PLN still struggles to recover from crisis
Johannes Simbolon The Jakarta Post Jakarta
This year, public utility PT PLN continued to struggle to cope with the problems and difficulties that have been confronting the company since the start of the economic crisis in the middle of 1997.
Last year, the company was busy seeking to renegotiate the power purchase agreements (PPA) that it had signed with independent power producers (IPP) prior to the crisis, so as to alleviate the financial burdens caused by the crisis.
The sharp depreciation of the rupiah against the dollar caused severe financial problems to the company, which sells its power to the public in rupiah but pays most of its operating costs, including the purchase of equipment, debt servicing and the purchase of power from IPPs, in dollars.
The good news is that negotiations between the state company and some IPPs bore fruit this year. The state company had signed PPAs with a total of 27 IPPs prior to the crisis.
PLN clinched deals with Amoseas on the new price for power from the latter's geothermal power plant in Drajat, West Java; and with PT Energi Sengkang on the new price for its power from the combined cycle power plant in Sengkang, South Sulawesi. Amoseas is owned by American energy firm ChevronTexaco, while Energi Sengkang is a consortium comprising El Paso of the United States, Energy Equity of Australia and Trisharsa Sarana Jaya Purnama, controlled by the daughter of former president Soeharto, Siti Hardiyanti Rukmana.
PLN agreed with Amoseas to reduce PLN's power price to 4.2 U.S. cents per kilowatt hour (Kwh) from 6.8 cents on the original contract, while the new price for power from Energy Sengkang has been agreed at 4.28 cents, compared to 6.7 cents on the original contract.
Tough negotiations are now in progress between PLN and PT Paiton Energy Co., which is controlled by American firm Mission Energy and Japanese firm Mitsui, on the new price for power from the latter's power plant in Paiton, Problinggo, East Java. Yet, both parties said they were optimistic about reaching a deal in March next year.
PLN had offered a similar price that had been agreed upon with Energi Sengkang and Amoseas, but Paiton insisted on a price of 4.9 cents for its power, which is actually much lower than the price set on the original contract. Under the 30-year original contract, Paiton, which was the first IPP to sign a PPA with PLN, set the price for its power at 8.4 cents in the first five years, 8.2 cents for the sixth to twelfth year of operation and 5.4 cents for the last 18 years of operation.
PLN has also signed a deal with Sumitomo Corporation of Japan on the resumption of the US$1.65 billion coal-fired project in Tanjung Jati, Central Java, which, along with dozens of IPP projects, was put on hold by the government in late 1997 as part of efforts to cope with the economic crisis.
The project, which is popularly known as the Tanjung Jati B project, will restart construction next year with a power generation capacity of 1,320 Megawatts.
Under the new agreement with Sumitomo, PLN will pay between 2.26 and 3.25 cents per Kwh to Sumitomo for power supplied from the power plant, compared to more than 6 cents on the original contract.
PLN and the government have also reached an agreement this year on the payment of insurance claims worth $260 million demanded by Overseas Private Investment Corporation (OPIC), which is the insurance arm of the United States government. The insurance claim resulted from the loss experienced by PLN in the international arbitration court that examined its dispute with American energy firm CalEnergy.
CalEnergy filed arbitration proceedings against PLN and the government put its geothermal power projects in Dieng, Central Java and Patuha in West Java on hold in 1997.
PLN and the government have also agreed to pay $15 million in insurance claims demanded by Multilateral Investment Guarantee Agency (MIGA), an insurance arm of the World Bank, in compensation for postponing the power project owned by American firm Enron Corp in Pasuruan, East Java.
PLN have also agreed with several IPPs, including the owners of the Tanjung Jati A power project, on the termination of their contracts.
The power industry looked "quieter" this year as PLN and the IPPs stopped using the media to blame each other for their respective problems.
In previous years, PLN loved to blame the IPPs for its financial problems, accusing them of acquiring their contracts through corruption, collusion and nepotism, pointing out the fact that almost all the IPPs were partners with Soeharto's family and their cronies.
In response to this, the IPPs, which are mostly big international corporations, threatened PLN with arbitration litigation while applying pressure, through their respective governments and multilateral lenders, on PLN and the Indonesian government to honor the PPAs.
While optimism has been growing that PLN will be able to settle its disputes with all the IPPs, a new problem has emerged: power shortage.
PLN warned on many occasions this year that it would impose rotating power cuts in some parts of the country due to a shortfall of supplies.
Former PLN president Kuntoro Mangkusubroto said in a seminar in Medan, North Sumatra in February this year that there are about 29 "critical" areas across the country prone to rotating blackouts. PLN had even instituted rotating power blackouts in the provinces of South Sumatra and Lampung, he added.
So far, there have been no reports of power blackouts on the Java-Bali grid this year, but director general of electricity at the Ministry of Energy and Mineral Resources Luluk Sumiarso has warned that the power supplies on the grid had been in a critical state.
Power plants on both islands have a total power generation capacity of 15,297 MW, while both islands need a total of 16,828 MW capacity to operate in a safe margin. The grid needs a reserve capacity of at least 30 percent in order to operate safely. This is to anticipate a sudden surge in demand, potential technical failure in one power plant or maintenance works.
Power demand on both islands could exceed supply by 2003, when the peak load is expected to hit 15,441 MW compared with the installed capacity of 15,285 MW, Luluk said.
PLN needs around $28.45 billion in new investment over the next 10 years to build new power plants and a power network to stave off a power crisis in Java, Bali and other parts of the country, Luluk added.
PLN has no money to make such an investment as it has remained in the red since the economic crisis began. It posted losses of Rp 0.6 trillion in 1997; Rp 9.2 trillion in 1998; Rp 11.4 trillion in 1999 and Rp 23.4 trillion in 2000. This year, its losses are projected at Rp 8.5 trillion.
The government has tried to help lift it from its financial difficulties by allowing it to raise power prices by an average of 30 percent last year and 22 percent this year. However, the company still has to rely on government subsidies to continue operating. Next year, the government has allocated Rp 4.1 trillion in subsidies.
PLN tried to solve the power crisis in several areas, such as South Sumatra and Lampung, by buying second-hand power plants from Malaysia's Tenaga Nasional Berhad. But, the measure could only provide a temporary solution rather than a long-term remedy.
For PLN and the government, the only solution is to seek offshore loans or invite foreign investors into the country. Unfortunately, this has not been easy.
Kuntoro said the lingering dispute between PLN and the IPPs have eroded the bankability of PLN, making it difficult for the state company to raise funds from the international market.
The disputes have also discouraged foreign investors in the country, while the low power tariff set by the government has become a disincentive.
Some analysts are optimistic that foreign investors will regain confidence in the country and will finally be willing to return to the country's power sector, citing PLN's success in settling its disputes with the IPPs and the government's commitment to allowing PLN to gradually raise power prices to a economically profitable level. The government has allowed PLN to raise power prices by an average of six percent for every quarter next year.
Yet, some people say foreign investors or lenders are not likely to regain their confidence in the country's power sector, given the serious damage caused by the dispute between PLN and the IPPs on the country's reputation.
During the seminar in Medan, Kuntoro voiced optimism that the central government would be able to find solutions to the power crisis in the short term. As such, he said, regional administrations should be active in thinking up ways to ensure power supplies in their respective jurisdiction.