S N Vasuki, Jakarta – Private power firms, which are investing billions of dollars in new projects in Indonesia, are desperately trying to stall a government move to renegotiate power tariffs.
Though the Mines and Energy Ministry is keen to negotiate lower tariffs due to the economic crisis, analysts warned the move will jeopardise Indonesia's ambitious private power programme.
At stake is the future of the 25 private power firms which have signed power purchase agreements (PPAs) to deliver 9,500 MWs over the next four years. The private firms involved are some of the largest American, European and Japanese names in the business.
The storm started last week when Mines and Energy Minister Ida Bagus Sudjana ordered state-owned utility PLN to renegotiate lower power tariffs with the private power firms. The state utility made it clear that it would not be able to comply with previously negotiated power rates because of the rupiah's steep plunge against the greenback.
"PLN will go bankrupt if it has to buy power at such prices in the future," PLN president Djiteng Marsudi told reporters last week, referring to the high power tariffs negotiated in 1995 and 1996.
What is complicating matters is that the utility is expected to suffer a huge loss in 1997 and 1998, estimated at a stunning US$600 million (S$943 million) and the government is refusing to approve an increase in electricity rates.
The IMF wanted the Indonesian government to slash fuel subsidies and hike power rates as part of its US$23 billion stabilisation package. But the government refused to implement the policy this year and has apparently agreed to a review in late 1998.
PLN officials have said it will have to raise the price of power by at least 35 per cent to cover the cost of buying electricity from private firms.
PLN's major concern is that several major private firms will start generating power in 1998 and 1999 and the utility is not in a financial position to comply with the PPAs. During the boom years of 1995 and 1996, the utility had signed generous deals with private power firms to buy electricity at rates ranging from 6-8 cents per kwh. The rupiah was trading at 2,200-2,400 against the greenback when the PPAs were signed but has crashed to the 3,400 range.
Nevertheless, the energy ministry has reassured private power firms that the government will follow rules in renegotiating the PPAs. It has said the PLN will not force private firms to reduce tariffs, but tell them it can no longer afford to pay the tariffs that were negotiated two years ago.
PLN has been talking to power firm executives in the last few weeks. Analysts said that while the government had made its position clear, the private firms were holding out for more concessions.
"Some firms were willing to slash tariffs provided the government gave them a mandate to develop another power station at the same price," said an analyst.