PLN set to rehash contract terms with all IPPs

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)