been level. Another factor that increased the Paiton Energy tariff was the cost of connection
lines and other infrastructure facilities borne by this plant that would be shared with the other
units at the Paiton complex.
The PPA defined four tariff components, tariffs A, B, C and D. Tariffs A and B were
capacity payments that PLN had to make if the plant was ready to produce electricity, whether
or not PLN was taking it, and tariffs C and D were energy payments that PLN would pay only
when the plant was generating electricity. Tariff A was a fixed-price tariff that was stepped
down. It was designed to cover capital costs, to pay principal and interest on the project’s
debt, to pay taxes and to provide a return to the equity investors. Tariff B covered fixed oper-
ating and maintenance expenses; it was designed directly to offset the estimates for fixed
operating and maintenance costs. Those costs were estimated to be 50 per cent in US dollars
and 50 per cent in Indonesian rupiahs, and therefore 50 per cent was indexed to the US infla-
tion rate and 50 per cent was indexed to the Indonesian inflation rate. Tariff C was designed
to cover fuel costs. It was designed to pass the cost of coal directly through to PLN at a guar-
anteed heat rate, that is, at a guaranteed level of efficiency of the power plant. The project
company guaranteed that it would convert coal to electricity at a certain efficiency rate. Then
the price per ton of coal would be renegotiated annually among Paiton Energy, the coal sup-
plier and PLN.
In interviews, Jeffrey T. Wood said that the link between the fuel cost and the electric-
ity sale price is critical. It is difficult for an IPP to assume the risk of revenue-cost mismatch
caused by fluctuating energy prices. Jonathan D. Bram, Managing Director of CS First
Boston, added that the link between fuel cost and electricity price was unusually tight in the
PPA for this project. Tariff D provided compensation for all variable operating and mainte-
nance costs other than fuel. Under the four-part tariff schedule, PLN’s estimated total cost
for electricity was 8.47 US cents per KW hour for the first 6 years of operation, 8.47 cents
for years 7 to 12 and 5.45 cents from year 13 to year 30. The average price over 30 years
was 6.6 cents.
Force majeureevents
The PPA provides that if a force majeureevent prevents PLN from receiving electricity, or is
the result of government action that affects the company’s ability to produce electricity, the
plant will be ‘deemed dispatched’ and PLN will remain obliged to make capacity payments
as if the force majeureevent had not occurred. The plant also will be deemed dispatched if a
coal supply force majeureevent prevents the Adaro mine from delivering coal and requires
the company to limit output as a result of using qualifying alternative coal to meet environ-
mental requirements.
Events of default and termination
The PPA divides events of default into remediable events and nonremediable events on the
part of both the project company and PLN. Company-remediable events include not achiev-
ing commercial operation by the target date, suspension of construction or operation and var-
ious other obligations under the PPA. PLN-remediable events include failure to make
required payments. Nonremediable events include the company’s bankruptcy or failure to
rectify remediable events; PLN’s dissolution, privatisation or failure to rectify remediable
POWER PLANT