PLN told to honor contracts

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto is trying to find a solution to the payment dispute between the state electricity company, PT PLN, and its gas and power contractors.

Kuntoro told reporters over the weekend that he had ordered PLN to continue negotiating with the gas producers and the Independent Power Producers (IPP) over the payment for the gas and power supplied to PLN.

The negotiations were underway, he said.

Kuntoro asked PLN in the negotiations to honor its contracts with the gas producers and IPPs, saying "the contracts are sacred."

But contractors were also expected to realize PLN's current difficulties to fulfill the contractual terms, including the terms of payment, he said.

Kuntoro proposed a payment formula under which PLN could pay its debt to the gas producers and IPPs in installments but he did not elaborate.

PLN has claimed that it cannot fully pay its gas and power suppliers at present following the rupiah's sharp depreciation against the dollar. PLN gets revenues in rupiah but it has to buy its gas and power in U.S. dollars.

PLN says it is only ready to buy the gas and power at the precrisis exchange rate of Rp 2,450 to the dollar.

The rupiah's exchange rate with the greenback has ranged between 7,500 and 8,500 recently.

The angry gas suppliers and IPPs said PLN had broken the contracts under which it had to pay for their gas and power on the basis of the prevailing exchange rate.

The government has given some subsidies to PLN but these were only enough to cover the gas and power payments for the first three months of the year.

The government has said it would not extend additional subsidies to the company, calling on the company to negotiate terms of payment with its contractors.

Kuntoro also said he had ordered PLN to boost its efficiency by changing its material-procurement system.

He instructed PLN to procure all its spare parts only from its subsidiary PT Pembangkitan Jawa Bali I. (jsk)