PLN plans long term contract for industries

JAKARTA (JP): State owned electricity company PT PLN is planning to offer large industrial users special power rates under long term contracts to better ensure their power supply.

PLN president Kuntoro Mangkusubroto said on Thursday that his company was drafting long term contracts that would offer corporate users better service at a higher price.

"If our customers want electricity of better quality, PLN can supply them that under long term contracts," Kuntoro told reporters after signing an agreement with cement producer PT Indocement Tunggal Prakasa for the supply of up to 80 Mega Volt Ampere by the year 2006.

He said that in turn, the company would charge customers a premium price in accordance with the quality it would provide.

PLN has been warning the government that inadequate expansion of electricity infrastructure would be a threat to the country's power supply in the near future.

According to the company, power demand growth has returned to its pre-crisis level of 12 percent a year, and would soon outstrip current power supply capacities.

PLN's director for marketing and distribution Eddie Widiono S. said that it was unlikely PLN would invest in new infrastructure just to cope with higher power demands.

"We will not simply follow the demand, but will instead try to serve that demand as efficiently as possible," he said.

Long term contracts, he continued, would include calculations to minimize the risks of foreign exchange fluctuations.

"Beneath the long term contracts lies PLN's wish to match its U.S dollar dominated costs with the revenues in rupiah," he explained.

A large portion of PLN's costs is set in U.S dollar rates. In particular the purchase of electricity from independent power producers (IPP), and natural gas from state owned oil and gas company Pertamina.

As for customers, Eddie went on, the long term contracts offer better price stability.

He said that by signing the contract, a company is exempted from paying the government set basic power rates, which could rise to even above the company's contracted rates.

He said that PLN hoped to see basic power rates hiked to 7 U.S. cents per kilowatt per hour (kWh) from the present rate of about 3 U.S. cents per kWh.

"Of course there is no obligation for anyone to enter a long term contract, companies can still use the basic power rates," he added.

Eddie said that power rates could either be fixed throughout the contract's period or pegged to a certain variable.

The contracts' terms and conditions, he said, would vary with each company, since PLN planned to negotiate them individually.

"We are waiting for input from different business associations, as they know best what their industries need," he explained.

He said that export oriented industries had different concerns compared to those that sold their products domestically.

PLN's plan to offer long term contracts, comes after the state company just completed negotiations with several large corporate users on their overdue electricity bills.

Last year, several industrial associations protested their new power rates, which raised by the government in April last year by 53 percent to 72 percent.

The hike prompted many industrial users, textile companies among others, to refuse to pay the total amount of their bills.

According to PLN, last year's overdue payments owed by customers nationwide have cumulatively reached Rp 600 billion (US$63.1 million), of which Rp 400 billion is owed by only 29 firms.

PLN threatened to cut off their power supply, but Kuntoro advised that an agreement on payment of the overdue bills had been reached. (bkm)