PLN underestimates arbitration ruling
JAKARTA (JP): PT Parusahaan Listrik Negara (PLN) on Thursday dismissed fears that other independent power producers (IPP) would follow MidAmerican Energy Holdings' move in settling their disputes with the state electricity company.
PLN president Adhi Satriya said he believed most of the IPPs with which PLN has power purchase contracts remain committed to the company's renegotiation program despite the ruling by an international arbitration panel in MidAmerican Energy's favor.
"PLN believes that its rationalization (renegotiation) process will not be deterred by the recent Himpurna California Energy Ltd. and Patuha Power Ltd. international arbitration decision regarding the Dieng and Patuha geothermal power projects," Adhi said in a statement.
The arbitration panel in its hearing in Jakarta found PLN had breached the power purchase contracts it had signed with MidAmerican's subsidiaries, Himpurna and Patuha, which have developed geothermal power plants in the Dieng area in Central Java and the Patuha area in West Java.
The panel ordered PLN pay US$572 million in damages for its negligence.
The panel, which is supervised by the United Nations Commission on International Trade Law (UNCITRAL), was presided over by an international attorney with panel members including an Australian businessman and an Indonesian judge.
MidAmerican, which was formerly known as CalEnergy Company Inc., said the arbitration panel made a unanimous decision in its favor.
It claims to have spent a total of $500 million on developing both geothermal projects since 1994.
Himpurna completed the construction of a 60 MW power generation unit at the Dieng power plant in March last year but, MidAmerican said, PLN refused to pay the company for the power, despite the take-or-pay clause in the power purchase agreements.
PLN buys power from IPPs in U.S. dollars but sells the electricity in rupiah. But PLN backed off the contract and refused to buy power from IPPs following the sharp depreciation of the rupiah against the U.S. dollar. At the current rate, the price of the electricity sold by PLN is only one-third of the price paid to IPPs.
MidAmerican also said Patuha Power had started the development of its power plant in Patuha but could not complete it, due to the government putting on hold dozens of power plant projects last year as part of the government's cutback policy to cope with the crisis.
The suspension of the project has lead to huge financial losses by the company.
Adhi said PLN and its advisers were studying the arbitration panel's decision and evaluating options under both Indonesian law and UNCITRAL arbitration rules.
He said, however, that it would take a long time for MidAmerican to obtain damages from PLN.
"According to legal observers, it may take years before parties resolve public policy issues and legal challenges related to enforcement in Indonesian courts," Adhi said.
"Given this extended timeframe, PLN expects most IPPs to continue to participate in the more expedient rationalization process."
PLN has been negotiating with 10 IPPs on alterations to several terms in their contracts, including pricing and take-or- pay clauses.
Adhi earlier said the renegotiation process might take between one year and two years to complete.
Although the process will lengthy, Adhi said, "The preferred mode of rationalization is more beneficial ... to all concerned, as it offers more meaningful ways and means to settle the differences and it is conducted with the full support of the Indonesian government."
PLN plunged deeper into the red last year with a net loss of Rp 9.156 trillion (US$1.1 billion) compared to losses of Rp 579.01 billion in 1997. The company last year received a government subsidy of Rp 1.9 trillion.
Another American firm, Florida Power and Lights Co., the majority owner of the Karaha Bodas geothermal power plant in West Java, also sued PLN last year for suspending its project. The results of this arbitration case are not yet known. (jsk)