Paiton energy dispute

Paiton energy dispute

I write to add my voice to the debate over the Paiton IPP
affair. To my mind the two developments that do not assist a
satisfactory resolution to the problem are first the involvement
of the Indonesian judicial system and second the resignation of
Adhi Satriya and Hardiv Situmeang.

Like many other contracts involving international parties or
international finance, the parties agreed to international
arbitration, so overturning the basic tenets of this contract and
placing them in the hands of Indonesian judicial system did not
appear to be the correct move and only served to potentially
undermine the confidence of existing and future international
investors.

On one hand, even before the collapse of the currency, the
prices guaranteed under the power purchase agreement were
unrealistically high. Similarly, the sale price of PLN
electricity to consumers was and still is unrealistically low.
On the other hand, a large investment has been made here and
those concerned with making that investment need to not only have
their capital repaid, but should also enjoy a reasonable level of
profit.

One also has to remember that if investors have a good power
purchase agreement, with high rewards and severe penalties, then
the power plant will be designed to ensure high reliability. By
comparison, many power plants supplied the world over, mainly to
state owned enterprises, are built down to a price rather than up
to a quality and soon fall into disrepair. Thus the gulf between
the levels of expectation of both parties is so great that some
political initiative is necessary. Every element of this whole
extremely complex and sensitive issue needs to be examined in
great detail. Innovative solutions and initiatives are required
that simply cannot be dispensed by judicial processes alone. Some
form of negotiation and arbitration is necessary and events have
progressed thus far, that perhaps the new government has quite
rightly recognized this and intervened.

The government has at its disposal many possibilities and
listed here are only a few. It can either wholly or partially buy
out the contract (after all the Tanjung Jati case has been
resolved in a near similar manner). It can also pass legislation
to give tax concessions, facilitate special fuel purchase
concessions (please note, fuel is the single largest component of
the electricity generation cost), or can even decide to disallow
this contract or refer it, either totally or partially, back to
the judicial system after due consideration.

Perhaps the correct way forward now is for the government to
accept the resignation of Adhi Satriya and Hardiv Situmeang and
thus removed from other responsibilities, appoint them to a sit
on a special government committee of inquiry along with other
specially selected individuals, to propose a means of resolution,
agree it with the government and then negotiate with the IPP
owners.

EUIS ROSITA WALTER

President Director

PT Walter Energitama

Jakarta