Sulawesi Energy, PLN reach deal on power plant

JAKARTA (JP): State electricity company PT PLN and independent power producer (IPP) Sulawesi Energy Pty Ltd have reached a long- term agreement to reduce power tariffs at the Sengkang power plant in Sulawesi, the IPP's shareholder Energy Equity Corporation Ltd from Australia said on Friday.

Energy Equity managing director Steward W.G. Elliot said that Sulawesi Energy agreed to a "significant" cut in its contracted power tariffs.

"Negotiations have been going on for almost two years to resolve the tariff issue, and I'm pleased to say that this is now being done satisfactory," Elliot told reporters on the sideline of a joint press meeting with Minister of Industry and Trade Luhut Pandjaitan and his Australian counterpart, Mark Vaile.

He declined to explain the details of the agreement, but under the original contract, Sulawesi Energy would charge PLN 6.7 U.S. cents per kilowatt hour (kWh).

According to him, the deal would enable PLN cost savings of hundreds of millions of U.S. dollars throughout the contract's 20 year lifespan.

PLN officials could not yet confirm the deal.

The 135 Megawatt (MW) Sengkang power plant is 47.5 percent owned by Energy Equity, and another 47.5 percent by Elpaso Energy International.

The rest is owned by PT Triharsa Sarana Jaya Purnama, a company affiliated to former president Soeharto's daughter, Siti Hardiyanto Rukmana.

Sulawesi Energy is one of 27 IPPs that signed power purchase agreements with PLN during the early nineties.

But the economic crisis in 1997 cut off demand, crippled PLN's capability to purchase IPPs' power.

Under the existing contract, PLN should buy electricity from an IPP in U.S. dollars, which has more than tripled in value against the rupiah since the crisis started to hit the country.

PLN has since been trying to renegotiate their contracts, including canceling those that haven't yet begun construction.

The state company has said it would need to pay IPPs $133 billion for 30 years under the original contract.

Aside from Energy Sulawesi, PLN has so far managed to finalize renegotiations for the Darajat, Paiton I, and Tanjung Jati A power plants.

According to PLN, the long term agreement for the Drajat power plant would result in savings of US$277 million over 30 years.

The government expects to complete all renegotiations within the first quarter of this year.

Elliot said he expected that Sulawesi Energy and PLN could finalize the administration process of the deal soon.

As a compensation for lowering its tariffs, he went on, Sulawesi Energy was allowed to extend the capacity of its current plant.

He said that the company would build another 50 Megawatt plant onto the existing one, to meet growing power demand in Sulawesi.

"Power growth in Sulawesi has exceeded our expectations. It's been growing in the excess of 12 percent per annum," he explained.

Elliot attributed the growth to a surge in both, household and industrial power consumption.

"With new economic growth, and regional development they (Sulawesi) are expecting an even bigger demand," he continued.

For its part, Energy Equity would invest about 15 million Australian dollars for the construction of the 50 MW plant.

Elliot added his company was interested in other projects in the Indonesian power sector.

"We're looking forward to building even larger power projects," he said, adding that they may include coal and gas fired power plants.

According to him, Energy Equity can offer PLN a power tariff of under 4 U.S. cents for coal fired power plants in the future.

He said that although it was too early to further disclose Energy Equity's investment plans, he said that they were "a long way ahead" in their preparations.

Trade minister Luhut said during the meeting that Energy Equity was interested in several of 22 power projects outside Java.

Indonesia needs more power, with nationwide demand returning to its pre-crisis level of 12 percent growth a year, according to PLN.

But the snail-paced renegotiation process between PLN and IPPs has discouraged most foreign power investors. (bkm)