used by the other Paiton units. A few days later Paiton Energy offered to renegotiate the
PPA with PLN.
On 13 October US Exim announced that it would delay making a refinancing loan that
would have replaced the US$540 million construction loan facility that was to have been dis-
bursed upon the satisfaction of a number of conditions when construction was completed, and
no later than 15 October. This was not a surprise at a time when the World Bank and IMF had
already suspended loans to Indonesia because of the Bank Bali scandal. With Paiton Energy
receiving no payments from PLN, and therefore having no source of income to make pay-
ments on its loans, the commercial lenders had been negotiating an interim agreement with
Paiton Energy under which debt repayments would be waived for a certain period of time or
until Paiton Energy restructured its PPA with PLN.
In December 1999 the newly elected President Wahid ordered PLN to drop the lawsuit
against Paiton Energy and seek an out-of-court settlement, renegotiating all the electricity tar-
iffs in the original agreements. In response Adhi Satriya resigned from his post at PLN. His
successor, Kuntoro Mangkusugroto, a former Minister of Mines and Energy, asked Paiton
Energy to revoke its arbritration claims in response to the Indonesian government’s demon-
stration of goodwill in dropping the lawsuit. The government set up a ministerial team for the
renegotiation of PPAs headed by the State Enterprises Minister and also including the Finance
Minister, the Mining and Energy Minister, and the Foreign Affairs Minister. Shortly after-
wards US Exim extended its commitment to take out the US$540 million loan by one year.
A spokesperson said that US Exim’s decision was not a direct result of any specific decision
by the Indonesian government, but was designed to provide the principals with an opportu-
nity to work out an adequate restructuring.
In February 2000 PLN and Paiton Energy reached an interim agreement that enabled the
utility to purchase power at a reduced rate pending a full restructuring of the PPA.
In August Standard & Poor’s reaffirmed its ‘CC’ rating for Paiton Energy Funding with
a continued negative outlook. The agency explained that Paiton Energy was continuing to
operate under an interim agreement whereby PLN purchased power at a far lower rate than
in the original agreement. As a result, Paiton Energy Funding had not been able to make prin-
cipal payments on its bank loans since December 1999. Lenders had agreed to defer princi-
pal payments until 31 December 2000, when the company expected to conclude negotiations
with creditors on a revised agreement. The agency noted that principal payments on the senior
secured bonds were not scheduled to begin until May 2008, and that operating costs and inter-
est payments were being covered by power plant revenues and contributions from sharehold-
ers. Because the interim agreement and negotiations with PLN were confidential, it was
impossible to estimate project revenues, but the agency did not expect that shareholders
would continue to provide funds for bond interest payments much longer. On the positive
side, electricity demand on the main national grid was rising, leading to an increase in PLN’s
demand for electricity from Paiton Energy. However, the agency concluded that, even with
increased electricity demand and the possibility of a settlement within the next six months,
the combination of PLN’s weak financial position and its high debt service obligations made
a default on the bonds a possibility.
Later in 2000 Paiton Energy and PLN reached a tentative agreement on a three-phase rate
scheme through which Paiton Power would gradually raise its rates, starting at 2.6 cents per
KW hour in 2001. In May 2001 Landry of Paiton Energy said that the two sides were close
to reaching agreement on the actual long-term rates. Among the factors that Paiton Energy
PAITON 1, INDONESIA