A. Kukuh Karsadi and Carry Nadeak
GATRA
May 15, 1999

A debt in property must be paid in property, a debt in promise may be a debt to the death. However, for the State Electricity (PLN), failing to meet its promise could means in addition to its property being confiscated, its life would also be in jeopardy. This state electricity is being threatened to stop its business because of its failure to fulfill its promise to buy electricity from the power generating company. The threat of bankruptcy surfaced after the International Arbitrage Panel accepted the claim launched by MidAmerican Energy Holdings Company. The power company from the United States of America has the right for indemnification by PLN amounting to US$ 572 million, or about Rp 4,5 trillion.

The court of the arbitration panel was presented in three countries: Indonesia, the United States, and French. Three arbitrators were appointed by the plaintiff and the accused to chair the court. The three absolutely vote for MidAmerican. “We are satisfied with the decision,” said David L. Sokol, the Chairman and Chief Executive Officer of MidAmerican, on Tuesday last week. He threatened, that if PLN failed to pay its obligation in the near future, they will claim the government of Indonesia.

The claim made by MidAmerican surfaced when the government decided to postpone purchase of private power supply in 1997. The MidAmerican was the shareholders of private power companies of Himpurna CallEnergy Limited and Patuha Power Limited. The company claims that it has suffered losses because of the government decision. Because of the postponement, said the MidAmerican power company, the geothermal generating plant in Dieng, Central Java (150MW), and Patuha, West Java (110 MW), which was under construction becomes redundant.

Whereas, according to MidAmerican, the company has completed one unit generating plant in Dieng, with a capacity of 60 MW. Himpurna CallEnergy also has invested funds in harnessing the geothermal capable of producing 245 MW. In Patuha, the company from Iowa, the United States, has already started the construction of generating plant with the capacity of 170 MW. The total investment, the MidAmerican affirmed has already exceeded US$ 500 million.

The decision made by the arbitrage panel headquarters in the Netherlands was really a heavy blow to PLN. Even without that decision, PLN still owed an enormous debt of Rp 40,5 trillion which will matured in 1999-2002. PLN also suffered financial losses in operation of Rp 5,94 trillion the previous year, because the selling price of PLN power was too inexpensive compared to its production costs. “Such losses not included the difference in the conversion rate,” said the President Director of PLN, Adhi Satrya, on earlier last January.

The losses will increase tremendously when PLN obligation to purchase the power from the private companies is to be complied with. PLN was forced to buy US$ 0,08-US$0,05/per kilowatt hours (KwH), and selling it for US$ 0,025. It means PLN will have to pay extra. Whereas, even without utilizing the private power, PLN is already having problem in selling its own power. Of the total 14.000 MW generating capacity produced by PLN, only about 10.000 MW absorbed by the market, since earlier 1998.

If PLN is still require to buy power from the private power companies, this would only means that excessive power will increase even more. And the really cash-depleted PLN will become worse than ever. The contract stipulated that PLN is required to buy 80% of the power produced by the private power plants. At this time, there are 26 power companies with a total capacity of 11.000 MW. PLN decided to postpone purchase of private power supply, which should already started since 1998.

On December last year, the state-owned electricity appealed the private power contractors to renegotiate the already signed electricity purchase contract. “The grim situation has forced PLN, the private companies in the power supply, and other related parties not just required to review the contracts,” Adhi said. He hopes that the power contractors should also understand the present situation in Indonesia which is being twisted around by many grave problems.

Adhi’s opinion was supported by his predecessor, Djiteng Marsudi. The former President Director of PLN said that if the company is forced to fulfill its duty as specified in the contract, then PLN will go bankrupt. “Then what kind of business expected from the dying PLN?” Djiteng told GATRA, his voice was quivering.

The contracts that put a heavy burden to PLN can’t be separated from the role played by Djiteng. He signed 17 contracts with the private power supply companies. Other nine contracts signed by Zuhal Abdul Kadir, his predecessor, who is now the State Minister for Research and Technology.

Djiteng admitted that he was forced to sign those contracts. Then he related the story of the power purchase agreement of Paiton II Probolinggo, in East Java. Prior to signing the agreement, Djiteng admitted he was not in full agreement with the purchase price as resulted by the government negotiating team. He was expecting that there will still time for further negotiation. His hope was in vain. He was told to go to Hanover, in Germany, accompanying President Soeharto visit to the country in 1995. There, he was directly face with the contract signing ceremony, an occasion also attended by the senior government officials of Germany and Indonesia, among them Chancellor Helmut Kohl and Soeharto.

The power purchase agreement of Dieng and Patuha, still according to Djiteng, was of similar process. Zuhal, then the President Director of PLN, signed a contract witnessed by Soeharto and President Bill Clinton of the United States of America who was then visiting Indonesia attending the APEC Conference. “It was impossible to refuse signing the contract under such a situation,” Djiteng said.

He also related these uncomfortable situation to the arbitrage judges when he was assigned as a witness during the court session at the Regent Hotel Jakarta. However, the judges disregarded the excuse offered by Djiteng. At each time when relating the story, according to Djiteng, the judges would just suddenly diverted the topic of conversation.

Whereas it was a public knowledge that the introduction of the MidAmerican to the power supply business in Indonesia was made through high level political lobbying. Himpurna CallEnergy was a joint-venture between MidAmerican, through its filial company, CallEnergy and PT Himpurna Enersindo a company of shares owned by the Indonesian Armed Forces Retired Officers (Himpurna). While at the Patuha Power, CallEnergy merged with Mahaka Energy. Mahaka is a company led by Muhamad Lutfi, the son-in-law of the Coordinating Minister for Supervision of Development and Enhancement of State Apparatus Hartarto.

But according to Lutfi, it was not fair to blame the inability of PLN to purchase private power to the private power company. In his opinion, the introduction of foreign investors into the power generating plants business in Indonesia was through government’s invitation. Therefore, it should be only fair for the government to take the responsibility for the inability of PLN in fulfilling its obligations.

He countered by pointing out that it was PLN who made things difficult in the management of private power by accusing the contractors of the private power for practicing collusion, corruption, and nepotism. In his opinion, Mahaka was not against re-negotiation of the power purchase contract they already have. However, Lutfi required that the negotiation process should be based on mutual respect. “The integrity of the contract should first be honored,” Lutfi quoted by Listrik Indonesia, of November-December 1998 as saying.

Whatever the reason, the problem faced by the private power can’t be solved through debates. It was this complicated private power problems which Adhi presently was trying to solve through a re-negotiation. Otherwise, the already long lines of litigants claiming at the arbitrage court will become longer. It was a fact that there are other private power companies beside MidAmerican who are trying to lodge their claim to the International Arbitrage Court.

At end of April 1998, Karaha Bodas Company LCC claimed the Ministry of Mines and Energy, and the Office of the State Ministry for Enhancement of State Enterprises. Karaha objected that its generating plant of 440MW capacity was instructed to stop in 1997. Karaha Bodas was a joint-venture among Florida Power and Lights, Caithness, Tomen (Japan), and Sumarah Daya Sakti. Karaha demanded the government to reimburse the funds the company has spent and be accountable for the financial losses suffered.

A lot of claims. But Adhi was not too worried for more claims to come. He is convinced that the rationalization program should be able to solve the chaotic sale-purchase contracts of the private power. “We pledge to finish the process according to the schedule, and the result should be mutually beneficial to all parties concerned,” he said. Although the case of Dieng and Patuha is in the midst of re-negotiation process, PLN is sure that the effort should not be influenced by the decision made by the international arbitrage. “The legal observers have the opinion that it would take a long time to execute the decision,” Adhi said. A long time it may be, but that doesn’t means PLN is free from the threat to pay what debt they promised to pay.