PLN asked to cut contracts with private power companies

The Indonesian Corruption Watch (ICW) has asked state electricity company Perushaan Listrik Negara (PLN) to cut its contract with independent power producers (IPPs), if they refuse to negotiate the contract agreements.

The coordinator of the ICW Teten Masduki said that if PLN took them to the court for a deviation in the contracts, the state electricity company had a better chance to win the cases because most of the power contracts awarded to IPPS were involved corruption, cronyism and nepotism.

"There is no need for PLN to be afraid to ignore the contracts because most of them were issued through corruption, nepotism and cronyism practices," he said, adding that if IPPs then refused to renegotiate the contracts, just take them to the court.

Teten also said that PLN also needed not to worry about the possible sanctions it might receive if it unilaterally cut the contracts.

PLN has been under pressure from international communities for its failure to settle the payment for the power it bought from IPPs. The problem occurred as prices of the electricity sold by IPPs to PLN are made in U.S. dollars. The sharp drop in the rupiah against the U.S. dollar due to the crisis in mid 1997 has resulted in 300 percent increase in the cost of PLN's power purchases from IPPs. This has brought a major blow to PLN because the prices of the electricity it sold its customers are much cheaper prices than those for the power it bought from IPPs (*)