PLN moves to cancel Paiton contract

PLN moves to cancel Paiton contract

JAKARTA (JP): State electricity company PT Perusahaan Listrik
Negara (PLN) filed a lawsuit on Thursday at the Central Jakarta
District Court to nullify the power purchase contract awarded to
the owners of the giant Paiton I power plant in East Java.

PLN's president Adhi Satriya said the move was "the last
option" taken by the state company after failing to persuade PT
Paiton Energy to change the contractual terms, including reducing
its power price, over the past seven months.

"It's PLN's duty to protect its customers and the people of
Indonesia from excessive prices... We have no choice but to file
this claim," Adhi said in a press conference.

Adhi said the power purchase agreement (PPA) signed by former
PLN president Zuhal and PT Paiton Energy's representatives in
Feb. 1994 in the presence of then Minister of Mines and Energy IB
Sudjana, "is full of elements of corruption, collusion and
nepotism".

He said the contract was "unlawful, unfair and not
transparent" and as such the court should declare the contract
"void and unenforceble".

Adhi was accompanied by lawyer Adnan Buyung Nasution, who
represented PLN in the case, as well as PLN's senior advisor John
Sroka and legal advisor J Keith Burt of the Washington-based law
firm McKenna & Cuneo, L.L.P

Paiton Energy I is owned by Japan's Mitsui (32.5 percent),
Edison Mission of the United States (40 percent), General
Electric, also of the United States (12.5 percent) and local firm
PT Batu Hitam Perkasa (15 percent).

Batu Hitam is owned by PT Catur Yasa/PT Wahanaputra Aluraya
(33.3 percent), PT Tirtamas (33.3 percent) and PT Swabara Bumi
(33.3 percent).

Tirtamas is owned by tycoon Hashim Djojohadikusumo, who also
owns shares in Swabara.

The coal-fired Paiton I power plant, located in Probolinggo,
East Java, came on stream in May this year.

Paiton Energy claimed that it had put a total investment of
US$2.5 billion into developing the project but Adhi accused the
company of excessively marking up the costs as the standard costs
for a project of a similar size was only $1 billion.

Under the contract, PLN bought power from Paiton Energy at the
price of 8.5 U.S. cents per kilowatt hour (kWh) for the first six
years and $8.3 dollar cents per kWh for the period from the
seventh to the 11th year. The price was due to fall to 5.5 cents
from the 13th to the 30th year.

PLN currently sells its power to the public at the price of
about Rp 195 (2.6 cents) per kwh.

Under the contract's take-or-pay clause, PLN is also obliged
to pay Paiton Energy $598 million per year even if the former
does not use the power supplies.

Adhi said the price for the power supplies from Paiton was
over twice that of the international standard and the payment for
power that was not used to be made by PLN to Paiton Energy for
two years was enough to build a power plant of a similar size to
Paiton I.

"This is the most unfair contract I've seen in my life. It is
against the law, morality and public order," Buyung said.

"During the negotiations, Paiton Energy always said a contract
was a contract and should be honored. But, what if the contract
is illegitimate?" Buyung said.

Buyung said PLN has enough evidence to prove the contract had
been awarded through corruption, collusion and nepotism, and that
they would present the evidence during the court session.

He stressed however that the case was a civil, not a criminal,
one but PLN did not rule out the possibility of filing a criminal
suit against all parties involved in the awarding process of the
contract, in the future.

Adhi acknowledged that under the PPA, in cases of a dispute,
PLN and Paiton Energy had to seek solutions at arbitration
courts.

He noted however that the contract also obliged both parties
to abide by Indonesian law.

"We filed the lawsuit at a local court rather than an
arbitration court because the issue in dispute is not the terms
of contracts but the (contract-awarding) process and the
corruption, collusion and nepotism involved in it," Adhi said.

Adhi said thus far PLN had no plans to sue other
IPPs with which it is currently renegotiating contracts as long
as the companies agreed with PLN on a commercial solution to
their dispute.

PLN has signed PPAs with 26 independent power producers (IPPs)
which are mostly joint ventures between international energy
companies with former President Soeharto's family and associates.

He said PLN has reached an agreement with the owner of the
coal fired Tanjung Jati B and C power plants in Jepara, Central
Java and an "interim" agreement with the owner of the gas fired
combined cycle power plant in Sengkang, South Sulawesi.

He said he was optimistic in reaching agreements with other
IPPs.

PLN has previously been sued at the arbitration court by three
IPPs which respectively own geothermal power projects in Dieng,
Central Jakarta; Patuha, West Java; and Karaha, West Java for
failing to honor contracts. (jsk)