Paiton Energy seeking loan for power project

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Independent power producer (IPP) Paiton Energy is currently negotiating with several foreign financial institutions to obtain a loan for the development of unit 3 and unit 4 power generating units of the coal-fired Paiton power plant in East Java.

President of the state-owned electricity company PLN Eddie Widiono said on Friday that one of the lending institutions was Japan Bank for International Cooperation (JBIC).

"The loan will be used to finance unit 3 and 4 which will generate a total 800 Megawatts (MW) of power.

"The project needs about US$1,000 per kilowatt (or $800 million for the 800 MW)," he told reporters.

He did not provide details.

Paiton Energy is 40 percent owned by U.S company Edison Energy, 32.5 percent by Japanese firm Mitsui, 15 percent by local firm Batu Hitam Perkasa and the remaining 12.5 percent by American firm General Electric.

Under a 1994 contract signed with PLN, Paiton Energy is allowed to develop two power generating units (unit 7 and unit 8) with a combined capacity of 1,230 MW in the Probolinggo area of East Java. This project is popularly called Paiton I.

According to the contract, PLN will purchase the power produced by Paiton Energy.

At the same location, PLN is developing unit 1 and unit 2. And two other units (5 and 6) are being developed by PT Jawa Power. The last project is called Paiton II.

But late last year, PLN extended an offer to Paiton Energy to also develop unit 3 and unit 4, to allow the latter to sell electricity at a cheaper rate than the price agreed in 1994.

According to the contract, PLN has to pay Paiton's electricity at 8.47 U.S. cents per kilowatthour during the first six years, at 8.21 cents per kWh from year seven through 12, and at 5.45 cents per kWh between year 13 and year 30.

In 1998, the government suspended the project due to the country's economic crisis. The government asked PLN to renegotiate the Paiton contract as well as contracts with other IPPs.

Last year, PLN and Paiton Energy agreed on a price of 4.93 cents per kWh, without the development of unit 3 and unit 4.

Sources familiar with the PLN-Paiton negotiation process, said that a final agreement was expected within a two-month period.