Sat, 09 Oct 1999

Paiton Energy to file arbitration suit to counter PLN lawsuit

JAKARTA (JP): Independent power producer PT Paiton Energy said on Friday it would file an arbitration lawsuit to counter state electricity PT PLN's legal measure to nullify their power purchase contract.

"The action this week by PLN to sue Paiton Energy in the Indonesian courts has forced Paiton Energy to send a notice of arbitration to PLN.

"Paiton Energy has taken this action to preserve the sanctity of its power purchase agreement and to protect the interest of its shareholders, lenders and other credit support providers," the company said in a statement.

The lenders and credit support providers include the Export Import Bank of Japan, the Export Import Bank of the United States, the Overseas Private Investment Corporation and the Ministry of International Trade and Industry of Japan, it said.

The company, which owns and operates the giant Paiton Swasta I power plant in Probolinggo, East Java, also said it was disappointed over PLN's lawsuit.

"PT Paiton Energy is deeply disappointed that PLN would file a lawsuit at a time when we're meeting daily and making significant progress towards an agreement," it said.

It said however it was still committed to negotiate on the contract despite the lawsuit.

"Notwithstanding the notice of arbitration, Paiton Energy stands ready to renew negotiations with PLN and the Government of Indonesia toward an amicable resolution of the issue in the near future," it said

On Thursday, PLN filed a lawsuit at the Central Jakarta court to nullify the power purchase agreement (PPA) awarded to Paiton Energy in February 1994.

PLN's president Adhi Satriya said the PPA was "unlawful, unfair and not transparent", and as such, the court should declare the contract "void and not enforceable."

He said the PPA was set at a too high price for the power price produced by Paiton, and the company had kept refusing to lower the price during negotiations over the past seven months.

Paiton sells its power to PLN at the price of 8.5 U.S. cents per kilowatt hour (kWh) for the first to sixth year of the contact and the price will progressively fall to 5.5 cents per kWh until the 30th year, when the contract expires.

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

Batu Hitam is owned among others by tycoon Hashim Djojohadikusumo, brother of former president Soeharto's son-in- law Prabowo Subianto and Agus Kartasasmita, brother of former coordinating minister of economy, finance and industry Ginandjar Kartasasmita.

Paiton I, which has a power generation capacity of 1,230 Megawatts, came on stream in March this year.

Adhi said the lawsuit was the last option taken by PLN, after becoming tired of unsuccessfully negotiating with Paiton.

However, Paiton maintained it had offered significant concessions during talks with PLN.

The company said it had agreed to lower the cost of coal for the power plant as demanded by PLN, and had accepted payments from PLN for outstanding invoices at a rate of Rp 2,450 to the U.S. dollar for operating costs and interest payment to lenders on a temporary basis.

"Together, these provisions mean that we have agreed to an interim price of 3.3 U.S. cents per kilowatt hour. This is a good offer and it is regrettable that PLN decided not to respond," Paiton said.

The company maintained that the power tariff for Paiton I was comparable to other contracts in Southeast Asia and around the world.

It said the tariff price for its power was projected to be 5.5 cents per kWh, excluding the cost for the construction of additional infrastructure required by PLN that would be shared by power units owned by other companies at PLN's power plant complex.

Another independent power producer, PT Jawa Power, is developing a 1,220 MW coal MW power plant known as Paiton Swasta II at the complex where PLN operates a 800-MW power plant.

The infrastructure, including roads, sea water intakes and a switchyard, would increase at approximately 0.75 cents per kWh to the price of its power, the company said.

The company also denied any corrupt practices conducted in the process of awarding the contract.

"Paiton Energy is not aware of any evidence of improper actions by any of its members to influence the award of the Paiton Swasta I project or the terms of our agreement with the Government of Indonesia."

Adhi said PLN had evidence of corrupt practices conducted in the award process of the Paiton Swasta I contract and it would reveal the evidence to the court during the inquiry into the case so that it may become "public knowledge." (jsk)