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PLN and 11 IPP reach new price agreement. (Mines And Energy).

After time consuming and brain racking negotiations, the government represented by the state-owned electricity company PLN and 11 independent power producers (IPP) reached an agreement on power price in October 2002. The agreement will save the government between US$ 4.7 billion to US$ 5.45 billion in power price.

The government has sought to renegotiate with IPP price agreement already signed under previous government known as power purchase agreement (PPA). The previous PPA was tarnished with corruption, collusion and nepotism involving officials in the highest ranks in the previous government of President Soeharto.

In the renegotiation, both the government and IPP reviewed the cost of power generating projects as the power price was based on the project cost.

As a compensation for the price cut the government offered new power generating projects such as in the case with PT Paiton Energy Company (PEC). Under that system, PEC agreed to reduce the price of its power from PLTU Swasta I from US$ 0.055 per kWh to US$ 0.0493 and the price of power from its PLT Paiton II was cut from US$ 0.066 to US$ 0.0468 per kWh.

Before the new agreement was reached, PLM paid the IPP under the old contract. Rupiah price was fully paid and dollar price was renegotiated because of the fluctuation in exchange rate.

Out of 27 IPP projects only 8 have been operational or ready for operation. Renegotiations with the 8 IPP have been thrashed out with the signing of an interim agreement to be followed with the signing of a final agreement.

The eight IPP are PT Tenaga Listrik Amurang (110 MW), PT Paiton Energy Company (1,230 MW), PT Unocal Geothermal Indonesia (165 MW), PT Himpurna CalEnergy Ltd (100 MW), PT Magma Nusantara Ltd (100 MW), PT Energy Sengkang (135 MW), PT Makasar Power (60 MW) and PT Jawa Power (1,220 MW).

Before the agreement, the eight IPP were threatened with being almost left lying idle as PLN stopped buying electricity from them despite growing demand for power especially from the industrial sector. PLN bought power only at a reasonable price. Under the old PPA, PLN would suffer heavily as it selling price to its consumers was much lower than its purchasing price from IPP.

Despite the new price agreement, PLN still needs to raise its selling price to cover its production cost. Based on its calculation, an ideal electricity basic price is US$ 0.07 per kWh until 2003.

PLN also still needs to build new power transmission networks in Java-Bali interconnections system. A number of contractors have eyed the project. Delay in the construction of the transmission project could disrupt power distribution system in Java-Bali especially in Central Java and the southern part of West Java where PLN has not built transmission systems for power generated by IPP. Those areas have to rely on the old transmission networks with limited capacity. Blackout, therefore, is more frequent in those areas.

Previous to the new agreement, PLN stopped buying power from PT Cikarang Listrindo in June 1998 following the monetary crisis. The PPA contract with the company was to last from 1996 to 2016.

PLN has regularly bought electricity from four other power planst--Perum Otorita Jatiluhur, PT Energi Sengkang, PT Nusantara Unocal and PT Makassar Power Corp.

A new transmission system will be built from the PLTGU Sengkang to cope with bottleneck in the power distribution.

PLN has decided to close six IPP projects namely PLTU Tanjung Jati A, PLTU Tanjung Jati C, PLTU Cilacap, PLTU Serang, PLTU Cilegon and PLTU Pasuruan.

PLN to build LNG terminal

To cope with scarcity in gas supply to a number of power plants, PLN plans to build a new LNG terminal with a capacity of 500 million to 750 million cu.ft in West Java. The project will cost US$ 250 million--US$ 300 million. With the facility, PLN would be able to supply fuel for power plants with a total capacity of 2,500 MW in Jakarta and West Java. In addition, PLN plans to build a new gas steam power plant, PLTGU Muara Tawar with a capacity of 600 MW in Bekasi, West Java.

Currently the feasibility study on the project is in progress handled in cooperation with BP Indonesia. Pertamina has also said its commitment to supply LNG for PLN from its gas-fields in Donggi, Central Sulawesi. Meanwhile, Medco Energi International plans to supply gas from its Senoro gasfield.
Table - 1
New price agreement with 11 IPP, 2002

(U.S. cents/kWh)

Project IPP Capacity

PLTP Darajat Prasarana Nusantara 275
 Jaya, PT

PLTU Paiton I Paiton Energy 1,230
 Company, PT

PLTU Paiton II Jawa Power, PT 1,220

PLTP Gunung Salak Unocal Geothermal 330

PLTGU Sengkang Energy Sengkang, PT 135

PLTU Amurang Tenaga Listrik 110
 Amurang, PT

PLTU Sibolga Tenaga Listrik 200
 Sibolga, PT

PLTGU Palembang Asrigita Prasarana, PT 130

PLTU Tanjung Jati HI Power Tubanan I 1,320

PLTD Pare-Pare Makasar Power, PT 60

PLTGU Cikarang Cikarang Listrindo, PT 150

Project Price under New price
 old contract (US$ cent
 (US$ cent per kWh)
 per kWh)

PLTP Darajat Steam - 4.3 3.15
 Electricity - 6.95 4.2

PLTU Paiton I 8.5 4.93

PLTU Paiton II 6.6 4.68

PLTP Gunung Salak Steam - 4.7 3.7
 Electricity - 8.5 4.45

PLTGU Sengkang 6.7 4.42

PLTU Amurang 6.7 4.65

PLTU Sibolga 6.55 4.6

PLTGU Palembang 6.48 4.2 - 4.41

PLTU Tanjung Jati 5.73 3.66 - 4.4

PLTD Pare-Pare 6.21 5.71

PLTGU Cikarang 5.99 4.47

Source: Team of President Decree No. 133/Data Consult

Table - 2
Power purchase contracts between PLN and IPP

Company Location Fuel Capacity

POJ *) Purwakarta, Water 150
 West Java energy
Cikarang Cikarang, Gas 150
Listrindo, PT West Java
Energi Sengkang, Gas 135
Sengkang, PT South
Nusantara Salak, West Geothermal 165
Unocal, PT Java
Makassar Pare-Pare, MFO/Gas 60
Power Corp., South
PT Sulawesi
Total 660

Company Period AF **) Minimum
 (%) purchase

POJ *) 1990 - ***) - -

Cikarang 1996 - 72 -
Listrindo, PT 2016
Energi 1997/1998- 80 56
Sengkang, PT 2017/2018

Nusantara 1997/1998- 85 -
Unocal, PT 2028/2031
Makassar 1997 - 80 -
Power Corp., 2012

*) POJ = Perum Otorita Jatiluhur

**) AF = energy availability factor to be absorbed by PLN;

***) until time not fixed

Source: PLN/Data Consult

Table - 3
IPP projects cancelled by PLN, 2002

Name of projects Location

PLTU Tanjung Jati A Central Java
PLTU Tanjung Jati C Central Java
PLTU Cilacap Cilacap, Central Java
PLTU Serang Serang, Banten
PLTU Cilegon Cilegon, Banten
PLTU Pasuruan Pasuruan, East Java

Source: Team of President Decree No. 133/Data Consult
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Title Annotation:Independent power producers
Comment:PLN and 11 IPP reach new price agreement. (Mines And Energy).(Independent power producers)
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Dec 24, 2002
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