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

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)