Power contract terms reworked soon: PLN
JAKARTA (JP): Cash-strapped state electricity company PT Perusahaan Listrik Negara (PLN) will soon start renegotiating agreements with independent power producers (IPP).
PLN's president Adhi Satriya said in a statement on Monday that PLN had sent letters to the IPPs notifying them of its readiness to start renegotiating the contracts.
"Earlier today, letters were sent to the IPPs to commence discussions. Over the next few months, we will continue meeting with IPPs and working with them to iron out mutually acceptable solutions," Adhi said.
He said PLN's renegotiation team, made up of the company's senior officials and multi-disciplinary staff, had gathered data and made analyses of the country's economic situation to estimate PLN's short-term financial condition and to find resolutions that would be fair to all parties.
Adhi preferred the term "contract rationalization" to "contract renegotiation".
PLN has power purchase agreements (PPA) with 27 IPPs but it could not fulfill its contractual obligations following the sharp depreciation of the rupiah against the dollar since mid-1997.
The state company generates earnings in rupiah but has to pay most of its costs in dollars, including the purchase of power supplies from IPPs.
PLN announced huge losses over the past two years and it now relies on government subsidies to survive.
PLN has argued that the power prices set in the contracts are too high and has therefore asked the IPPs to lower the prices.
The IPPs, which are mostly international power companies collaborating with business people linked with former president Soeharto, have expressed concerns over PLN's move, and some have lodged charges against the state company at international arbitration courts for breach of contract.
However, several IPPs have hinted that they would be ready to compromise given the financial troubles suffered by PLN in the economic crisis.
Adhi said the renegotiations had several objectives, including a contractual structure that is commensurate with PLN's financial resources and restructuring goals.
It also aims at improving the overall efficiency of the country's power industry; meeting international standards for disclosures and transparency; and maintaining Indonesia's attractiveness to investors in the power sector.
Adhi said PLN had always considered a fair resolution of its contracts with IPPs as a top priority.
"While PLN needs to assure that its customers have adequate and affordable electricity, PLN also understands that IPPs need legal certainty and predictability," Adhi said.
He said PLN would duly explain the planned contract rationalization process to multinational institutions, including the Asian Development Bank (ADB), the World Bank, and the U.S. state-owned Overseas Private Insurance Corp (OPIC). (jsk)