditions for the power supplies from those that are already operating.
Earlier last year, PLN and independent power producer Paiton Power Energy, managed to reach an interim agreement that allows PLN to buy Paiton's power prices under a special rate while both parties continue renegotiating their contract.
The interim agreement ended last month, and PLN had proposed Paiton to extend the agreement for another six months, Purnomo went on.
Paiton Power Energy, a consortium comprising American firms Mission Energy and General Electric, Japanese firm Mitsui & Co, and local firm PT Batu Hitam Perkasa, has built a 1,230-Megawatt power plant in Paiton area, Probolinggo, East Java. (bkm)