PLN set to rehash contract terms with all IPPs

JAKARTA (JP): Cash-strapped state electricity company PT PLN said on Tuesday it would soon invite independent power producers (IPPs) to renegotiate their power purchase contracts in the dispute simmering between the two in the past year.

PLN president Adhi Satriya said in a statement that PLN would invite the 27 IPPs involved in power purchase agreements (PPA) for discussions on mutually acceptable and equitable solutions to the contractual dispute.

"PLN and the government of Indonesia intend to observe their obligations and protect their rights under the contracts," Adhi said.

"The gravity of the situation dictates that PLN and IPPs and other stakeholders will need to look beyond the contracts and be flexible and willing to take innovative initiatives to resolve the problem. In carrying out this process, the interest of the people of Indonesia must be kept paramount."

Adhi, who preferred use of the term "rationalization" over renegotiation in his statement, did not detail the schedule.

He earlier promised to commence the renegotiation this month, indicating that PLN would seek to cut the price of power supplied by IPPs to about 4 U.S. cents from between 6 U.S. cents and 8 U.S. cents per kilowatt hour (kwh) in a bid to relieve its financial difficulties.

PLN has refused to pay IPPs in full as a result of financial difficulties stemming from the monetary crisis now more than a year and a half old. PLN sells power in rupiah but pays most of its expenses in dollars, including the purchase of power from IPPs.

The company is only willing to purchase power from IPPs at the precrisis exchange rate of Rp 2,450 per dollar. The rupiah has been ravaged in the past year, dropping to a record low of 17,000 to the U.S. dollar in January. It has gradually recovered in the past few months, rising to a range of 7,500 and 8,000.

The government has also postponed several IPP projects as part of the retrenchment effort to cope with the crisis.

Two IPPs have sued PLN and the Indonesian government for breach of contract.

President B.J. Habibie has formed a ministerial task force headed by Coordinating Minister for Development Supervision and State Administrative Reforms Hartarto to solve PLN's problems, including its financial dispute with IPPs.

Adhi said PLN's team for contract renegotiation had been examining all contracts and considering different options to solve the contractual dispute over the past three months under the supervision of the ministerial task force.

Adhi said the renegotiation was expected to create a safe, reliable and affordable supply of electricity for PLN and the public and promote development of the country's power sector.

The renegotiation will be carried out fairly and transparently, he added, in accordance with the government's policy of restructuring the country's power sector.

"Multilateral institutions like Asian Development Bank (ADB) and World Bank have also acknowledged the urgent need to solve the IPP problems," Adhi said. (jsk)