PLN signs power-purchase deal for Tanjung Jati C

PLN signs power-purchase deal for Tanjung Jati C

JAKARTA (JP): State-owned electricity company PLN signed a
power-purchase agreement (PPA) with PT Consolidated Electric
Power Asia (CEPA) Indonesia yesterday for the controversial
Tanjung Jati C power project worth US$1.62 billion.

The agreement was signed by PLN president Djiteng Marsudi and
CEPA president Gordon YS Wu, a Hong Kong businessman, in a
ceremony presided over by Minister of Mines and Energy I.B.
Sudjana.

Present at the ceremony were the chairman of the House of
Representatives Commission V for manpower and trade Marzuki
Achmad, and commission vice chairmen Muchsin Bafadal and
Syamsudin.

Head of PLN's negotiating team for private power projects
Rahardjo Moecharar said the 1,320 megawatt (MW) coal-fired power
plant, located in Jepara, Central Java, was scheduled to come on
stream in 2002.

According to the agreement, PLN has to buy 80 percent of the
power plant's capacity at a price of 5.73 U.S. cents per kilowatt
hour (kWh).

"The price was agreed on by the minister of mines and energy
in October 1997," said Rahardjo, who is also PLN's director of
construction.

Rahardjo said PLN's team of negotiators had held five meetings
with CEPA's executives throughout September.

The Tanjung Jati C project has sparked controversy since it
was announced last August.

CEPA was awarded the project on the back of a recommendation
from Minister/State Secretary Moerdiono.

The project was given to CEPA in return for its willingness to
lower the price of power for its first project, the coal-fired
Tanjung Jati B, also in Jepara and with the same power capacity.

The pricing scheme of Tanjung Jati B's power created
controversy at the House because the power-purchase agreement
between CEPA and PLN, which was signed in October 1996, set the
price at 6.45 cents per kilowatt hour (kWh).

House members criticized the accord, demanding CEPA to reduce
the price to 5.74 cents, which was the level offered by the
nearby Tanjung Jati A power plant.

CEPA has set the price of power at Tanjung Jati B at 5.73
cents per kWh on the condition it was given Tanjung Jati C, whose
price was also set at 5.73 cents per kWh.

House members protested the government's decision, saying 5.73
cents was still too expensive.

They said a consortium involving the Asea Brown Bovery (ABB)
was ready to develop two power projects with a power price of 5.3
cents per kWh.

CEPA was initially owned by a joint venture between Gordon (80
percent) and PT Impa (20 percent).

Informed sources at the Ministry of Mines and Energy said they
had brought a powerful politician and businessperson into the
joint venture to enable them to receive the Tanjung Jati C power
project.

Although the government had set the price of power for Tanjung
Jati C at 5.73 cents, Djiteng earlier promised that PLN's team of
negotiators would try to reach contractual terms which were
beneficial to PLN.

He said PLN would try to further reduce the power price from
the level set by Moerdiono in his letter of recommendation and
set the capacity factor -- the percentage of the plant's capacity
PLN was obliged to purchase -- to 30 percent.

"I believe PLN has considered its own interests as a company
in drafting the terms of the contract," Sudjana said.

Analysts said yesterday's agreement with CEPA had caused a
loss to PLN since the power price was higher than the price PLN
offered to customers, which was about Rp 170 (three cents) per
kWh.

Analysts also said by signing the agreement, PLN messed up its
effort to renegotiate power prices with independent power
producers.

The renegotiations have been conducted to reduce PLN's losses,
which were estimated to be $500 million for next year.

During the renegotiations, PLN offered to buy power from the
independent producers at a price 15 percent less than its selling
price and a capacity factor of 30 percent. (jsk)