Paiton Energy dismayed by court's decision

JAKARTA (JP): Independent power producer PT Paiton Energy said on Friday it would appeal the Central Jakarta district court's decision barring it from pursuing arbitration against state owned electricity company PT PLN.

"PT Paiton Energy is dismayed by the recent decision of the Central Jakarta district court since we have agreed with PLN on all critical terms of an interim agreement, the first step in developing a long-term restructuring of the electricity tariff in our contract with PLN," Paiton president Ronald Landry said in a statement.

"We intend to appeal the injunction of the Central Jakarta District Court immediately," he added.

Landry said the court did not have jurisdiction over Paiton's arbitration lawsuit against PLN as under the power purchase agreement (PPA), both companies had agreed to settle all disputes through international arbitration.

He said Paiton was hopeful that the higher court would revoke the court's injunction.

"This is a precedent-setting case and foreign investors from around the world will be watching carefully," he said.

The court ordered Paiton on Thursday to desist from pursuing arbitration litigation against PLN while the examination of the parties' dispute was in progress in the court.

The court threatened Paiton with a US$600 million penalty if it did not comply with the ruling.

The court made the provisional ruling at the request of PLN, which had sued Paiton at the court following the latter's refusal to renegotiate with the state company on its power purchase contract.

PLN's president Adhi Satriya welcomed the ruling, adding, however, the state company was still ready for negotiations with Paiton for an out-of-court solution.

Paiton Energy is owned by Japan's Mitsui (32.5 percent), Edison Mission (40 percent) and General Electric (12.5 percent) of the United States and local firm PT Batu Hitam Perkasa (15 percent), controlled by tycoon Hashim Djojohadikusumo.

The company has developed a 1,230 megawatt (MW) coal-fired power plant, called Paiton Swasta I, in Probolinggo, East Java.

PLN filed a lawsuit in the Central Jakarta court to nullify the PPA signed by its previous management with Paiton, claiming "the PPA violated the law No. 15/1985 on electricity and was in contravention of morality and public interest."

It also claimed that the PPA was "unconscionable to the detriment of PLN and consequently PLN would not be able to fulfill its duty to provide affordable electricity to the people of Indonesia."

Under the contract, Paiton sells its power to PLN at the price of 8.5 US cents per kilowatt hour (kWh) for the first to sixth year and the price will progressively fall to 5.5 cents for the 13th to 30th year.

It was higher than the average price of 6.4 cents per Kwh set by the country's independent power producers (IPPs), and much higher than PLN's selling price of Rp 240 (around 3 cents).

Landry said in the statement that Paiton had actually given major concessions to PLN during out-of-court negotiations, but PLN persisted in pursuing litigation.

According to Landry, PLN has offered Paiton a $154.5 million for capacity payment for the next thirteen months, proposing the payment started at a level of $6.5 million per month and rose to $16 million per month.

He said Paiton accepted the offer, indicating that the issue of arrears will be discussed in the context of a long-term restructuring agreement.

Capacity payment is the fixed cost payable by PLN to Paiton whether or not it takes power supplies from the latter. This kind of payment is the result of the take-or-pay clause of the PPA.

Adhi earlier said that under the PPA, PLN has to pay Paiton $598 million per year in capacity charges alone.

Landry further said Paiton had also agreed to reduce the fuel price for its power plant to 1.1 cents per kWh, from -- according to PLN data -- 1.63 cents per kWh.

All these indicated that Paiton was willing to ease PLN's financial burdens amid the economic crisis, he said.

PLN's statement said on Friday the court will hold a hearing on Dec. 16 to review a defense submitted by Paiton relating to the jurisdiction of the court. (jsk)