Govt issues ministerial decree on IPP power purchase price

A ministerial decree has cleared the way for state-owned power utility PT Perusahaan Listrik Negara, or PLN, to pay improved prices for electricity purchased from independent power producers (IPPs), a senior official at the Ministry of Energy and Mineral Resources said on Monday, The Jakarta Globe reported Tuesday.

Under the decree, issued last week and aimed at spurring new investment in the electricity sector, Jacobus Purwono, the ministry?s director general of electricity, said PLN was required to seek approval from the ministry every time it intended to put a project out to tender or directly appoint a contractor.

PLN may buy electricity generated from renewable energy, fossil fuels or new energy.

?The benchmark for PLN in setting prices will be economic feasibility, meaning it must support the creation of a good investment climate,? Jacobus said.

?Prices may differ from one project to another, depending on a variety of aspects such as location, capacity and the type of power plant,? he said.

He said the ministerial decree had already proved effective in attracting investors, including a subsidiary of state oil and gas firm PT Pertamina, which is planning to resurrect the Karaha Bodas geothermal project, and a joint venture set up by Australia?s Greenearth Energy and the Santini Group, which belongs to the tycoon Sofyan Wanandi.

?We will participate in the second phase of PLN?s fast-track project,? Sofyan said, referring to the utility?s generating-capacity expansion program. ?I?ve heard that the government is going to increase the purchase price to 7.5 cents a kilowatt hour.?

However, the new decree has nothing to say about floor and ceiling prices. It only states that PLN should pay attention to macroeconomic indicators, and that prices should be determined based on a consensus between PLN and the IPP in question.

Separately, Abadi Poernomo, the president director of Pertamina Geothermal Energy (PGE), a Pertamina subsidiary, said the new decree was open to multiple interpretations.

?I would have thought that it would have provided an opportunity for the renegotiation of existing contracts,? Abadi said.

Abadi said that PGE sold power to PLN from its units in Kamojang, Garut, West Java Province, and Sibayak, North Sumatra Province, at between 4 and 4.5 cents per kilowatt hour, which he said was well below its economic value.

?The commercial price for geothermal electricity should be between 7 and 9 cents,? Abadi said.

?The intention behind the decree is very good, but we need written assurances that the power prices will be economically feasible,? he added. (*)