Ministry warns of PLN?s growing financial risk

The Ministry of Finance (MOF) has sent a letter to the Ministry of Energy and Mineral Resources (MEMR) giving warning to the increasing financial risk of state-owned electricity firm PT PLN particularly due to huge debt load.

The MOF said in a statement obtained Wednesday that looking at the maturity profile of PLN?s debts, the obligation to repay the principal of the debt and interest rate will continue to rise over the next few years. On the other hand, sales of electricity has been weaker than projected, while the government has decided to prevent increasing electricity tariff. As such, PLN is facing the risk of defaulting on its debt, which will trigger cross default as the PLN debts are guaranteed by the government.

The ministry said that to help resolve the problem, there must be regulations to push for reduction in the production cost of electricity. The ministry also urged the MEMR to push PLN to carry out efficiency measures.

The MOF also suggested for a revision of the government?s five-year target to develop a combined 35,000 MW power plants through 2019 considering the limited funding capacity of PLN, which has primarily relied on debts in financing its investment including power plant projects assigned by the government.

?This is needed to maintain fiscal sustainability of (the government) state budget and financial condition of PLN which is one of the source of fiscal risks for the government,? the MOF said in the statement.

Editing by Reiner Simanjuntak