Govt under foreign pressure in dealing with 'power' conflicts

Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie acknowledged that the government is under foreign pressure in dealing with the conflicts between the state electricity company PLN and its independent power producers (IPPs).

"The pressure is there, especially after funders of the electricy projects built by IPPs raised the problem with their respective governments," he told a hearing with the House of Representatives commission VIII on Tuesday night.

Kwik said that the problem had become a political matter and it was the reason why the government had also named Minister of Foreign Affairs as a member in the newly established team for the rehabilitation and restructuring of PLN operations, which also included himself, Minister of Finance and State Minister for State Enterprises and Investment Development.

The involvement of the Minister of Foreign Affairs was quite needed if the negotiations between PLN and IPPs faced deadlocks and had to involve their respectibe governments to settle the problem.

Kwik acknowledged that it might be easier for PLN, if it took the case to the court because most of the contracts given to IPPs involved corruption, but he said that the government decided not to take such schenerio and instead turned to the out-the-court settlement to solve the problem.

PLN president Kuntoro Mangkusubroto had said the state electricty company had reached a temporary agreement with independent power producer (IPP) Paiton Energy on their contractual dispute and expected to find a final solution within 10 months.

After reaching the interim agreement, renegotiations on the power purchase contract between PLN and IPPs would be resumed.

IPPs and PLN have so far agreed on two interim payment schemes until the completion of the renegotiations. Under the first scheme, PLN will buy the IPPs' power supplies at the exchange rate of Rp 2,450 per U.S. dollar, as against the current rate of Rp 7,450 per dollar, while under the second scheme, PLN will buy the power supplies from the IPPs at the price bilaterally agreed upon by PLN with each of the IPPs.

PLN is one of the state companies heavily affected by the economic crisis since it sells power in rupiah and spends most of its costs, including the cost of the purchase of power supplies from IPPs, in dollars. Due to the sharp depreciation of the rupiah against the U.S. dollar, the rupiah price of the electricity bought from IPPs had increased by more than 250 percent, far higher than the prices charged by PLN to its customers. (*)