PT Paiton Energy Company (Paiton I)

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In 1994 PT Paiton Energy Company began the development of Paiton I, a 1,230MW (2x615 MW) coal-fired power plant located in Paiton, East Java. The Paiton I plant, one of the first private power plants in Indonesia, was developed through a BOT program that allowed the operation of the project for a maximum of 42 years, including a 30-year production period. Paiton Energy was to sell power to the state-owned electricity utility Perushaan Listrik Negara (PLN) through a 30-year power purchase agreement signed in 1995. The plant was to be fueled from coal purchased through a 30-year supply agreement with PT Adaro Indonesia. The plant was to use low-sulfur Envirocoal, negating the need for flue gas desulfurization equipment and reduced project cost by an estimated $400 million. The Paiton Energy Company that developing Paiton I is distinct from PT Jawa Power which is developing Paiton. Paiton Energy was initially a joint venture between Mitsui & Co. (Japan, 32.5%), TransCanada Pipelines Ltd (Canada, 10%), General Electric Capital (USA, 2.5%), PT Batu Hikam Perkasa (Indonesia, 15%), and Mission Energy (40%, a subsidiary of SCECorp). As of Dec. 31, 2008, the major shareholders in PT Pation Energy were IPM Eagle LLP (UK, 45%), a 70:30 joint venture between International Power PLC and Mitsui & Co. Through this partnership, Mitsui & Co. had a 50% effective share in PT Paiton Energy, while International Power had a 31% share in the project company. The remaining shareholders in PT Paiton Energy were Tokyo Electric Power Co. (Japan, 14%) and PT Batu Hitam Perkasa (Indonesia, 5%). Financial closure took place in June 1995, and the project had a debt/equity ratio of roughly 75:25. The plant was financed through a mixture of syndicated loans, export credits, 144A issues (US$180 million) and sponsor equity (US$650 million). The 144A issues had a BBB rating from Standard & Poors and a Baa3 rating from Moodys. JEXIM, MITI, USEXIM, and OPIC provided a mixture of loans and political risk guarantees. Flour Daniel International Services, Toyo Engineering Corp, and Mitsui were the project contractors. ABB was one of the equipment suppliers. Installation was undertaken jointly between ABB and PT Jurong Engineering Lestari. PT Hitan Energy, a consortium led by Mission Energy, was responsible for operation and maintenance. The project began construction in September 1994 and became operational during 1999. In its fiscal year 1996, MIGA issued a $50 million guarantee to Capital Indonesia Power I C.V., an affiliate of General Electric Capital Corporation of the United States (GE), for its $61.2 million equity investment in the construction and operation of PT Paiton Energy Company. MIGA's guarantee covered the risks of currency transfer and war and civil disturbance. The government of Indonesia had indicated that project development would not be affected despite the mid-1997 devaluation of the rupiah. However, PLN failed to pay part of its due bills to the consortium in 1999. This occurred because the utility was stuck with several power purchase agreements for more electricity than it needed. In mid-1999, PLN tried to cancel its supply contract with Paiton Energy on the grounds that the tariff was overpriced (the consortium stated that it tried to reach an agreement with PLN for a tariff half of the original level). Paiton Energy responded to the move by filling an international arbitration litigation in Stockholm. In early 2000, the government forced PLN to accept an out-of-court settlement with Paiton Energy. The lack of payment from PLN left Paiton Energy with difficulties in meeting its own debt payments. In January 2000, the US ExIm approved an extension on the refinancing of Paiton Energy's construction loan. In September 2002, Paiton Energy and PLN reached an agreement on the tariff issue, whereby PLN would pay Paiton 4.93 US cents per kWh for 40 years. In October 2002, Paiton sponsors met with US Exim Bank, Overseas Private Investment Corporation (OPIC), Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (Nexi) to discuss its debt restructuring. US Exim agreed to take up 75% of the debt in its US$540m tranche, leaving the banks with US$135 million debt. MIGA issued a guarantee on the equity of General Electric (US$61.2 million), of US$50 million against currency transfer and war & civil disturbance. The guarantee was awarded in 1996, and held by Capital Indonesia Power I C.V., a subsidiary of GE and incorporated in the Netherlands. In June 2004, Paiton Energy announced intentions for a 815 MW expansion costing US$580 million. In August 2008, PT Paiton Energy signed a 30-year Power Purchase Agreement (PPA) with PT PLN for the proposed 815MW coal-fired expansion plant, named Paiton 3. The project was to be covered by a fixed-price contract and the main equipment was to be supplied by Mitsubishi Heavy Industries Ltd. The project was to be located within the existing Paiton complex and was expected to be fully operational by the end of 2012. As of Dec. 31, 2008, the Paiton 3 expansion had not reached financial closure. http://www.miga.org/projects/index.cfm?pid=120