PLN optimistic about reaching compromise with IPPs

Indro Utomo Notodisuryo, the director general of Electricity and Energy Development in Indonesia's Ministry of Mines and Energy, said he is confident state-owned electricity company Perusahaan Listrik Negara (PLN) will reach a compromise with independent power producers (IPPs) to renegotiate past power purchase agreements.

"We want a solution to be achieved that will satisfy both parties," Endro told Dow Jones Newswires on the sidelines of an Asian power conference in Singapore Tuesday. "We expect that the other parties have the same attitude to try to find a just solution."

PLN is embroiled in talks to renegotiate power purchase agreements, or PPAs, with several independent power producers that were signed under the regime of former President Suharto. PLN claims it was forced to sign "marked-up" power deals because of corruption, collusion and nepotism under the Suharto regime.

In all, PLN signed 27 contracts to purchase power from multinational firms in the past decade, most of which were partnered with members of Suharto's family.

Endro said the new Indonesian government is trying to renegotiate the IPP contracts using international standards of conduct.

The government took over all IPP negotiations in December in an effort to salvage investor confidence in Indonesia.

The government team that handles PLN's disputes with independent power producers is made up of five ministers: Finance Minister Bambang Sudibyo; Minister of Mines and Energy Susilo Bambang Yudhoyono; Coordinating Minister of Economy, Finance & Industry Kwik Kian Gie; Minister of Investment & State Enterprise Laksamana Sukardi; and Trade and Industry Minister Yusuf Kalla.

One of the most publicized contract disputes is PLN's ongoing acrimonious negotiations with PT Paiton Energy on an agreement PLN signed in 1994.

Endro also declined to comment on the details of PLN's negotiations with Paiton, saying only that PLN would be using "international benchmark prices for power from coal-fired plants" for its negotiations. "If the price is far beyond that, then the contract risk isn't balanced," he said.

He noted that if no solution is reached with Paiton, PLN stands to lose a cumulative US$10 billion by 2002 under the terms of the current contract.

Endro said "national collusion" in the past caused many of the financial woes facing PLN today.(*)