PLN makes progress in contract renegotiations

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)