PLN makes progress in contract renegotiations
JAKARTA (JP): Cash-strapped state electricity company PT Perusahaan Listrik Negara (PLN) said on Wednesday it had made significant progress in renegotiating contracts with independent power producers (IPPs).
Company president Adhi Satriya said the result of the renegotiations with the first group of IPPs showed positive results.
He said PLN would soon embark on other meetings to renegotiate contracts with other IPPs.
"Despite the fact that discussions are inherently complex and involve a number of financial, legal and technical and operational terms, we have made substantial progress," Adhi said in a statement.
"We are now in a position to meet with the remaining IPPs, and today, letters were sent in advance (regarding the) meetings."
Adhi did not specify the names of the first group of IPPs PLN had met in the renegotiation meeting, nor the names of the IPPs the company is yet to meet with.
PLN has signed power purchase agreements (PPA) with 27 IPPs, but two of them -- MidAmerican Energy Holdings and Florida Power & Lights, both of the United States -- preferred settling their dispute with PLN through an arbitration court.
PLN has faced huge losses as a result of the economic crisis which had been battering the country for almost two years.
The sharp depreciation of the rupiah against the dollar has technically bankrupted the company, as it sells electricity in rupiah and pays most of its costs, including the power supplies from IPPs, in U.S. dollars.
PLN suffered a loss of more than Rp 9 trillion (US$1 billion) last year and received more than Rp 1 trillion in government subsidies last year.
The state company has refused to buy power from IPPs and seeks to lower power prices produced by IPPs.
Adhi, who preferred using the term rationalization to renegotiation, said: "To date, our rationalization team has met continuously with numerous IPPs and is moving forward at a vigorous pace."
He did not specify the progress PLN's team had made in talks with the IPPs.
Adhi reaffirmed PLN's commitment to the renegotiation program, stating that PLN adopted the renegotiation measure with a defined list of objectives. These include reaching a contractual structure that is commensurate with PLN's financial resources and electricity sector restructuring goals; improving overall system efficiency; meeting international standards for objectivity, openness and transparency; and maintaining Indonesia's attractiveness to investors in the power sector.
With the renegotiation program, PLN also wants to ensure its customers have adequate and affordable electricity.
Many IPPs have expressed willingness to renegotiate with PLN, but they expressed concern about the strong criticism launched against them by PLN's management in the past. The IPPS said the criticisms had created misperception among the public that they were the cause of PLN's bankruptcy.
The IPPs argued PLN's financial difficulty was caused by the rupiah's depreciation rather than their operation, since almost all of them are not yet operating.
Most IPPs have also been on the receiving end of public criticism due to their partnership with former president Soeharto's family and cronies.
Adhi said in his statement that IPPs were not to be blamed for its current financial difficulty.
He said the company was forced to renegotiate the contracts amid the economic crisis, following the sharp depreciation of the rupiah against the dollar in mid-1997.
"The (current economic) situation, plus the much lower growth rate of the economy and PLN's financial difficulties creates an untenable dilemma for PLN and the government of Indonesia.
"The IPP rationalization program is a positive response to this dilemma and we are committed to pursuing a meaningful solution." (jsk)