Indonesia hitch for NZ firm

By Mark Reynolds

State-owned electricity company Mighty River Power is renegotiating power prices for an electricity project it is building in Indonesia, just as the New Zealand Government considers how to respond to alleged Indonesian support for militia raids in East Timor.

The diplomatic disquiet is threatening to stifle the sensitive price negotiations, which have already dragged on for more than a year.

Mighty River Power - which was formed in the split of ECNZ - has a 10 per cent share in one of 10 Indonesian power plants partnerships that have to renegotiate subsidised earnings from the Jakarta Government.

The prices have to be reworked because they were set in United States dollars three years ago and the Asian economic downturn has forced down the value of the Indonesian currency, making the power too expensive for the country's state-owned electricity distributor, PLN.

The partnership Mighty River is involved with is 75 per cent-owned by Asia Power, a 95 per cent subsidiary of Brierley Investments.

The partnership, called Mandala Nusantara, is constructing a $US420 million geothermal power plant at Wayang Windu in West Java.

Doug Heffernan, chief executive at Mighty River Power, said the renegotiations are at a sensitive stage and he was therefore reluctant to publicly talk about the issue.

However, Simon Temple, a Brierley executive who is also chairman of Asia Power, said Mandala Nusantara executives had only last week finally sat down with officials from Indonesian state electricity company PLN to begin negotiating new prices.

Mr Temple said progress is being made in setting the new rates, but it might take a while to find a compromise deal. Any diplomatic squabbles between Indonesia and New Zealand are likely to hamper proceedings.

Indonesia will begin paying Mandala Nusantara for power from its plant once the 220 megawatt facility is commissioned later this year.

Mr Temple said Mandala Nusantara was in a similar position to nine other independent power project groups that had just completed or were building facilities in Indonesia.

Indonesia had planned to build 26 facilities, but the number of projects was cut back following the nation's economic collapse in mid 1997. The financial position of PLN has been perilous since mid 1997 because its expenses like fuel prices and debt payments are denominated in US dollars, while its revenue is in the much-depreciated rupiah.

Some of the independent power producers are contracted to sell power to PLN for 30 years at what are now regarded as exorbitant prices.

Those prices were forced on PLN by cronies and relatives of deposed Indonesian president Suharto, who had minority stakes in the "independent" ventures.

Mr Temple said a Suharto associate had been linked to Mandala Nusantara - but no longer was. "Every IPP had a first family connection," he said.

The largest of the Indonesian projects is the 1,230 megawatt Paiton 1 facility, which is a $US2.5 billion plant being built by a joint venture led by Edison Mission Energy - the company that has just paid $1.2 billion for a 40 per cent stake in Contact Energy sold by the New Zealand Government.

According to the Wall Street Journal, the Paiton project now stands as one of the most expensive power deals of the decade anywhere in the world.

Electricity from that plant has been priced at 8.3USc a unit, compared with a tariff of 5.8USc a unit struck at Indonesia's only competitively tendered project.