PLN and Paiton close to reaching long-term accord

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)