Govt's refusal to swap its PLN loans into equity practically sends PLN into bankruptcy

The government's refusal to swap its loans of Rp 21 trillion to state electricity company PT PLN into equity will practically send the electricity firm into bankruptcy. Based on limited liability law, PLN has met all the criteria to be declared bankrupt as it has continuously booked losses.

Legislator Irwan Prayitno, chairman of the House of Representatives' Commission VIII on energy and mining, said he regretted the government's refusal to convert its PLN loans into equity, as it would only make the company more in troubles.

"If the government is reluctant to help its own companies, it means that it agrees to send the companies into bankruptcy," Irwan said. He acknowledged that liquidating PLN was one of the options to solve mounting problems in the debt-ridden company.

Coordinating Minister for Economic Affairs Rizal Ramli said on Friday that the government would not convert its loans to PLN into equity because it would make a bad precedence for all state firms that owe huge amount of debt to the government.

"State companies were free in making debt because what in their mind was that the government would eventually take over the debt. We will never do it again," Rizal said. He suggested PLN to re-evaluate its assets to help tackle all of its problems.

Legislator Emir Moeis, deputy chairman of the Commission VIII, shared with Rizal's argument, noting that it would be better for the government to file a bankruptcy petition against PLN at the bankruptcy court, and take over all the assets and form a new company to run all the assets.

"I agree (with Rizal) in a bid to educate all state firms. I see what Pak Rizal is doing is to educate state firms, that in the past were so spoiled," Emir said.

But Emir warned the government to consider all the impacts of its policy, especially the impacts on common people, as PLN serves the interests of all people from all walks of lives.

PLN's short terms debts total Rp 43.5 trillion, of which Rp 21 trillion is owed to the government. PLN has submitted a proposal to the government to convert its Rp 21 trillion debt into equity to reduce PLN's finance..

PLN president Kuntoro Mangkusubroto once disclosed that PLN would likely suffer a net loss of Rp 4.04 trillion this year, partly because of the soaring burden of paying private electricity. PLN booked a total loss of Rp 11.1 trillion in the past two years, a stark contrast from the situation in 1996 when PLN booked a net profit of Rp 1.1 trillion.

Because of financial difficulties, PLN has warned all of its customers in Sumatra, Kalimantan, Sulawesi, Maluku and Irian Jaya of frequent electricity blackouts. And this situation would continue until PLN's finance improves and it could take aside funds for new investment. PLN has also warned that there would be electricity crisis in Java and Bali in year 2003 if there is no new investment in electricity sector. (*)