PLN and Paiton agree on long-term agreement scheme

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)