U.S. Exim Bank delays taking over $180 million Paiton debts

U.S. Exim Bank delays taking over $180 million Paiton debts

JAKARTA (JP): Edison Mission Energy, the main sponsor of the
independent power producer PT Paiton Energy, said on Wednesday
that the Export Import (Exim) Bank of the United States had
delayed taking over US$180 million in loans extended by
commercial banks to the power producer.

"No one involved in the project expected the U.S. Exim Bank to
replace the commercial lenders (by Oct. 15)," Edison Mission
Energy president Edward Muller told reporters here via a
conference call.

He said that the delay was mainly due to state owned
electricity company PT Perusahaan Listrik Negara (PLN) last week
bringing the power producer to court on charges of performing
unfair and corrupt acts in their power purchase contract.

PLN demanded in its law suit that the court declare the 1994
contract with PT Paiton Energy null and void.

PLN claimed that the Power Purchase Agreement (PPA) was
unlawful, unfair and not transparent, thus, the court should
declare the contract void and not enforceable.

The PPA, according to the company, was set at a too high price
for the power price produced by Paiton, and the company had kept
refusing to lower the price during negotiations over the past
seven months.

Paiton sells its power to PLN at the price of 8.5 U.S. cents
per kilowatt hour (kWh) for the first to sixth year of the
contract and the price will progressively fall to 5.5 cents per
kWh until the 30th year, when the contract expires.

Muller said that the Oct. 15 deadline would be extended, but
did not say for how long.

The U.S. Exim Bank, under their existing financing agreement
for the Paiton plant, was supposed to replace about $180 million
of loans extended by a group of commercial banks by Oct. 15,
after the completion of the $2.5 billion plant.

The U.S. Exim Bank itself has lent $540 million to the plant.
Other lenders are the Export Import Bank of Japan and Japan's
Ministry of Trade and Industry, which lent a total of $900
million, and the Overseas Private Investment Corp. of the U.S.
which gave $200 million.

In response to PLN's action Paiton filed an arbitrary lawsuit
against the state owned electricity company to preserve the
sanctity of its Power Purchase Agreement with PLN, and to protect
the interest of its shareholders, lenders and credit support
providers.

"It is our understanding and strong belief that the provision
of the contract between PLN and the project provide for
arbitration and that the arbitration will not be affected by any
court action," he said.

However Muller reiterated Paiton's readiness to renegotiate
the power supply contract with PLN if both parties drop their
charges.

"We stand ready to recommence negotiations with PLN and the
government of Indonesia," he said.

He said that Paiton had been prepared for more than a year not
only to negotiate an interim restructuring agreement, but also a
long-term restructuring agreement.

Paiton, he added, had offered PLN an interim agreement which
reduces the existing price of electricity of 8.5 U.S. cents per
kilowatt-hour (kwh) to only 3.3 cents per kwh for a period of a
little more than one year.

In addition it also offered the pegging of the U.S. dollar at
a rate of Rp 2,450 for all PLN payments for the same length of
period as above, even though the current rate was now at about Rp
8,000.

Muller said the interim offer was made prior to PLN filing its
suit in the Central Jakarta District Court.

He assured such an offer was not because there had been any
corruption when forming the contract.

"We categorically reject any such notions, not only because
there is no evidence but because we know there was no corruption
involved in the negotiation of this project," Muller said.

Muller also said that the commercial lenders had been
negotiating with Paiton to give the plant more room to have
further talks on the possible restructuring agreement with PLN.
An extension of the grace period on the debt repayment of Paiton
would most likely be granted.

"It is our expectation that this (an interim agreement with
Paiton) will be signed this week," he said.

He did not recall for how long the extension of the grace
period would be granted.

Paiton is owned by Japan's Mitsui (32.5 percent), Edison
Mission of the United States (40 percent), General Electric, also
of the United States (12.5 percent) and local firm PT Batu Hitam
Perkasa (15 percent).

Batu Hitam is owned by PT Catur Yasa/PT Wahanaputra Aluraya
(33.3 percent), PT Tirtamas (33.3 percent) and PT Swabara Bumi
(33.3 percent).

Tirtamas is owned by tycoon Hashim Djojohadikusumo, who also
owns shares in Swabara.

The coal-fired Paiton I power plant, located in Probolinggo,
East Java, came on stream in May this year. (udi)