when industrial growth outpaced development of the power infrastructure, and now repre-
sented about 40 per cent of installed capacity in the Java–Bali grid.^9 However, Indonesia was
gradually reducing its fuel subsidies and, as fuel prices began to rise, industrial companies
were becoming less interested in generating their own power.
In a subsequent interview Parno said that PLN had warned 24 critical systems outside the
Java–Bali grid that they would experience power shortages in 2002 because of insufficient
funds. He said that PLN expected to hook up 1.3 new customers in 2002, just half the rate of
new connections before the Asian financial crisis.
In October 2001 PLN signed an agreement with Paiton Energy to make three fixed
monthly payments totalling US$69 million during the fourth quarter. This amounted to 3–4
cents per KW hour, a rate that PLN was hoping to achieve in its renegotiated PPAs with both
Paiton Energy and Jawa Power (Paiton I and II). The parties were expecting to conclude their
negotiations by the end of the year.
In December 2001 PLN reached agreement with both of the Paiton projects. For Paiton
Energy it agreed to pay 4.93 cents per KW hour for 40 years and to pay arrears of US$450
million. The final negotiated amount for arrears fell considerably short of the US$1 billion
that Edison Mission Energy was asking for, but from Edison’s point of view the losses would
be mitigated by the extended term of the contract and the opportunity to build new generat-
ing capacity on the Paiton site.^10
By January 2002 PLN had concluded new long-term agreements with seven of
Indonesia’s 27 IPPs, including the two Paitons, Daragat, Sengkang, Tanjung Jati B, Pare-Pare
and Unocal’s Salak geothermal plant, mentioned above. The rate for Salak was 4.45 cents per
KW hour. Dorodjatun Kuntjoro-Jakti, Coordinating Minister for the Economy, said that the
government was in no position to pursue a better deal than it had because the country was in
dire need of investment in new power facilities and was hampered by its ‘CCC’ credit rating.
He added that the government could have let PLN seek international arbitration for the dis-
putes, but its electricity cost could have been much higher if it had lost in the proceedings.^11
In February 2002 PLN’s latest President, Eddie Widiono, said in an interview with Dow
Jones Newswiresthat the appetite from existing IPP investors was not strong but allowed for
some additional generating capacity. He expected capital from these investors to be supple-
mented by power project loans from the World Bank, the Asian Development Bank and the
Japan Bank for International Cooperation. Widiono noted that the peak load recorded in
November 2001 was 12,577 MW, compared to an estimated installed capacity of 15,000 MW.
He thought that the Java–Bali grid could survive until 2004 or 2005, but noted that electri-
city demand was expected to keep growing at an annual rate of 8 per cent and that by 2010
demand would be twice the current installed capacity.^12
In March 2002 Paiton Energy began to negotiate with several international lenders to
arrange financing for Units 3 and 4 on the Paiton power plant site. The planned capacity was
800 MW and the estimated cost of the facility was US$1,000 per KW, or US$800 million. In
April the Indonesian government approved four new power projects to be developed by IPPs
already involved in projects in the country.
In July 2002 the original PPA signed in 1994 was amended to reflect the terms that Paiton
Energy and PLN had agreed on in December 2001. Energy consumption continued to grow
rapidly as Indonesia began to recover from the Asian financial crisis, and the Paiton I plant
was operating at or near capacity.
In early October 2002, the project sponsors signed a term sheet for debt restructuring
PAITON 1, INDONESIA