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