PLN reaches preliminary agreement with Paiton

PLN reaches preliminary agreement with Paiton

Moch. N. Kurniawan, The Jakarta Post, Jakarta

State electricity company PT PLN has reached a tentative
agreement to pay 4.93 US cents per kilowatt hour over 40 years to
privately-owned PT Paiton Energy Co., the operator of the Paiton
I power plant, according to PLN's director Eddie Widiono.

Eddie said on Friday that under the "term sheet agreement",
PLN would also pay US$4 million per month for 30 years or a total
of $1.44 billion throughout the period for "restructuring costs",
which include arrears and other claims.

He said both parties were continuing to discuss "several
items" before signing the final deal.

He did not provide details of the items still being discussed.

"We expect to ink the final deal in March which will
automatically amend the initial power purchase agreement (PPA),"
he told the Jakarta Post.

PLN and Paiton Energy signed the PPA in 1994 as part of PLN's
effort to meet the growing power demand in the country.

Under the PPA, PLN agreed to buy electricity from Paiton
Energy at 8.4 cents per kWh for the first five years, 8.2 cents
for the sixth to twelfth years of operation and 5.4 cents for the
last 18 years of operations, or equivalent to an average of 6.55
cents for 30 years of operations.

Under the contract, Paiton Energy must generate 1,230
megawatts (MW) of power from the coal-fired Paiton I plant in
Probolinggo regency, East Java province.

Paiton Energy is owned by U.S-based energy firm Edison Mission
Energy, another U.S giant GE Capital, Japanese company Mitsui &
Co and local company Batu Hitam Perkasa, which is controlled by
businessman Hashim Djojohadikusumo.

PLN also signed another 26 PPAs with other independent power
producers (IPP) prior to the economic crisis.

But Paiton's contract, along with other PPAs, has been
renegotiated following PLN's complaints over the high power
tariff.

PLN fell into financial difficulties after the crisis because
it sells its power in rupiah but pays most of its expenses,
including for the purchase of power from the IPPs, in dollars.

Elsewhere, Eddie said PLN would also sign an agreement early
next month with PT Jawa Power, the operator of the Paiton II
power plant, to pay the latter 4.68 cents per kWh for 30 years
starting 2001.

He said that PLN would also pay $900,000 per month in arrears
to Jawa Power for the next 30 years.

"We have received approval from the government to sign the
deal, now we're only finalizing the legal aspects," he said.

PLN signed a PPA with Jawa Power in 1995, under which PLN has
to pay 5.72 cents per kWh for 30 years for power supplied from
the latter's 1,230 MW power plant.

Eddie also said PLN would soon reach an agreement with
Palembang Timur, Sibolga A, Amurang and Asahan, but refused to
provide a timetable.

The prolonged disputes between PLN and the IPPs have also
seriously eroded foreign investor confidence in the country's
power sector while the government now desperately needs foreign
investment in the power sector to avoid a power crisis in the
future.