NGOs demand government renegotiate IPP contracts

The Jakarta Post, Jakarta | Fri, 07/12/2002 7:06 AM | Business

A’an Suryana, The Jakarta Post, Jakarta

A group of non-governmental organizations (NGOs) said that the cost of seven power projects that were recently relaunched by President Megawati Soekarnoputri was still too expensive, and demanded that the government renegotiate the deals with the independent power producers (IPPs).

The NGOs, grouped in the Working Group on Power Sector Restructuring*, pointed out as an example that the power purchase price agreed recently between the government and PT Paiton Energy was still considered too high.

Under the deal, state-owned electricity company PLN will purchase power from the Paiton I project at 4.93 U.S. cents per kilowatt hour (kWh).

The government has been trying to renegotiate the power purchase agreements (PPAs) with a number of IPPs over the past couple of years. It has clinched a new deal with seven IPPs. The agreement with Paiton was reached a day before Megawati relaunched 13 megaprojects last week. The seven power projects are part of these megaprojects.

But Fabby Tumiwa, a member of the working group, told a press conference on Thursday that the 4.93 cent per kWh price deal with Paiton was still expensive, because in reality PLN would have to pay Paiton more.

He explained that under the deal, PLN was also obliged to cover the restructuring costs and had to purchase the Paiton electricity at higher volumes than it actually needed.

Citing a study made by energy expert I Nengah Sudja, he said that in reality PLN would have to pay Paiton 6.62 cents per kWh.

“”This is because in addition to paying the power price, PLN is also obliged to pay arrears (restructuring costs) amounting to US$4 million … and other payments including the raising of the capacity factor from 83 percent to 85 percent,”” said Fabby.

Meanwhile, Nengah Sudja also said that the Paiton I power purchase price was much higher compared to the price for similar projects in neighboring countries.

He pointed out that in Malaysia and Vietnam, the tariffs were cheaper at 3.2 cents per kWh and 2.0 cents per kWh respectively.

“”We should also learn from domestic experience such as the Suralaya gas-fired power project case, where PLN was able to get them down to 3.7 cents per kWh,”” Nengah Sudja said.

Based on these considerations, say the NGOs, the government should renegotiate the power purchase price to between 3.64 cents and 4.09 cents per kWh.

Nengah Sudja believed that the government could have succeeded in reducing the power purchase price to more reasonable levels should the government negotiators have had the courage to stand their ground.

He said that reducing the power price to the 4 cents per kWh level would help avoid the state suffering some $238 million in financial losses per year just from the Paiton I project.

“”This is only from Paiton I, and the savings could be bigger if we could achieve success with the other six IPPs,”” he said.

“”Renegotiating the contracts is important so that the public will not have to bear a greater financial burden,”” said Tulus Abadi from the YLKI consumer organization.

Another NGO grouping called the Defense Committee for Indonesia’s Economic Recovery had also earlier demanded that the government seek a lower power purchase price from the IPPs.

The group questioned the obligation of PLN to purchase more power than it actually needed.

It said that based on the Paiton I contract, the capacity factor was 85 percent, while the NGO grouping said that the realistic capacity factor should be set at only 75 percent.

Because of the higher capacity factor, PLN would be effectively paying Paiton at 6.03 cents per kWh, according to the group.

In response to the committee, Paiton president Ronald P. Landry told The Jakarta Post: “”Additional information that the committee will not publish is the fact that PLN needs so much power that PLN is dispatching Paiton Energy at levels above the 85 percent contracted factor and Paiton Energy is satisfying PLN’s requests.

“”There’s a totally separate payment made by PLN to Paiton Energy for the amount PLN contractually owes to Paiton for arrears. This payment settles the total amount owed by PLN to Paiton Energy for the period from May 1999 through December 2001 in which PLN did not pay Paiton Energy in accordance with the contract. This payment has absolutely nothing to do with electricity produced and delivered today, and this payment is not included in the tariff,”” he said in an e-mail.


* Note: The Institute for Essential Services Reforms (IESR) emerged from this organisation

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