RELEASE:S&P:Indonesia PLN,Proposed Notes BB-

SINGAPORE (Standard & Poor's) Oct. 4, 2006--Standard & Poor's Ratings Services said today it assigned its BB- foreign currency rating and BB local currency rating to Indonesia's PT Perusahaan Listrik Negara (Persero) (PLN). The outlook on the ratings is stable. At the same time, Standard & Poor's assigned its BB- issue rating to the proposed U.S. dollar senior unsecured notes issued by PLN's wholly owned subsidiary, Majapahit Holding B.V.

The notes are irrevocably and unconditionally guaranteed by PLN, which is fully owned by the Indonesian government. As the size and exact terms are being finalized, this issue rating is subject to final documentation.

"The ratings on PLN reflects its overall weak financial profile, uncertainties related to tariff revision and funding of its ambitious 9,000 MW expansion plan, its relatively inefficient capacity-mix and high cost of generation and substantial foreign currency exposure," said Standard & Poor's credit analyst Anshukant Taneja.

PLN owns and operates about 85% of the electricity generation capacity and the entire power transmission and distribution network in Indonesia. For the year ended Dec. 31, 2005, PLN had operating revenues of IDR76.5 trillion (US$7.8 billion), EBITDA of IDR10.2 trillion, and net loss of IDR4.91 trillion.

"PLN's credit profile benefits significantly from strong government support, demonstrated through 100% government ownership. The company also has regulatory protection, being the only nominated state-owned enterprise under Indonesia's electricity act," added Mr. Taneja. In addition, PLN gets subsidies as compensation for performing government-mandated electricity provision services, he said. "The company's dominant integrated position in the Indonesian electricity sector and the favorable outlook for electricity demand also support its ratings," Mr. Taneja noted.

Nevertheless, government support for PLN is not guaranteed, considering some delays in subsidy payments, limited evidence of cash infusion, and absence of noteworthy attempts to improve the weak financial position of the company.

"The stable outlook reflects our expectation that the government would step in to support PLN, should it face a cash flow crisis, given its role and its rising social and political importance, as an integral part of government's policy to provide subsidized electricity in Indonesia," said Mr. Taneja. A material reduction in government ownership of PLN and major restructuring of PLN's integrated operations could place downward pressure on the outlook or the rating.

"PLN's credit profile and ratings is directly linked to the outlook and ratings for the Republic of Indonesia," he said.(end of release)