Release: Fitch assigns 'B' ratings to Sumber Segara Primadaya; outlook positive

Fitch Ratings-Jakarta/Sydney/Singapore-13 November 2007: Fitch has today assigned Long-term foreign currency and local currency Issuer Default Ratings (IDRs) of 'B' to Indonesia-based PT Sumber Segara Primadaya (S2P), which is an Independent Power Producer (IPP). In addition, Fitch has also assigned a National Long-term rating of 'BBB(idn)' to S2P. The Outlooks on the IDRs and the National Long-term rating are Positive. The agency has also assigned an expected rating of 'B' and expected Recovery Rating of 'RR4' to the proposed senior unsecured notes due 2012 to be issued by S2P Power B.V. and guaranteed by S2P. The ratings were assigned based on an indicative issue size and tenor communicated to the agency by S2P; any material deviations from these may result in a negative rating action. The final ratings are contingent upon receipt of final documents conforming to information already received.

The ratings are supported by a robust 30-year take-or-pay Power Purchase Power Agreement (PPA) contract between S2P and Perusahaan Listrik Negara (PLN), the state-owned electricity company which has a monopoly of electricity transmission and distribution in Indonesia. "The PPA should provide S2P with stable cash flows as PLN will purchase all electricity generated by coal-fired power plants operated by S2P at a relatively fixed rate," notes Ivan Sumampouw, Associate Director in Fitch's Asia-Pacific energy and utilities team. "The PPA provides S2P significant protection against the risks of increasing coal prices and foreign exchange movements, as these costs can be largely passed on to PLN," added Mr. Sumampouw. S2P has long term coal supply agreements with leading coal supply producers in Indonesia, reducing the risks of coal supply disruption. The coal supply agreements will mature in 2009, with options from S2P to extend the contracts for another five years.

S2P operates a 2x300 MW coal-fired power plant in Cilacap, South Java ("Cilacap power plant") that connects to PLN's Java-Bali transmission grid. The Cilacap power plant is the only large-scale power plant in South Java that connects to the grid, and consequently has a very important role in meeting the shortfall of electricity supply in South Java. PLN expects Indonesia's electricity demand to grow at a compounded annual growth rate of about 9% in 2007-2010. Fitch expects similar growth levels beyond 2010, and for the supply-demand balance to remain very tight; only three new power plants are expected to be operational in South Java in 2012 onwards. Thus, in the medium term, there is minimal risk that PLN will source electricity from competing plants.

The ratings are however constrained by Cilacap power plant's limited operating history. The power plant commenced its full commercial operations in September 2006 and has since operated at relatively low operating rates. In the first six months of 2007, Cilacap power plant had average Availability Factor (AFa) of only 62.5% (2006: 64.5%). This was a result of various technical issues including interruptions in coal supply and sedimentation in the power plant's water intake caused by the tsunami. While Fitch believes some of these technical problems are one-off in nature, the power plant's operating performance is still unproven.

The Positive Outlook for the ratings reflects Fitch's expectation that the Cilacap power plant will improve its operating performance as some of the technical issues described above have been largely resolved. The agency also expects that S2P will start deleveraging from 2008; at end-H107, S2P's net debt/EBITDA leverage ratio was 6.5x. Fitch does not anticipate that S2P will require additional debt in the future. If S2P demonstrates the sustained ability to meet operating and financial performance targets, net debt/EBITDA could fall below 4.0x in 2008 and the ratings may be upgraded. On the contrary, a negative rating action could be triggered by changes in electricity regulation that adversely affect S2P, a prolonged disruption of coal supply, or lower-than-expected operational performance rates, i.e. if AFa falls below 80% and Net Dependable Capacity (NDC) falls below 562 MW on a sustained basis.

S2P is jointly owned by PT Sumberenergi Sakti Sakti Prima (SSP) and PT Pembangkitan Jawa Bali (PJB) with shares of 51% and 49%, respectively. SSP is a private energy company, having interests in a number of power plants outside Java. PJB is wholly owned by PLN and engages in electricity generation in Java and Bali. At end-H107, S2P had total revenue of IDR728bn and EBITDA of IDR308bn. (end of release)