Paiton Energy ready to talk contract terms with PLN

Paiton Energy ready to talk contract terms with PLN

JAKARTA (JP): Power producer Paiton Energy Company's president
commissioner Hashim Djojohadikusumo said on Friday that the
company was ready to renegotiate with state electricity company
Perusahaan Listrik Negara (PLN) on the contractual terms for the
purchase of power from its giant power plant in Probolinggo, East
Java.

"Our foreign partners in Paiton Energy, realizing the
difficulties faced by PLN, are ready to reach a compromise for a
win-win solution," Hashim said at a meeting with senior editors
of the local press.

He said the foreign partners in Paiton Energy were in fact
disappointed over PLN's move but they realized that the
renegotiation was a better solution than the alternative of
writing off the US$1.8 billion project.

However Hashim refused to detail the changes in the contract
that Paiton Energy was ready to accept during the renegotiation.

"Our partners are ready to face the consequences of reducing
their returns on investment," Hashim said.

Hashim's company, PT Batu Hitam Perkasa, holds a 15 percent
stake in Paiton Energy, while the remaining shares are owned by
giant power companies from the United States, Mission Energy and
General Electric, and Japan's Mitsui.

Paiton One is the first power project to be built by an
independent power producer (IPP) in the country.

PLN has asked all the 26 independent power producers (IPP)
with which it has signed power purchase agreements (PPA) to
renegotiate their contracts following the financial difficulties
it is suffering amid the depreciation of the rupiah against the
dollar.

PLN sells power in rupiah but buys power from IPPs in dollars.

The Paiton One coal-fired power plant, which has the
generation capacity of 1,230 Megawatt (MW), has recently come on
stream. But. Hashim said, PLN, refusing to buy its power, had
thus far only given Paiton Energy the payment to cover the
expenses spent by Paiton on purchasing fuel.

Hashim said the development of Paiton One was financed by the
Japan ExIm Bank, the U.S. ExIm Bank and the U.S. Overseas Private
Insurance Corp. (OPIC). As such, any action by PLN to breach
contract with Paiton Energy will have the consequence of
inflicting losses on the Japanese and the U.S. governments.

"Are we ready to create problems with these countries?" Hashim
asked.

The power purchase agreement (PPA) signed by the company and
PLN in Feb. 1994 says that PLN has to buy 80 percent of Paiton
One's capacity under a take-or-pay scheme.

PLN has to pay Paiton Energy an average 7.5 US cents per
kilowatt hour (kwh) for its power for 30 years.

In the first six years, PLN has to pay 8.6 cents per kwh. The
price will be cut to 8.41 cents for the next six years and 5.6
cents for the last 18 years.

Bidding

Many analysts say that Paiton One has set too high price for
its power, but Hashim argued the high price was justified by the
fact that Paiton One was a pioneer project and Indonesia has a
high political risk.

The high price was also caused by the fact that Paiton Energy
was also obligated by the government to build facilities and
infrastructure in the Paiton power plant complex that would be
shared by PLN and Paiton Two which also have power plants in the
complex.

"The cost for the development of the common facilities and
infrastructure at the Paiton power plant complex is equal to 1
cent per kwh. Thus, if we had not been obliged to build the
facilities and infrastructure, we would have been able to cut the
price of our power to an average 6.5 cents per kwh," Hashim said.

He also denied allegations that Paiton Energy had won the
Paiton One project without competitive bidding thanks to his
close connection with former president Soeharto.

He acknowledged that he had access to Soeharto and talked
directly to him regarding the project. "But, I did that because
the then Minister of Mines and Energy IB Sudjana who was
responsible for the power sector, refused to meet me for nine
months for unknown reasons," Hashim said.

Hashim said four companies were taking part in the bidding for
the project, including Paiton Energy and Intercontinental Energy
Corporation, a consortium comprising an American businessman
Stephen Roy and the Bimantara Group controlled by Soeharto's son
Bambang Trihatmodjo.

Hashim said the government first announced that the Bimantara-
Continental consortium was to win the project but it later
withdrew its decision following World Bank concerns at the high
power price set by the consortium.

According to the bank, Hashim said, the power price set by
Bimantara was higher by $100 million per year for 30 years than
the one set by Paiton Energy.

The government then passed the project to Paiton One.

"At that time I was really pleased that we would save the
Indonesian treasury and public so much money," Hashim said. (jsk)