PLN struggles for survival amid crisis

PLN struggles for survival amid crisis

By Johannes Simbolon

JAKARTA (JP): State-owned electricity company PLN is
struggling to survive amid the monetary crisis, which has hit the
country since early July.

The company has been the most-affected state company by the
crisis, which has cut the value of the rupiah by about 60 percent
in the last six months.

Unlike PLN, other state companies under the Ministry of Mines
and Energy -- oil and gas company Pertamina, gas distributor
Perusahaan Gas Negara (PGN) and mining companies Aneka Tambang
and PT Tambang Timah -- have received windfall profit from the
crisis.

The companies, except PGN, booked higher revenue as most of
their products were exported.

PLN announced a fall in profit to Rp 301.7 billion in 1997,
from Rp 1.07 trillion in 1996, due to the rupiah's sharp
depreciation against the dollar and it forecast a loss of up to
Rp 1.31 trillion for next year.

The decrease in profit and the losses have occurred because
the company mostly buys fuel and equipment for its power plants
and the power from independent power producers (IPP) in dollars,
while its revenue is in rupiah, which has lost about 60 percent
of its value against the dollar since July.

Company president Djiteng Marsudi has repeatedly revealed the
situation to the government and the House of Representatives in
search for help.

In several meetings with the House, Djiteng did not only blame
PLN's poor financial performance on economic conditions but also
"political" factors.

He said many "outsiders" had intervened in the bidding of the
company's projects to force the company to accept contractual
terms which would cause losses to the company.

"I know the risk from speaking up about this, but I am
revealing this for the sake of the country," Djiteng said during
a hearing with the House.

He said he agreed with the involvement of the private sector
in the power industry in line with the worldwide trend to
privatize power, but he said such economic deregulations should
be coupled with political deregulations to prevent power holders
from controlling the power sector.

Djiteng refused to name the outsiders, but analysts are well
aware that Djiteng pointed to the small number of conglomerates,
politicians and foundations who control most of the country's
power projects.

Minister of Mines and Energy I.B. Sudjana unfortunately seemed
reluctant to support Djiteng's openness, saying he never pried
into PLN's affairs nor saw any intervention by outsiders.

Djiteng has been left alone in his self-made struggle and as
an anticlimax, he closed the year by signing last Friday the
power-purchase agreement with CEPA Indonesia for the
controversial Tanjung Jati C power project in Jepara, Central
Java.

The US$1.62 billion project was awarded to CEPA on the back of
a letter of recommendation by Minister/State Secretary Moerdiono
in August as a reward for the company's willingness to reduce the
price of power for its first project, Tanjung Jati B.

CEPA plans to build Tanjung Jati B next to Tanjung Jati C,
both with the same power capacity of 1,320 megawatts (MW).

CEPA was willing to reduce the price of power for Tanjung Jati
B to 5.73 U.S. cents per kilowatt hour (kWh) -- similar to
Tanjung Jati C's price -- from 6.4 cents under the previous
power-purchase agreement signed in 1996.

CEPA was initially owned by Hong Kong businessman Gordon Wu
(80 percent) and Indonesian company PT Impa (20 percent), but
informed sources said they had brought a powerful politician and
businessperson into the consortium to be able to obtain the new
project.

By signing the agreement, analysts see Djiteng as surrendering
to what he spoke against throughout the year: intervention.

Efficiency

What will happen next year? Analysts say PLN will remain busy
with efforts to solve its financial problem amid the continuing
economic crisis.

In meetings with the House, Djiteng mentioned solutions to
PLN's financial problems: improving the company's efficiency,
increasing the electricity price and reducing the price of power
bought from IPPs.

To improve efficiency, he said, PLN would switch from foreign
manufacturers to local manufactures to supply it with power
equipment. This would reduce dollar expenditures.

Djiteng also said PLN would approach Malaysian and Singaporean
power companies to relocate old power plants they were going to
dismantle to Indonesia. As a reward, they would obtain a stake in
the relocated power plants.

"I have seen for myself that the power plants are still
useful, even though they are already old," he said at a House
hearing.

PLN increased the price of electricity by 6.74 percent for
three months to an average Rp 175 (3.5 cents) per kWh starting
last October.

The electricity price was raised as an adjustment to the
increase in fuel prices and the depreciation of the rupiah
against the dollar.

Law

The existing law allows PLN to adjust the price of power every
three months based on the fuel price, the rate of the rupiah
against the dollar and inflation. The increase in the power price
is based on the power-base tariff set by the government in
November 1994.

The increase in the power price since October is based on the
increase in the fuel price, inflation and the rate of rupiah's
depreciation against the dollar in the first quarter of the year.

The rupiah's sharp depreciation since the third quarter of the
year would be accounted for in the new electricity price
effective in April.

"Don't be surprised if the price of power rises considerably
starting in April next year," Djiteng said.

However, PLN finds the every-three-month price increase not
enough to compensate for its losses from the rupiah's
depreciation against the dollar.

Djiteng asked the government to increase the power-base tariff
of November 1994 to allow PLN to charge a much higher price.

But Sudjana turned down the request for fear that a big
increase in the power tariff during the economic crisis could
worsen the economic and sociopolitical situation.

Analysts believe PLN will again ask for an increase in the
1994 base-power tariff next year following encouragement by the
World Bank, which put a considerable increase in the base-power
tariff as a condition for PLN to obtain a loan from the agency.

Reports on PLN will still be colored next year with stories on
its efforts to renegotiate the terms of its power-purchase
contracts with the IPPs.

Twenty-nine IPPs have signed power-purchase contracts with
PLN, but the government has put 11 power projects on hold to cope
with the economic crisis.

Sudjana has ordered PLN to renegotiate the price of IPP power
following the rupiah's depreciation against the dollar.

According to existing contracts, PLN has to buy power from the
IPPs for between 5.73 cents and 8.4 cents per kWh, while it sells
it to the public for an average Rp 175 per kWh.

During the renegotiations, PLN has asked for an IPP power
price 15 percent less than PLN's power price.

PLN has not only renegotiated the power price but also other
contractual terms.

Djiteng said PLN only proposed to buy 30 percent of the
capacity of private power plants, instead of 80 percent under the
existing contract, and also to buy a stake in the private power
plants.

PLN has thus far only had a stake in one of the 29 private
power projects -- the Asahan hydropower plant in North Sumatra
through its subsidiary PT Pembangkitan Listrik Jawa Bali II.

Djiteng said PLN had been negotiating with several IPPs, whose
power plants had been connected to the PLN power grid, including
the Sengkang combined-cycle power plant in South Sulawesi and the
Salak geothermal power plant in West Java.

So far, renegotiations, which have been lasting for two
months, have not been productive.

Sudjana recently said he would still allow PLN to continue
with the renegotiations, but warned he would intervene if PLN was
unsuccessful.

Table: PLN financial highlights (in trillion)

1997-A 1997-E 1998-E

(as of Sept) (as of Dec) (as of Dec)

Assets n.a Rp 56 n.a

Net sales Rp 8.02 Rp 11.51 Rp 12.48

Operating expenses Rp 6.49 Rp 9.94 Rp 12.18

Operating profit Rp 1.53 Rp 1.56 Rp 0.3

Maturing debts Rp 0.98 Rp 1.26 Rp 1.62

Net profit (loss) Rp 0.6 Rp 0.31 Rp 1.31

Note:

1. PLN's total liabilities reach Rp 26.4 trillion,
including Rp 23.2 trillion long term debt and Rp 3.2 trillion
short term debt.

2. All figures are based on the rate of Rp 3,000 for one US
dollar.

Source: PLN's reports