PLN 'may-opt' for force majeure: Adhi

JAKARTA (JP): State electricity company PT PLN plans to declare force majeure in its contracts with independent power producers (IPP) due to financial difficulties, its president said on Friday.

"We are preparing to issue force majeure notices to them," Adhi Satriya said on the sidelines of the signing ceremony of a power billing agreement between PLN and PT Sarana Yukti Bandana.

Force majeure is an event outside the control of all parties to a contract that may excuse any party from fulfilling its obligations.

Adhi said the company had instructed its legal team, comprising local and foreign attorneys, to find a standard force majeure claim which could used by both IPPs and PLN. One of the lawyers is Adnan Buyung Nasution.

Analysts have long urged PLN to declare force majeure in its contracts with IPPs, but PLN was reluctant to do so for several reasons. These included the fact that its power purchase agreements (PPA) with the IPPs do not contain a force majeure clause regarding PLN's interest.

Analysts say PLN started to reconsider the force majeure option after it received a force majeure notice from Hong Kong- based Hopewell over its 1,320 megawatt (MW) coal-fired Tanjung Jati B (TJB) power project in Central Java.

The notification provides the basis for Hopewell to suspend development of the US$2 billion power project.

"The background to this notice is that current circumstances in Indonesia have led to a loss of confidence among financiers and/or potential financiers of the TJB project..," Hopewell chairman Gordon Wu said.

Analysts said PLN could use Hopewell's rationale to declare force majeure in its contracts with other IPPs.

PLN has signed PPAs with 26 IPPs, which are mostly joint ventures between international power companies and the children and cronies of former president Soeharto.

The sharp depreciation of the rupiah against the dollar since the middle of last year has brought the state company close to bankruptcy. The company sells power to the public in rupiah but pays most of its operating costs, including the purchase of power from IPPs, in the American dollar. The rupiah has depreciated by about 75 percent in the past year.

Adhi, noting PLN would suffer financial losses amounting to Rp 15 trillion (US$1.3 billion) in the current fiscal year alone, said the situation made it unable to meet contractual agreements with the IPPs.

Several power projects are already in operation, but PLN is only willing to pay for power supplies at the pre-crisis rate of Rp 2,500 per dollar, compared to the current rate of Rp 10,800 per dollar.

PLN buys power from IPPs for an average 6.4 U.S. cents per kilowatt hour (Kwh), but sells it at 2 cents per Kwh.

Two IPPs have sued PLN and the Indonesian government in arbitration courts for breach of contract.

President B.J. Habibie has set up a ministerial team, headed by Coordinating Minister for Development Supervision and State Administrative Reforms Hartarto Sastrosoenarto, to restructure PLN and renegotiate with IPPs on contractual terms.

Adhi said PLN would continue renegotiating with IPPs, a process he believed could take up to a year and a half.

Despite the ongoing negotiations, he said PLN would keep buying power from the IPPs whose power projects were already in operation at the pre-crisis rate of Rp 2,500.

PLN will not buy power from others which are still under construction, Adhi said.

Projects set to operate soon include the 1,230 MW coal-fired Paiton I power plant worth $2.43 billion in Probolinggo, East Java.

It is owned by PT Paiton Energy Co, a consortium made up of giant U.S. power company Mission Energy Co., Japan's Mitsui & Co. Ltd and PT Batu Hitam Perkasa, owned by Hashim Djojohadikusumo.

The country is experiencing a power oversupply of up to 4,000 MW following the closure of many industries in the monetary crisis. (jsk)