Power grid developer told to lower price or lose job
JAKARTA (JP): The developer of the controversial Kediri power transmission project has been given one month to reduce the value of its contract or lose the job, a senior government official said here on Tuesday.
Director general for electricity Endro Utomo Notodisuryo said that the contract value of the Kediri project should be lowered to that of a similar project in Depok.
"If in one month, the renegotiation fails to reach a price equal to that of the Depok project, then the (Kediri) project will be immediately retendered," Endro announced on the sidelines of a seminar on electricity subsidies.
The decision to renegotiate the Kediri project came after state electricity company PLN became suspicious that the contract value had been marked up.
A consortium of local companies PT PP and PT Indokomas won the tender to build a power grid in Kediri, East Java, to link the Paiton II power plant in East Java to a 200-kilometer overland electricity network to Klaten in Central Java.
The Rp 342.28 billion (about US$36.41 million) contract was signed in 1998 under former PLN president Djiteng Marsudi,
According to PLN, the contract for the construction of a similar transmission project in Depok, West Java, last year cost only Rp 136.7 billion.
Endro said that renegotiations with the Kediri consortium had begun on Monday this week.
The government, he explained, could no longer afford to postpone the Kediri project, which was already one year overdue.
"We're in a dilemma here. Due to the one-year delay in developing the project, PLN has suffered losses in business opportunities worth Rp 438 billion, which is more than the contract's value," he said.
PLN has been unable to utilize the electricity generated from independent power producer Paiton II due to the lack of infrastructure, especially transmission facilities.
Under a take or pay clause in PLN's power purchase contract with Paiton, the state company must also pay for Paiton's unused power. The value of the unused electricity supply has reached $310 million.
The Kediri project is one of 17 power transmission projects currently under development in anticipate of a surge in power demand.
PLN has been under financial distress since the outbreak of the country's worst ever economic crisis in late 1997. The plunge of the value of the Indonesian currency due to the crisis was a major blow to the company because the prices of the power it buys from independent power producers (IPPs), mostly in U.S. dollars, has far exceeded the level of it retail prices.
Endro said that the Ministry of Finance's decision to cancel a Rp 3.9 trillion subsidy extended to PLN last year further worsened the company's financial condition.
He said that according to the State Finance Comptroller, PLN should not be give the subsidy because its cash flow was positive. Whereas the subsidy, he went on, was allocated to cover only PLN's negative cash flow.
"We're therefore trying to tie this year's subsidy of Rp 4.1 trillion to cover the gap in electricity prices instead," he added.
Endro said the government was hoping to phase out electricity subsidy spending by the year 2005 or 2007.
"This would allow investors a better forecast on their rate of return," he explained.
Separately, the Indonesian Geothermal Association (INAGA) estimated that investors were unlikely to invest in new geothermal fired power plants within the next two to three years.
INAGA chairman Puguh Sugiharto said foreign and local investors were awaiting the completion of a geothermal law, which the government hopes to issue later this year.
He added that the uncertainty resulting from the renegotiation of IPPs contracts had also discouraged new investment here.
PLN has been renegotiating the contracts of 27 IPPs since the company became unable to purchase their power at the U.S. dollar rates stated in the contracts.
The government expects to finalize the renegotiation process in the first quarter of this year.
"Investor interest will pick up in three years, when it is expected that there will be a shortage of power due to increased demand," Puguh said on the sidelines of an INAGA meeting. (bkm)