PLN and Paiton agree on long-term agreement scheme

JAKARTA (JP): State electricity company PT PLN and independent power producer (IPP) PT Paiton Energy have agreed on a long-term solution to settle their dispute over the power tariff charged by Paiton to PLN, a Paiton executive said on Tuesday.

Paiton president Ronald Landry said both companies had agreed on a three-phase long-term agreement that would be implemented within a period of four years beginning 2001.

Landry, however, added that Paiton and PLN were still negotiating the exact tariff for the long-term agreement.

"We hope to reach an agreement on phase one before the end of this year and we're very optimistic that we will," he told reporters following a hearing with the House of Representatives' Commission VIII, which among others, oversees energy and mines affairs.

He said the three-phase scheme was subject to government approval.

"We are working with PLN but it is PLN's responsibility to propose it to the government," he said.

Paiton is one of the 27 IPPs that had signed power purchase agreements with PLN during the mid-1990s to help cope with the country's rising power demand.

The company now operates the 1,230 megawatt power generation plant Paiton I in East Java under a 30-year contract.

But when the economic crisis struck, PLN was unable to pay for IPPs' power supply which is based in U.S. dollars. The government eventually demanded a renegotiation of the contract to lower the tariff, which under the current contract, is set at 6.1 U.S. cents per kilowatt-hour (kWh).

The two companies then reached an interim agreement to allow PLN to buy power from Paiton during the process of renegotiation at 2.6 U.S. cents per kWh

Under the long-term agreement, Landry said, both companies had agreed to a gradual hike of Paiton's power charges from 2.6 U.S. cents per kWh.

"During this phase 1 period, the proposed tariff is intended to cover the costs of operating the plant and paying interest on its debts. However, it will not permit PT Paiton Energy to make payments on the principals of its debts," he explained.

In phase 2 between 2002 and 2003, Paiton will further raise its tariff, thus permitting some repayment on principals, he said.

He said by then, PLN would have fully completed the much- needed Java-Bali transmission grid to help meet the electricity demand in that region.

In the fourth phase, in 2004, Paiton and PLN should have settled in a long-term agreement, he said.

"At that time, it is proposed that PLN will pay a long-term tariff to Paiton Energy at a comparable tariff of countries in the region," he said.

He declined to elaborate on the tariff increase but Paiton argued that the median tariff paid to IPPs in South East Asian countries was 6.6 U.S cents per kWh.

In their contract with the government, Paiton is to sell its power at 6.1 U.S. cents per kWh, he said.

"A reference to the range of tariffs in comparable countries in the region, demonstrates that Paiton's current tariff is reasonable," he said.

He further denied markup allegations leveled against the company for the construction of its Paiton I power plant.

Last year, PLN charged the company of having marked up Paiton I's project cost by $1 billion to $2.5 billion, which consequently led to the "unreasonably" high power tariff.

But Landry said the project costs also included the construction of basic infrastructure as was demanded by the government.

Last year, PLN filed a lawsuit against Paiton to annul their contract, on suspicion of corruption, collusion and nepotism.

The government intervened and ordered PLN to renegotiate Paiton's power tariff instead and promised to investigate PLN's allegations against Paiton.

Landry said he welcomed an investigation but warned that it should not affect the ongoing negotiations with PLN.

Paiton Energy is a joint venture between Mitsui & Co., General Electric, Edison Mission Energy and PT Batu Hitam Perkasa which is owned by an associate of former president Soeharto. (bkm)