Rules could make PLN subsidiaries' IPOs 'unattractive'

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)