PLN, IPPs reach agreement on power prices

PLN, IPPs reach agreement on power prices

JAKARTA (JP): Financially troubled state electricity company
PT PLN announced on Wednesday that it had reached agreements with
three independent power producers (IPPs) regarding alterations in
the terms of their power purchase contracts, particularly focused
on price issues.

The three IPPs are PT Energy Sengkang, which has built a power
plant in the Sengkang area of South Sulawesi; PT Jawa Power,
which has built the Paiton II power plant in Probolinggo, East
Java; and Japanese-based firm Sumitomo, who are constructing the
Tanjung Jati B power plant in Jepara, Central Java.

PLN president Eddie Widiono said PLN and Sengkang had signed
on April 12 a preliminary agreement confirming changes to the
terms of their power purchase agreement (PPA).

"A final agreement is expected to be signed in June at the
latest," Eddie was quoted by Antara as saying, following a
seminar on deregulation and restructuring of the power sector in
the South Sulawesi capital Makassar.

Under the preliminary agreement, Sengkang will charge PLN
4.286 U.S. cents per kilowatt hour (kWh) for power supplies from
its 135-Megawatt (MW) power plant. PLN must also pay an
additional charge of 0.132 cents per kWh for the use of
transmission facilities built by Sengkang.

Under the original PPA signed in 1996, PLN agreed to pay
Sengkang 6.7 cents per kWh.

In addition to the 135-MW power plant it had built, Sengkang
had agreed to construct another power facility, with the capacity
of 51 MWs between 2003 and 2005, in order to meet expected
increases in power demand in the province.

"With this deal, power supplies for South Sulawesi can be
secured until 2005," he said.

According to Eddie, the deal will enable PLN to save around
$200 million in power purchasing costs.

The Sengkang power plant is 47.5 percent owned by Energy
Equity, 47.5 percent by El Paso Energy International, while the
remaining 5 percent is held by PT Triharsa Sarana Jaya Purnama, a
company partly owned by former president Soeharto's daughter,
Siti Hardijanti Rukmana.

Sengkang is one of the 27 IPPs which signed a PPA with PLN in
the mid-1990s.

However, the economic crisis which hit the country in 1997
crippled PLN's capability to buy power at the price set in the
PPAs.

Under the PPAs, PLN must purchase electricity from the IPPs in
U.S. dollars, which tripled in value against the rupiah due to
the rupiah's sharp depreciation.

PLN has since been trying to renegotiate the PPAs and has
already canceled some projects.

Eddie also announced on April 12 that PLN had signed a
temporary agreement with Jawa Power, renegotiating the price of
power supplies from the latter's power plant for six months.

According to him, throughout the six-month period, PLN will
pay Jawa Power 3 cents per Kwh if it operates at 80 percent
capacity and 4.86 cents if it operates at 40 percent capacity.

Under the PPA signed in 1995, Jawa Power, which has built a
1,220-MW power plant, agreed to sell its power to PLN at the
price of 6.59 cents per Kwh.

According to PLN's data, Jawa Power is 50 percent owned by
German firm Siemens Power, 35 percent by British firm PowerGen
Plc while the remaining 15 percent shares are held by PT
Bumipertiwi Tatapradipta, which is linked to Soeharto's son
Bambang Trihatmodjo.

Eddie said the temporary agreement will enable PLN to save
about $45 million in purchasing costs.

He said PLN had also agreed to buy power from the Tanjung Jati
B power plant in Central Java, construction of which would be
completed by Japanese firm Sumitomo, under a "lease and transfer"
scheme.

"The firm will build a coal-fired power plant with the
capacity of 1,200 MW, with construction expected to be completed
in 2004," Eddie said.

He said that PLN would operate the power plant, paying a fee
of between 2.2 cents and 3.3 cents per kWh to Sumitomo.

The Tanjung Jati B power project was initially owned by PT HI
Power Tubanan, which is a joint venture of Hong Kong's firm
Hopewell Holdings Ltd (80 percent) and local firm Impa Energy (20
percent).

Eddie did not elaborate as to why the project had been
acquired by Sumitomo. (03)