PLN and Paiton close to reaching long-term accord

JAKARTA (JP): State-owned electricity company PT PLN and independent power producer (IPP) PT Paiton Energy are close to reaching a long-term agreement that would close the book on one of PLN's toughest deal.

Paiton president Robert P. Landry said on Wednesday that both sides were close to agreeing on a long-term electricity rate that Paiton sells to PLN.

"We're not at a final price yet.... it could be from 4 U.S.cents to 6 U.S. cents," Landry said during a luncheon with reporters.

As a benchmark, PLN's own production cost is 5.1 cents, so it's only fair for Paiton to demand a rate higher than what PLN is able to produce, he explained.

He added that negotiations were not limited to the rate, and that the final rate would depend on a number of other agreements that could be reached with PLN.

Part of the negotiations, he said, was the extension of Paiton's 30-year contract to operate the plant.

The company operates the coal-fired Paiton I power plant in East Java, which has a power capacity of 1,230 megawatt.

According to him, Paiton may compromise its position on the rate, if the government grants a contract extension.

Landry declined to say for how many years Paiton wanted to extend its contract, but said the company had no intention of operating the plant up to its 50-year life span.

Another aspect of the negotiations is the construction of power grids to utilize Paiton's full capacity, he said.

Also in the negotiation package, he said, was adding power capacity to meet Indonesia's fast growing demand for electricity.

Late last year, Paiton and PLN agreed to a long-term agreement scheme for PLN's payment to Paiton.

Both companies agreed to a three-phase scheme under which Paiton would gradually hike its power charges beginning this year at 2.6 cents per kWh.

This rate allows Paiton to cover the costs of operating the plant and paying interest on its $1.82 billion worth debt.

To date, Paiton's shareholders have paid another $300 million to cover, among others, debt payments, since revenue from PLN barely covers the interest rates, Landry explained.

In phase two, between 2002 and 2003, Paiton will further raise its rates, thus permitting some repayment on debt principles.

By then, both companies also expect the completion of the much-needed Java-Bali transmission grid to help meet power demand in that region.

Finally, PLN and Paiton hope to agree on a long-term rate starting in the third phase in 2004.

The closing of a long-term agreement between PLN and Paiton, would seal off their troubled past, marred by bitter disputes.

In 1999, PLN filed a lawsuit against Paiton to annul Paiton's contract on suspicion of corruption, collusion and nepotism.

The state company charged Paiton of having marked up its project cost by $1 billion to $2.5 billion, which consequently led to "unreasonably" high power rates.

Paiton defended the high project cost, claiming that it also included the construction of basic infrastructure, as was demanded by the government.

The company then responded to PLN's move by filing arbitrational proceedings against PLN.

Later, the government intervened, ordering PLN to revoke its lawsuit and renegotiate Paiton's power rates.

Paiton is one of 27 IPPs with which PLN must renegotiate or end their contracts. Thus far, it has closed deals with only three of them.

"The best thing is to agree to a solution and show the world that parties, who everybody thought were fighting, are able to solve their problems," Landry went on saying.

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)