Private power companies seek incentives from PLN

Private power companies seek incentives from PLN

JAKARTA (JP): Private power companies would refuse to
renegotiate with state-owned electricity company PLN over prices
unless PLN offered incentives, industry sources said yesterday.

Sources said PLN's latest proposal to renegotiate with private
power companies over prices was understandable, in light of the
difficulty PLN faced since it had to buy private power at prices
settled in dollars before the monetary crisis began.

PLN should give some kind of compensation to private power
companies in return for their willingness to reduce prices, they
said.

Compensation could be new licenses to develop new projects or
to increase the capacity of their power projects, sources said.

"I think that would be a good solution," said an executive of
a power company which had a stake in a large private power
project.

Such a measure was once introduced by the government to reduce
prices for the coal-fired Tanjung Jati B power plant in Central
Java.

Consolidated Electric Power Asia (CEPA) Indonesia, the project
owner, was willing to reduce power prices for the 1,320 MW
Tanjung Jati B power plant to 5.73 U.S. cents from 6.4 cents
after the government awarded it another project with the same
capacity.

PLN president Djiteng Marsudi said earlier he had been
ordered by Minister of Mines and Energy I.B. Sudjana to
renegotiate private power prices following the rupiah's sharp
depreciation against the dollar.

Djiteng said the crisis would make it hard for PLN to buy
private power in dollars since the dollar's value had
dramatically risen over the past several months while PLN's
earnings were in rupiah.

PLN had signed a dollar-based power purchase agreement with 29
private power companies before the crisis started affecting the
Indonesian currency early July. Since then, the rupiah has
depreciated by nearly 35 percent, or by about 40 percent since
January.

The private power companies set prices from 5.74 cents to 8.46
cents per kilowatt hour (kWh) for coal-fired power.

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

Some private power was scheduled to go on-line next year,
including a 1,230-megawatt (MW) coal-fired power plant owned by
PT Paiton Energy Co in Paiton, Probolinggo, East Java, and a 135-
MW combined cycle power plant in South Sulawesi, owned by PT
Energi Sengkang.

Rating

In a related development, Standard and Poor's said yesterday
it was seeking further information from the Indonesian government
about recent reports that private power purchase agreements with
PLN would be opened for renegotiation.

"Support from the Ministry of Finance and the Ministry of
Mines and Energy for PLN's obligations is a key consideration in
the ratings of power projects Standard and Poor's has assigned in
Indonesia," the ratings agency was quoted by Reuters as saying.

It said several independent power projects were rated BBB-
minus, including PT Paiton Energy Corp, CE Indonesia Funding and
DSPL Finance Co BV.

PLN's obligations to buy power from each of these projects was
underwritten by ministerial letters of support or guarantees.

Standard and Poor's said PLN's finances were under pressure
from the recent currency devaluation and the price of power had
increased about 40 percent since the contracts were first signed.

"Both the minister of mines and energy and the president
director of PLN have expressed concern about the high price of
the contracts for privately purchased power," the ratings agency
said.

However, existing private power obligations were only a small
part of PLN's hard currency obligations, with only 18 percent of
the capacity of the four rated projects nearing completion and
requiring payments in 1998.

"While the power project ratings are currently unaffected,
Standard and Poor's is concerned with the implications of the
recent announcements and is seeking reaffirmation from the
Ministry of Finance that the power purchase agreements for the
projects funded by rated debt, that is the Paiton-1, Dieng,
Patuha and Gunung Salak projects, will not be opened for
renegotiation," it said. (jsk)