Rules could make PLN subsidiaries' IPOs 'unattractive'

JAKARTA (JP): The government's tight control of electricity generation and distribution could make the initial public offerings (IPO) of the state-owned PT Perusahaan Listrik Negara's (PLN) two subsidiaries unattractive to investors, a PLN executive said yesterday.

PLN's president, Djiteng Marsoedi, said although the size and management of a company greatly determined the success of its IPO, investors usually looked at the prospects before deciding to buy its shares.

"In our case, where infrastructure facilities are involved, these prospects are determined more by government policies rather than market supply and demand," Djiteng told House Commission VI for industry, mining, manpower and investment.

"Thus, only a good business environment supported by sound government regulations can guarantee the listing's success," he said.

He said such a climate had yet to be created in Indonesia because government regulations heavily regulated PLN's two subsidiaries, PT Pembangkitan Listrik Jawa-Bali (PJB) I and II.

The two subsidiaries, part of the state-owned companies now being prepared to float their shares on the capital market, are required to market their entire power supplies to PLN.

"If PLN, as the single buyer and marketing agency, is disturbed by the growth of captive power or if industries don't grow as fast as they are expected to, the sales of PJB's power supply will also be slow," he said.

Captive power is the generation of electricity by individual companies or nonsubscribers of PLN.

Djiteng said PJB's gas procurement for the generation of its power plants were bound by contracts which required PJB to "take or pay".

"In the last few years, PJB I and PJB II have had to pay a deposit because their fuel procurement failed to reach the minimum level stipulated in the contracts," he said.

Djiteng said that while Indonesia had a growing market for electricity, it had to be shared between PLN and private companies.

"At the same time, there is no clear guideline on how big the role of the private sector and captive power are in providing power supplies," he said.

Djiteng said Law No. 15, 1985 on electricity needed revision to clarify PLN's and the private sector's roles under the National Electricity Plan.

Djiteng said PJB I and PJB II were being assessed by legal consultants and financial advisors to strengthen their management and portfolios.

House member Iskandar Mandji said that if PLN felt the climate was not favorable, it should postpone the listing of PJB I and PJB II.

"This is better than having regrets in the future," he said.

PJB I, established by PLN in late 1995, manages the Suralaya coal-fired plant and the Saguling hydropower plant, both in West Java, the Tambak Lorok steam power plant in Semarang and steam and gas power plants in Bali.

PJB II manages PLN's other power plants, including the Paiton coal-fired power plant, the Karangkates hydropower plant, the Gresik steam power station, the Grati steam power plant, all in East Java, and the Cirata hydro-power plant in West Java.

The private sector is currently allowed to establish power generating plants for its own needs and to sell to the public.

PLN alone manages fuel, coal and gas power plants with a total production capacity of 15,940 MW.

Non-PLN plants, which include the Jatiluhur Authority Project, PT Cikarang Listrindo, PT Inalum, PT Inco and PT Aji Ubaya, produce 356 MW of electricity which they sell to PLN, which distributes it.

Another 23 private companies and consortiums have signed power purchasing agreements with PLN and are expected to start operating next year. These companies have a generating capacity of 7,925 MW and sell their electricity to PLN for between 5.7 U.S. cents to 9.8 cents.

Twelve more private projects are being negotiated with a capacity of 3,368 MW.

Djiteng said that by 2002 Indonesia would have a power surplus of 191 MW, or about 1 percent of the 19,000 MW total demand. (pwn)