PLN ordered to pay U.S company $572.3m in damages

JAKARTA (JP): Independent power producer MidAmerican Energy Holdings Co. of the United States said on Wednesday it had won US$572.3 million in damages in its breach of contract arbitration hearing against state electricity company PT Perusahaan Listrik Negara (PLN).

MidAmerican, which formerly was known as CalEnergy Company Inc., said in a statement sent to The Jakarta Post the arbitration panel made the ruling in a hearing in Jakarta under the supervision of the United Nations Commission on International Trade Law.

Chaired by an international attorney, the panel included an Australian businessman and an Indonesian judge.

"We are pleased with the unanimous decision by the international arbitration panel regarding PLN's failure to honor its obligations," MidAmerican chairman and chief executive officer David L. Sokol said.

"We remain committed to protecting our shareholders' interests and will continue to actively pursue a successful resolution of this difficult and complex situation in Indonesia," he said.

Another American firm, Florida Power and Lights Co., the majority owner of the Karaha Bodas geothermal power plant in West Java, also sued PLN last year for suspending its project, but the results of its arbitration case were not yet known.

MidAmerican said the arbitration panel found PLN had breached the power purchase contracts it had signed with MidAmerican's subsidiaries, Himpurna California Energy Ltd (HCE) and Patuha Power Ltd (PPL).

The arbitration panel ordered PLN to immediately pay HCE and PPL $391.7 million and $180.5 million in damages, respectively, for breach of contract.

HCE is a joint venture between MidAmerican and PT Himpurna Enersindo Abadi, a company formed by Indonesian military veterans association Himpurna. PPL is a joint venture between MidAmerican and local company Mahaka Energy.

HCE and PPL signed power purchase contracts with PLN in 1994 allowing them to develop two geothermal power plants, each with a generation capacity of up to 400 megawatts (MW). The plants are located in the Dieng area of Central Java and the Patuha area of West Java, respectively.

The government suspended the Patuha project along with dozens of other power projects early last year as part of its policy of retrenchment meant to cope with the economic crisis which hit the country in mid-1997.

The Dieng project is one of 10 power projects allowed by the government to continue despite the economic crisis.

MidAmerican sued PLN and the Indonesian government last August for failing to pay for power supplies from the Dieng plant and for suspending the Patuha project -- which it said amounted to breach of contract.

According to MidAmerican, HCE has completed and successfully tested a 60 MW power generation unit at its Dieng power plant and is proceeding with the construction of an additional 80 MW power generation unit.

PPL began construction of an 80 MW power generation unit at its Patuha plant and has developed proven geothermal resources of at least 170 MW.

MidAmerican claimed both subsidiaries and lenders had spent more than $500 million on the two projects.

MidAmerican said despite the fact that HCE had made available 60 MW of power since March 15, 1998, PLN had failed to pay HCE for the power. The unpaid amount now exceeds $60 million.

Under a take-or-pay clause in the contract, PLN has to pay HCE for the majority of its power generation capacity at the price of an average 6.2 US cents per kilowatt hour for 30 years even if PLN does not take any of the power supplies.

MidAmerican said if PLN did not pay HCE and PPL the amount of damages decided by the arbitration panel, both its subsidiaries would sue the Indonesian government under the performance undertakings provided to both companies by the Ministry of Finance.

The company said it carried political risk insurance on its investment in HCE and PPL through U.S. governmental agency Overseas Private Investment Corporation, as well as through private insurers.

Such insurance covers expropriation of the company's investment in HCE and PPL, material breaches by PLN of its power purchase agreements and breaches by the Indonesian government of its performance undertakings, MidAmerican said.

PLN is experiencing financial problems due mainly to the steep depreciation of the rupiah against the dollar. It charges rupiah for the power it sells, but pays dollars for most of its materials, including power supplies from independent power producers. PLN is therefore negotiating with ten independent power producers to reduce the price of their power supplies. (jsk)