September 1999: Excessive confidence casts a pall over
state electricity utility: Payment disputes are affecting
many big names in the power industry, as well as powerful
has over-confidence been this costly. Perusahaan Listrik Negara,
Indonesia's state-owned electricity utility, predicted up
to 15 per cent annual growth in demand for electricity; foreign
power producers agreed unusually expensive contracts, awarded
without competitive bidding and dependent on political cronies
rather than legal guarantees. The result is a mess almost
as bad as Indonesia's highly publicised banking problems.
Although difficulties with electric utilities have received
less attention than banking in the Asian crisis, PLN's problems
are an acute version of those that have occurred across the
region. World Bank officials say they must be solved if there
is to be full recovery from the crisis.
has 50 per cent more capacity than it needs on the main grid
of Java and Bali, not counting 27 independent power producers
(IPPs), some of which hold take-or-pay guarantees. It is saddled
with some Dollars 5bn (Pounds 3bn) in debt, which tripled
in rupiah terms after the exchange rate fell, not counting
power purchase contracts. The utility calculates it will owe
almost Dollars 1bn a year just to Paiton I and II, two IPPs
that have started production.
to its troubles, PLN sells electricity at an average of Rp220
(Pounds 0.02) per kWh while its own production costs approximate
Rp340, as some 60 per cent of costs are in dollars. The government
has ruled out price increases for fear of upsetting Indonesia's
a result, PLN reported Dollars 1.07bn in losses for 1998 and
was forced to pay its suppliers at an artificial exchange
rate of Rp2,450 per dollar, a third of the going rate. Edison
Mission Energy, Mitsui, General Electric and an associate
of former President Suharto say their Paiton I plant has not
been paid at all for an invoice due on August 15.
has threatened to sue for Dollars 4bn in damages unless PLN
pays or starts negotiating by September 20, joining two smaller
US producers suing PLN and the government for breach of contract.
claim bodes ill for Paiton II, which is backed by Siemens
of Germany, PowerGen of the UK and a son of Suharto. Its first
unit is due to issue an initial invoice to the utility.
payment disputes affect a host of big names in the power industry,
as well as powerful creditors such as the US and Japanese
export agencies, which may well balk at lending to Indonesian
state companies once one has defaulted. Edison has sent in
high-profile lobbyists such as Warren Christopher, former
US secretary of state.
has agreed to take on PLN's debts to the World Bank and other
multilateral lenders but, facing a public debt larger than
its gross domestic product, the government has balked at taking
over PLN's commercial debt and negotiations with the IPPs.
should it, according to officials at the International Monetary
Fund, World Bank and agencies advising the government.
reality is that they are trying to screw money out of a poor
country for electricity which is unwanted, overpriced and
agreed under 'unclear' circumstances," said one foreign government
adviser. "The government has not given any guarantee to PLN
or the IPPs."
this helps explain the defiant tone of PLN's president director,
Adhi Satriya, who last month accused private power producers
of making "a world-class mark-up" in charges to PLN.
Satriya threatened to cancel deals and sue Paiton I and II
if he could find evidence of corruption in the awarding of
contracts. Edison insisted its rate was similar to those charged
by competitors in Thailand and the Philippines, save for an
added charge to pay for extra expenditures on infrastructure
near the plant.
wants the IPPs to charge less, start selling later than planned
and forgo the take-or-pay clauses that guarantee them income
for 30 years. Mr Satriya said PLN planned to shift to competitive
tenders, in which units of PLN and private producers would
compete for access to the grid. "If the project is efficient,
then the project is financially viable by itself," he told
the FT. "Then it does not need additional guarantees or take-or-pay
IPPs are loath to lose this guarantee but Mr Satriya said
PLN was amenable to a transition in which the IPPs would compete
but have guaranteed income for 10 years.
has rejected a suggestion by Paiton I to defer earnings and
pool production with a PLN plant nearby, and dismissed suggestions
of compensation in the form of additional investment opportunities.
Mr Satriya embraced an offer by Sumitomo to complete the Dollars
1.77bn Tanjung Jati B power plant by 2003, a delay of four
years from its original due date, and sell it to PLN rather
than charge for power. He said he had applied for a Dollars
1.15bn soft loan from the Japanese government, arguing that
this arrangement would save PLN Dollars 312m a year. Japan
has yet to decide whether it would fund such a project.
(C) Financial Times Ltd, 1982-1997