Tax dispute could hamper negotiation with IPPs

Tax dispute could hamper negotiation with IPPs

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The ongoing tax dispute between the tax office and geothermal independent power producers (IPPs) could hamper the contract renegotiation process between state-owned electricity company PLN and the latter, according to PLN president Eddie Widiono.

He said that such a situation would undermine PLN's efforts in trying to avoid an imminent power crisis in the country.

"We have used a certain tax calculation to amend their contracts ... any tax problem will hinder the process," he said over the weekend.

PLN agreed in the early 1990s to purchase power from 27 IPPs, of which 12 were geothermal power producers, to help meet growing power demand in the future. But, after the country plunged into an economic crisis in the late 1990s, the government suspended the power projects.

The government has urged PLN to renegotiate the contracts with the IPPs to obtain a better deal.

PLN is currently in negotiation with the geothermal IPPs. It has only managed to close a new deal with one: Amoseas Indonesia Inc.

The completion of negotiations with the geothermal power firms could help avert a power crisis as the 12 IPPs could generate a combined 3,040 megawatts of electrical power.

There has been a prediction that the Java and Bali regions would suffer a power crisis in 2006 if PLN did not identify sufficient additional power supplies.

However, geothermal power firms have been mired in a legal battle with the tax office over a controversial value-added tax (VAT) ruling.

The Directorate General of Taxes has ordered geothermal power firms and oil and gas companies still at the exploration stage to pay VAT from early 2000.

But the companies have protested the ruling, saying that it was against contracts signed with the government, which stipulated that electricity and oil and gas firms at the exploration stage could delay VAT payments until they had reached the commercial production stage.

The tax court has settled several cases, with a mixed outcome. Amoseas, for instance, lost a case against the tax office. The company, according to a source, is planning to file an appeal at the Supreme Court.

Experts have warned other IPPs would follow Amoseas' move should they lose their cases at the tax court, criticized by others as lacking independence.

Elsewhere, Eddie said PLN and Paiton Energy, an IPP which is developing the coal-fired power plant Paiton I in East Java, were expected to formally sign a new contract sometime in June.

According to him, PLN would purchase power from Paiton at 4.93 U.S. cents, down from an earlier 5.45 cents to 8.4 cents.

The new rates were verbally agreed by both parties at the end of last year, Eddie added.

The Paiton I power plant could generate 1,230 megawatts of power.

Paiton Energy president Ronald P Landry said the company would develop new power plants once the contract was signed.