Govt explains financial guarantee on PLN

The finance ministry issued a press statement on Monday to elaborate on the regulation issued in late August regarding the government?s guarantee on the business viability of state electricity company PLN in case the firm fails to fulfill its financial obligation to independent power producers (IPPs).

Under the finance minister?s regulation No. 139/PMK 011/2011, the government will guarantee PLN?s financial obligation such as the payment for the electricity to IPPs in case the state electricity company defaults the payment.

"The guarantee is given during the whole operation of the power plant under the contracts,? the finance ministry?s spokesman Yudi Pramadi said in a press release. He said that although the government would guarantee PLN?s financial obligation, it had asked the company to continue to improve its financial condition in order to avoid default.

To avoid the default risk, PLN is also required to report to government if there is an indication of default and explain in details the company?s efforts to overcome it.

The finance ministry said it had also named the directorate general of debt management and the fiscal policy agency to issue a recommendation to the finance minister to provide financial supports to PLN in order to prevent it from a default.

The regulation No. 139/PMK 011/2011 replaced the regulation PMK Number 77/2011 which was issued earlier as a guideline on the issuance of a guarantee of the business viability of PLN for the construction of power plants or transmission by private companies. (*)