SOE minister intervenes as PLN struggles to pay debts
State-Owned Enterprises (SOE) Minister Erick Thohir recently wrote a letter to fellow Energy and Mineral Resources Minister Arifin Tasrif, asking the latter to help state-owned electricity company PLN’s finances by not issuing licenses to build new power plants as PLN was suffering from over-capacity and struggling to pay its debt. The move, however, is seen as creating uncertainty and discouraging private investment, not only in electricity but other sectors as well.
In his letter, which was leaked to the media, Erick also asked Arifin to review and adjust PLN’s 2020-2029 electricity procurement plan (RUPTL) by considering the existing electricity infrastructure, including those under development, projected electricity demand and financing capability of both the state budget and PLN’s finances.
Some believe that Erick’s letter to Arifin could send the wrong message to the market that the government discourages private investment not only in electricity but also in other sectors, especially the manufacturing sector. In the letter, Erick especially asked Arifin not to issue licenses for the construction of new power plants in the captive markets such as industrial estates. Some multinational consumer goods companies require an electricity supply from renewable energy, while PLN’s electricity is mostly from fossil-based power plants.1
Erick’s letter is also seen as an indication of PLN’s worsening finances, as Erick mentioned in the letter that PLN had been impacted by the COVID-19 pandemic. PLN’s CEO revealed late August that PLN’s revenue had dropped by an average of Rp 3 trillion (US$203.47 million) per month from Rp 25 trillion last year to Rp 22.2 trillion this year as electricity demand dropped by more than 10 percent, mostly from business customers.2 The declining demand started when PLN’s electricity supplies reached its highest point of around 130 percent of the prepandemic average demand, with 30 percent as reserves for peak hours.3
PLN’s finances worsened in a time when its debt reached a record high of Rp 625 trillion US$ as of the first quarter this year. Most of the debt was accumulated during the first term of President Joko “Jokowi” Widodo when PLN was tasked to generate 35,000 megawatts of electricity to meet the anticipated rising power demand using debts and PLN’s own finances.
According to PLN CEO Zulkifli Zaini, 70 percent of PLN’s debts are in foreign currencies as its debts to local banks capped at Rp 140 trillion. And the foreign currency debt has its own risks, as for every Rp 1,000 depreciation of the rupiah against the US dollar, PLN’s debt would increase by Rp 9 trillion.4 Earlier this year, PLN asked the government to pay its debt to PLN totaling Rp 47 trillion, but the government has only paid Rp 7 trillion.5
With such a massive debt and falling revenue, PLN’s finances will not improve with the government stopping the issuance of licenses for new power plants by private companies. It needs more comprehensive measures from the government to address the low demand for electricity and PLN’s debt overhang.
A source mentioned that Sate-Owned Enterprises (SOEs) Minister Erick’s letter to Energy and Mineral Resources Minister Arifin is designed to protect PLN’s business, which is currently under pressure. The letter showed up after PLN’s board of directors asked the SOEs Ministry to help with a burden-sharing scheme.
The root cause is the mounting financial pressure within the company, which makes PLN’s condition unstable. “Actually, PLN has been raising a white flag,” said a high-ranking PLN official. The low demand for electricity during the COVID-19 pandemic, particularly from businesses, has put PLN on edge.
However, the source added that the SOEs Ministry’s Electricity Directorate-General could not just simply justify the RUPTL 2020-2029, as written in Erick’s letter. The Energy and Mineral Resources Ministry still hasn’t decided how much capacity to be reduced, including from electricity purchased from contracted private companies and which power plant projects to be postponed.
That is why the energy ministry can only request PLN to be more competitive in producing electricity and more aggressively look for customers, especially since the oversupply is caused by PLN’s messy planning, which led to uneven supply and demand.
On the one hand, PLN does not dare to mess with large private power plant contracts. With a take or pay scheme, PLN has to buy all the electricity produced by those private power plants regardless of demand. This has led to an oversupply of electricity.
According to an energy ministry official, reducing the capacity on operating power plants will affect the project’s bankability.
Other sources said that PLN could only pressure small independent power producers through contract renegotiation to reduce the oversupply.
Larger private electricity producers have been lobbying the government so that businesses who have their independent power plants still buy electricity from PLN. They hope that the energy ministry will not issue a new permit for industries that want to build their own power plants.
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