Pertamina seeks to resolve dispute with IPP

Pertamina seeks to resolve dispute with IPP

Moch. N. Kurniawan, The Jakarta Post, Jakarta

State oil and gas firm Pertamina is seeking an out-of-court
settlement with independent power producer (IPP) Karaha Bodas Co.
LLC despite last month's ruling by an international arbitration
panel for the former to pay US$261.1 million in compensation for
the cancellation of a power project in 1998.

Pertamina upstream director Iin Arifin Takhyan claimed on
Tuesday that the verdict was not final and Pertamina had filed an
appeal against the ruling.

"Now weUre asking Karaha Bodas to resolve the dispute
through an out-of-court mechanism for the sake of all parties,"
he told The Jakarta Post.

Last month, an arbitration tribunal in Geneva issued a
ruling ordering both Pertamina and state electricity company PLN
to pay $261.1 million to Karaha Bodas, plus interest of 4 percent
per year, starting from January 2001.

The compensation comprises $111 million for lost expenditure, $150 million for lost profit and $66,654.92 for
costs and expenses during arbitration.

Iin said that Pertamina would approach Karaha Bodas to
recommence the development of the $1 billion Karaha power project
in Telaga Bodas and Karaha villages, in Tasikmalaya and Garut
regencies.

RIt means Karaha Bodas and PLN will have to renegotiate
the power selling rate just like in the case of several other
IPPs,S he said.

The negotiation will also determine the amount of arrears
to be paid by either Pertamina or PLN to Karaha Bodas, he added.

PLN officials were not available for comment.

In 1994, Pertamina and Karaha Bodas signed a contract to
allow the latter to exploit geothermal power in West Java to be
used for the planned power project.

Pertamina is designated by the government to regulate the
geothermal, oil and gas industry in the country.

Karaha Bodas then signed an energy sales contract --
another form of power purchasing agreement -- with PLN to build a
400 megawatt power plant.

Under the contract, PLN was to buy electricity from Karaha Bodas
at between 5.6 cents and 8.4 cents per kilowatt hour (kWh) for 30
years.

But the contract, along with the other 26 IPPs' contracts, was
postponed by the government in 1998 because PLN was unable to pay
power rates as stipulated in the contracts amid the sharp
depreciation of the rupiah during the 1997-1998 financial crisis.

PLN had to pay power rates in dollars while it generates
revenue in rupiah.

Karaha Bodas said it had invested about $100 million when
the project was postponed. Karaha Bodas is 37.5 percent controlled
by American giant Florida Power, 37.5 by New York-based Caithness,
5 percent by Japan's Tomer and 10 percent by local company Sumarah Daya
Sakti.

Sumarah is owned by Muhammad Bawazier and Lodito Purwasih.

Besides Karaha Bodas, several IPPs also sought
international arbitration to resolve their dispute with PLN, such
as Himpurna California Energy, which built the Dieng geothermal
power plant in Central Java province.