Renegotiations with IPPs to start in February: PLN

JAKARTA (JP): State electricity company PT Perusahaan Listrik Negara (PLN) said on Friday that negotiations with independent power producers (IPPs) concerning the renewal of power purchase contracts would start next month and might take two years.

"We expect to start the renegotiations in February, and it may take two years to complete. But we hope to finalize it earlier," PLN President Adhi Satriya said at the palace after meeting with President B.J. Habibie.

Adhi was accompanied at the meeting by Coordinating Minister for Development Supervision and Administrative Reforms Hartarto, State Minister for the Empowerment of State Enterprises Tanri Abeng and Minister of Mines and Energy Kuntoro Mangkusubroto.

PLN has asked the 27 IPPs with which it has power purchase agreements (PPA) to renegotiate the contractual terms which it claims are too burdensome.

PLN has been severely affected by the economic crisis, which has caused the Indonesian currency to fall by over 70 percent against the U.S. dollar. The rupiah's sharp depreciation was a major blow to the company, which earns in rupiah but has to buy the power from IPPs in dollars. In term of rupiah, the price of the power bought by PLN is much higher than its selling price. PLN as a consequence could not fully honor the existing contracts.

PLN said earlier that even without the rupiah's sharp fall, the price levels agreed to in the contracts are still too high, especially when compared to those in other developing countries.

PLN's former president said he could not protest the prices because many IPPs had influence with local politicians.

The 27 IPPs mostly comprise international power companies in partnership with Soeharto's family and cronies.

Two IPPs have sued PLN and the Indonesian government at arbitration courts for breach of contract and many IPPs have recruited politicians to exert pressure on the government to honor the contracts.

Habibie has formed a cross-ministerial task force, including Hartarto, Kuntoro and Tanri, to supervise PLN in conducting corporate restructuring and renegotiating of contracts with IPPs.

Adhi said that PLN would find fair solutions to its disputes with IPPs during the renegotiations so that both parties could continue business on the long term.

Adhi refused to reveal the changes to the contracts PLN would propose during the renegotiation.

He earlier said the company would seek to reduce the price of power supplied by IPPs to around 4 U.S. cents per kilowatt hour (kwh) from between 6 cents and 8 cents.

But, Adhi said, PLN might ask IPPs to reduce the power prices lower than 4 cents.

"Four cents is the cost for PLN to produce one kwh of power. We only mentioned it as a comparison," Adhi said.

Adhi said PLN suffered a loss of at least Rp 5.9 trillion last year, up from a loss of Rp 579 billion in 1997.

But Adhi believed that the company would reach a break-even point this year provided that it was freed from the obligation of buying power from by IPPs.

Several IPPs are now in operation, including the gas-fired combined cycle power plant in Sengkang, South Sulawesi and the geothermal power plant in Salak, West Java.

Several other power plants are scheduled to begin operations this year, including the coal-fired Paiton I and Paiton II power plants in Probolinggo, East Java. (jsk/prb)