PLN claims financial condition remains solid

Petromindo

State-owned electricity firm PT PLN said its finances are still solid and it is able to carry out massive power plant projects assigned by the government, dismissing earlier concerns expressed by the Ministry of Finance (MOF).

?Our financial position remains strong. We?ll continue with the 10,000 MW power plant projects,? PLN President Director Sofyan Basir said on Wednesday, referring to the government?s program to develop 35,000 MW power plants, in which PLN is committed to develop 10,000 MW and the remaining 25,000 MW to be developed by independent power producers.

Sofyan made the remarks following a letter from the MOF to the Ministry of Energy and Mineral Resources (MEMR) and the Office of the State Minister of State Owned Enterprises, which was leaked to the press Wednesday, on the warning of PLN?s growing financial risk due to its huge debt load and weaker revenue, which put the company at the risk of defaulting on debt payment as debts are set to mature in the next few years.

Sofyan said that the utility company will continue to implement the 10,000 MW power plant projects through 2025. He said that the company?s financial condition is solid, pointing out to cash position of Rp 63 trillion, and standby loan worth of Rp 30 trillion.

He added that PLN?s total assets are worth Rp 1,300 trillion with equity of Rp 900 trillion, while total debts and interest cost stood at Rp 300 trillion. He said that the debt level is still manageable.

Minister of Energy and Mineral Resources Ignasius Jonan told reporters Wednesday, following a meeting with President Joko Widodo to discuss the issue, that PLN has been allowed to reschedule some of the projects, or hand some of them over to private investors if the utility firm?s finances are in difficult situation. ?But the company?s current financial condition is still able to continue the projects with total capacity of 10,000 MW,? he said.

PLN will need around US$10 billion for the construction of the 10,000 MW power plants and the required transmission lines.

Jonan added that there will be no increase in electricity tariff this year.

In its letter, which was reported by this portal Wednesday, the MOF said 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. (*)