PLN asks Sengkang to lower power prices

JAKARTA (JP): PT Energy Sengkang has asked state-owned electricity company PLN for a license to build another power plant in compensation for willingness to reduce power prices for its steam power plant in Sengkang, South Sulawesi, PLN president Djiteng Marsudi said.

Djiteng said the developers of Sengkang had asked PLN to allow it to build another power plant with a capacity of 130 megawatts (MW) in return for their willingness to reduce power prices from their 135-MW combined cycle power plant.

"We said 'Okay, provided that PLN gets a stake in the new power plant'," Djiteng said Tuesday at a hearing with the House of Representatives Commission V for manpower and trade.

Djiteng told legislators that its renegotiation with Energy Sengkang over power prices from its power plant was still underway.

In order to prevent PLN from going into bankruptcy, Minister of Mines and Energy I.B. Sudjana has ordered PLN to renegotiate power prices with all private power producers which had signed power-purchase agreements.

PLN will not be able to purchase private power at prices settled in the power purchase agreements following the sharp depreciation of the rupiah against the U.S. dollar.

PLN has to buy private power in dollars, while PLN's earnings are in rupiah.

PLN signed 29 power purchase agreements, all before the monetary crisis befell the region, while the rupiah has lost about 30 percent of its value since July, closing at Rp 3,450 yesterday.

Private power companies set prices ranging from 5.74 U.S. cents to 8.46 cents per kilowatt hour (kWh) for coal-fired power.

Sengkang only started operations several weeks ago with an offered price of 6.7 cents per kWh, while the 1,230-MW coal-fired power plant owned by PT Paiton Energy Co in Paiton, Probolinggo, East Java is scheduled to come on-stream next year.

The Sengkang power plant is 45 percent owned by United States El Paso Energy International.

Djiteng said PLN had delayed paying Energy Sengkang for its power since both companies had yet to settle the renegotiated price.

"We know the renegotiation is legally and technically difficult, but since it's an order from the minister we have to do our best," Djiteng said.

Djiteng did not reveal the power price sought by PLN for the Sengkang power plant.

He said private power prices should ideally be about 15 percent lower than the price of power sold by PLN to the public to enable it to cover distribution and transmission costs.

PLN currently sells power at an average Rp 170 (4.75 cents) per kWh.

PLN's move to renegotiate private power prices has caused concern among private power producers.

Project Finance International in its Nov. 5 issue said: "Reopening contracts should send a very bad signal to the international financing and investment communities as PLN would be effectively reneging on its contractual obligations. This would certainly damage further foreign investment in Indonesia.

"If PLN decides formally to go ahead with a review, all the IPPs (independent power producers) will have recourse to arbitration at an international forum, which will view their case favorably." (jsk)