PLN 'may-opt' for force majeure: Adhi
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)