PLN urged to negotiate private power prices

JAKARTA (JP): Minister of Mines and Energy I.B. Sudjana ordered state-owned electricity company PLN to renegotiate with private power companies over prices following the rupiah's sharp depreciation against the U.S. dollar, company president Djiteng Marsudi said yesterday.

Djiteng said the order was given because PLN could no longer afford private power at prices settled in dollars before the monetary crisis beset the region.

"PLN will go bankrupt if it has to buy power at such prices in the future," Djiteng said.

PLN's power purchase contracts with private companies are set in dollars, while PLN earnings are entirely in rupiah.

PLN signed power purchase agreements with 29 private power companies with the last agreement signed with PT Power Jawa Barat in June, one month before the monetary crisis started.

The price of private power, especially from coal-fired plants, has sparked controversy from the outset as analysts and House members dismissed it as too expensive.

Private coal-fired power plants have set prices ranging from 5.74 U.S. cents to 8.46 cents per kilowatt hour (kwh) with the Tanjung Jati A power project in Central Java being the only one to offer prices below 6 cents per kwh.

The rupiah rate was between Rp 2,300 and Rp 2,400 to the dollar when the purchase agreements were signed, but the rupiah has lost about 32 percent of its value since July, closing at Rp 3,550 to the dollar yesterday.

Analysts say PLN has to raise the price of its power by more than 32 percent from the current average price of Rp 165 per kwh to cover the cost of private power.

However, observers foresee the public not accepting such a price hike.

Djiteng said PLN had been renegotiating with several private power companies to follow up on Sudjana's order.

He said PLN not only asked for lower prices during the renegotiations but also demanded 15 percent of profits earned by private power plants. He did not specify the amount of prices proposed.

Djiteng did not say which companies PLN was renegotiating prices with.

Captive power

As part of the rescheduling policy issued last month, the government has postponed 13 of 29 private power projects which had signed power purchase agreements with PLN, put six others under review and allowed ten others to continue.

Djiteng said earlier that PLN had projected that it could lose at least Rp 1.5 trillion ($421.3 million) next year due to the rupiah's depreciation.

He said the company was burdened by the depreciation as it had to pay most of its debt in dollars, while earnings were in rupiah.

Also, it had to bear additional costs with a possible increase in gas and diesel fuel prices, which PLN had to buy in dollars as well.

Sudjana said among measures to be taken by the government to help PLN solve its financial problems was to limit the development of captive power.

Such a measure would help PLN improve its access to the large market potential in the industrial sector, Sudjana said.

Government data shows that there are 9,000 megawatts (MW) of captive power plants in Indonesia, mostly owned by industrial and commercial companies.

But a source at PLN said the country's captive power plants generated up to 16,000 MW, higher than PLN's generation capacity of 15,940 MW.

The source said owners of captive power plants enjoyed most of the government's fuel subsidies as they only had to pay Rp 380 per liter of diesel fuel to state-owned oil and gas company Pertamina, compared to the international market price of Rp 1,100.

The source said a power plant needed 0.3 liters of diesel to generate 1 kwh power. (jsk)