gas company, to make payment in full for electricity delivered by DSPL and CE Indonesia.
Moody’s noted that each failure represented a breach of contract and a failure by the gov-
ernment of Indonesia to abide by its support obligations. Therefore the renegotiation of the
PPAs for most Indonesian IPPs appeared certain and the risk of default to bondholders was
significantly increased. Because DSPL was receiving partial payments, it seemed likely to
be able to continue paying bondholders until the first quarter of 1999. Paiton Energy still
had some breathing space because it was not scheduled to come on stream until the fol-
lowing year. CE Indonesia, however, had received no payments for the electricity that its
Dieng geothermal plant had delivered since it began operating in March. PLN had asked
that CE Indonesia shut down the Dieng plant and halt construction on its Patuha geother-
mal plant. Therefore its principal sponsor, California Energy, a unit of MidAmerican
Energy Holdings, Inc., had begun arbitration proceedings against the government. Also
during September, former US Secretary of State Warren Christopher, then Chairman of the
Executive Committee of Edison International, Paiton Energy’s parent, met then President
B.J. Habibie in Jakarta to discuss the growing problem. Christopher was accompanied by
John E. Bryson, CEO of Edison, Edward R. Muller, President of Edison, and Ronald P.
Landry, President of Paiton Energy.
Paiton Energy’s power plant came on stream in May 1999, at a final project cost of
US$2.5 billion. For the remainder of the year PLN refused to buy power and paid Paiton
Energy only for the cost of fuel. The plant submitted its first monthly bill in August and PLN
defaulted on that payment. Also in May 1999, an arbitration panel ruled that the Indonesian
government was obliged to pay US$572 million in breach-of-contract damages to
MidAmerican, the parent of CE Indonesia and CalEnergy. When PLN failed to pay the dam-
ages within 30 days, CalEnergy filed a claim under its political risk insurance policy with the
US OPIC. Because the Indonesian government refused to honour the decision, MidAmerican
sought a second arbitration panel under the rules of the UN Commission on International
Trade Law, which also ruled in MidAmerican’s favour. OPIC paid the claim and, in line with
normal practice, sought reimbursement from the government of Indonesia.
In October 1999 PLN filed a lawsuit seeking to nullify its PPA with Paiton Energy. The
utility said that the total cost of the power project was twice the cost of other comparable
plants and that the unit price at which PLN had agreed to buy power was twice the price paid
to other power stations. PLN, according to its new President, Adhi Satriya, would seek to
prove that the Paiton Energy contract was negotiated on corrupt grounds by the regime of
former President Suharto and had no basis in Indonesian law. This was the first case brought
by the Indonesian government against an IPP since Suharto had left office and the first
attempt to prove in court that corruption had influenced commercial agreements during his
decades in power.
In a press release Paiton Energy expressed its disappointment that PLN had filed a law-
suit when the two parties were meeting almost daily. Paiton Energy noted that it had offered
significant concessions in an effort to reach an interim agreement, including reducing the
cost of coal, the C component of its electricity tariff, to match PLN’s price and accepting
payments from PLN for outstanding invoices at a then-preferable rate of 2,450 rupiahs to
the dollar, resulting in an interim price of 3.3 cents per KW hour. The company also said
that it was unaware of any improper actions taken to influence the contract award or any
terms of its agreement with the government of Indonesia. It also noted that one of the rea-
sons that the cost of the plant was so high was that it included infrastructure that would be
POWER PLANT