PLN seeking to cancel contracts with inactive IPPs

Cash strapped state-owned electricity company PT PLN is seeking to cancel power purchase agreements with the independent power producers (IPP), which have not yet started construction works.

But, PLN president Kuntoro Mangkusubroto said on Monday that PLN would cancel the contracts the "careful way" as to avoid demands for financial compensations.

Kuntoro said PLN would not like to repeat the Pasuruan power project case, in which American IPP Enron, which partly owns the power project, demanded PLN to pay US$15 million in compensation for canceling the power purchase agreement (PPA).

As a matter of fact, Kuntoro said, Enron and its partners had not yet started any field works for the development of the project.

According to PLN's 1998 data, the Pasuruan combined cycle power plant, located in Pasuruan, East Java, is 50.1 percent owned by Enron, 24.9 percent by Hong Kong-based Prince Holding and 25 percent by local firm PT Pasuruan Power. Pasuruan Power is owned the Bimantara group, partly owned by former President Soeharto's son Bambang Trihatmodjo.

Kuntoro said PLN was seeking solutions similar to those agreed upon by PLN and the owners of the Tanjung Jati A and Cilacap power projects.

PLN and the owners of both projects agreed to cancel the projects with PLN to award them with some projects and prioritize them in the future power plant projects in exchange for the cancellation of their PPAs.

"Tanjung Jati A and Cilacap are the example cases where contract cancellations do not lead to demand for financial compensation," Kuntoro said during the meeting with the House of Representatives' Commission VIII for energy and mineral resources, science and technology and environment.

According to PLN's 1998 data, Tanjung Jati A is owned by PT Tanjung Jati Power Company, which comprises local firms PT Bakrie Power Corporation, PT Maharani Paramitra, British firm National Power, Japanese firm Tomen Power Corporation. The consortium planned to build a 1,320 Megawatt (MW) coal-fired power plant in Tanjung Jati, Central Java. Maharani is controlled by Soeharto's daughter Titiek Prabowo.

PLN data further say the Cilacap 400-MW coal-fired power plant in Cilacap, Central Java is owned by PT Citra Kartika Daya, which is a consortium comprising Japanese firm Mitsubishi Corp., Indonesian military-owned PT Kanugrahan Kartika Perkasa, local firm PT Bimantara Citra and Hong Kong-based Duke Blue Water Ltd.

Kuntoro did not name the IPPs, which have not yet started the field works.

PLN has awarded PPAs to 27 IPPs, some of which have started operation and some others are constructing their power projects.

According to Kuntoro, the power projects, which are already in operation, include the Paiton I 1,230 MW coal fired power plant in Probolinggo, East Java; the Paiton II 1,220 MW coal-fired power plant, also in Probolinggo; the Sengkang 135 MW combined cycle power plant in Sengkang, South Sulawesi; the Drajat 235 MW geothermal power plant in Drajat, West Java; and the Salak 165 MW geothermal power plant on the Salak mount in West Java.

The power plants, which are under construction, include the Tanjung Jati B 1,320 MW power plant in Tanjung Jati, Central Java, according to Kuntoro.

He said PLN would not cancel PPAs with the owners of the power projects, which have started operation or are under constructions, but the state company is negotiating to change the contractual terms, including the power price, to alleviate its financial burdens.

PLN has been heavily affected by the sharp downfall of the rupiah's value amid the current economic crisis as it sells its power supplies in the rupiah but spends most of its costs, including for the purchase of power supplies from the IPPs, in the dollar. (Epin)