PLN suffers Rp 5.26t in losses from inefficiency

PLN suffers Rp 5.26t in losses from inefficiency

JAKARTA (JP): Inefficiencies at state electricity firm PT PLN
have cost the company Rp 5.26 trillion (about US$750 million) per
year, while the mismanagement of reforestation funds has left the
government suffering $5.25 billion in losses, according to
independent audits.

Disclosing the results of the audit by Arthur Andersen,
Coordinating Minister of Economy, Finance and Industry Kwik Kian
Gie said PLN suffered an average of Rp 5.26 trillion in losses
per year in the period from 1995 to 1998 due to inefficiencies in
investment and operations.

Inefficiencies in investment amounted to Rp 4.14 trillion per
year, or 38.69 percent of total annual investment, while
inefficiencies in operations reached Rp 1.12 trillion per year,
or 15.33 percent of total operation costs, Kwik added.

Inefficiencies in investment included premature investment (Rp
1.64 trillion), procurement of materials (Rp 2.5 trillion) and
costly project financing.

Regarding inefficiency in operational costs, Kwik said PLN's
loss of Rp 1.12 trillion was primarily due to the high price of
gas transportation and the take-or-pay clause in its gas purchase
contracts.

The audit, however, did not cover the controversial power
purchase agreements (PPAs) signed by PLN and 27 independent power
producers in the period.

The PPAs are believed to have significantly increased PLN's
operational costs.

Minister of Mines and Energy Susilo Bambang Yudhoyono said he
would consider auditing PPAs when it was deemed necessary.

Disclosing the results of audits on reforestation funds by
Ernst & Young, Kwik said the Indonesian government suffered a
total loss of $5.25 billion due to the inefficiency and the
mismanagement of its reforestation funds in the period from April
1, 1993 to March 31, 1998.

He said the government lost $3.40 billion in the period
because of a misuse of funds, illegal logging and irregularities
in the collection of the funds during the period. It also lost
$1.85 billion from potential interest on the missing $3.40
billion.

The reforestation funds are collected from logging companies
to finance the rehabilitation of forests damaged during logging
activities.

The funds, however, had been used for other purposes,
including industrial forestry projects, sports events and
airplane projects.

Kwik said the inappropriate use of the funds for industrial
forestry projects caused a loss of $223 million during the
period. The misuse of the funds for the airplane project of PT
Industri Pesawat Terbang Nusantara and the Southeast Asian Games
sporting event caused $669.9 million in losses.

Soeharto's instruction to deposit the funds in state-owned
banks also caused the government to lose the opportunity of
receiving an interest income of about $120.9 million as state
banks paid lower interest rates than private banks, Kwik said.

Kwik advised the public that the losses were the results of
inefficiency and mismanagement, not of corruption, collusion and
nepotism.

"We are not covering up corruption. There is a distinct
different between inefficiency and corruption because somebody
can be very, very honest but not efficient. If there are
indications of corruption, then we will conduct an investigative
audit," he said.

The auditing of PLN and the reforestation funds is part of the
first phase of international auditing agreed upon by the
International Monetary Fund and the government.

Also, as part of the first phase of the auditing program,
PricewaterhouseCoopers and Arthur Andersen earlier completed the
auditing of state oil and gas company Pertamina and the National
Logistics Agency respectively.

Kwik said the government would soon hold the second phase of
the auditing program with the international auditing of national
flag carrier PT Garuda Indonesia, state toll road company PT Jasa
Marga, state seaport company PT Pelindo, state telecommunication
companies PT Telkom and PT Indosat and state plantation company
PT Perkebunan Nusantara. (jsk/rid)