PLN, Tanjung Jati A agree to cancel contract

State electricity company PT PLN had reached an agreement with the investors of Tanjung Jati A power plant to terminate their investment contract. The cancellation of the contract meant that investors would never build Tanjung Jati A power plant. And this would save PLN from paying Tanjung Jati A power producer a total of US$15.9 billion in the next 30 years.

With this cancellation, PLN's burden to buy electricity from independent power producers (IPPs) in the next 30 years would be cut down from the US$133.5 billion to $117.6 billion. And this amount could still be lowered further as PLN was currently re-negotiating over electricity prices with the IPPs.

Speaking to journalists after a public debate about private electricity, Kuntoro said that PLN would not pay any compensations to investors of Tanjung Jati A over the cancellation of the contract. But PLN agreed to give priority to the investors to participate in energy investment in the next five years.

The $1.66 billion Tanjung Jati A project, with combined capacity of 1,320 megawatt (2 X 660 MW), is owned by PT Tanjung Jati Power Company, which is 20 percent controlled by PT Bakrie Power, 30 percent by National Power, 30 percent by Tomen Corp, and 20 percent by PT Maharani Paramitra, a company affiliated to Siti Hediati Hariyadi Prabowo.

Based on the canceled contract, Tanjung Jati A would have sold its electricity to PLN at 5.70 U.S. cents per kilowatt hour (kWh).

Thus, with the cancellation of the contract, Kuntoro said PLN would not be required to pay a total of $15.9 billion in the next 30 years to buy Tanjung Jati A electricity or $5.4 billion based on the net present value.

Kuntoro noted that re-negotiation with Tanjung Jati A started on Sept. 8, 1999, and the agreement was sealed on May 11, 2000. And on August 25, this agreement was endorsed by the government's team tasked to oversee electricity matters.

Kuntoro also explained that PLN had also reached an agreement with investors of Darajad power plant, with capacity of 275 MW.

Based on the agreement on August 18, 2000, PLN would buy electricity from Darajad at 4.2 U.S. cents per kWh, a decrease from 6.95 U.S. cents per kWh.

The cut in electricity prices Darajad would charge would save PLN a total of US$277 million in the next 30 years, from initially US$1.214 billion to $987 million.

Kuntoro explained that supplies of electricity from PLN and the IPPs would not be enough to meet the increasing demands in 2003. And thus, if there is no new investment in power generation, Indonesia will experience power crisis in 2003. (*)