Indonesia sidesteps open bids; State power company will award contracts

INDONESIA - Indonesia will exempt the state utility from a rule requiring open bidding for power projects, accelerating the award of $9 billion worth of coal-fired generator contracts, as part of attempts to avert shortages.

President Susilo Bambang Yudhoyono authorized Listrik Negara to award the country's largest-ever series of power contracts to companies it selects, according to the decree document. The rule, signed recently, will be in effect until the end of 2009, when the 10,000 megawatts of power projects are expected to be completed.

Indonesia blames rules requiring open bidding, a process that can take more than six months, for delaying projects to build roads, ports and power plants. The decree is expected to speed up the award of contracts to Chinese companies including Shanghai Electric Power.

Chinese banks have agreed to lend as much as $4 billion in conditional loans to help fund the projects.

"Listrik Negara will negotiate with the Chinese companies to decide which power plants they want to build" from a list of proposed projects prepared by the utility, Yogo Pratomo, head of a government team established to supervise the plants' tendering and construction, said recently.

The government in March ordered Listrik Negara to build 10,000 megawatts of coal-fired power generating capacity by 2009. The utility, hobbled by state caps on power tariffs, lacks funds to construct power plants and networks.

The utility will add 10 coal-fired power plants with capacities from 300 megawatts to 700 megawatts in Java, the country's most populous island, and 30 plants elsewhere, each to produce from seven megawatts to 150 megawatts, according to a list attached to the decree.

The changed regulation allows Listrik Negara to offer equipment- supply contracts to companies from countries where the utility has borrowed to pay for plants, Pratomo said by telephone. Bank of China, Export-Import Bank of China and China Development Bank have agreed to lend as much as $4 billion in export credits to Listrik Negara, provided the utility buys power generation equipment and technology from Chinese companies for the plants, Djuanda Nugraha Ibrahim, acting president director of Listrik Negara, said last month. The plants will cost up to $900,000 a megawatt, or $9 billion in total, to cover cost of money, interest and construction expenses, Ibrahim said recently.

Listrik Negara may award contracts to build transmission networks to selected companies, the decree said. The utility may need to spend more than $7.7 billion on power networks, Herman Darnel Ibrahim, vice president of transmission and distribution at the company, said Wednesday. He did not elaborate.

The decree came after Eddie Widiono, the president director of Listrik Negara, was arrested in early May as part of a police probe into allegations that the company had inflated the purchase price of two generators in South Sumatra. The utility has denied any wrongdoing.

Indonesia's rule requiring open bidding on infrastructure projects is aimed at curbing corruption. Finance Minister Sri Mulyani said last month that concerns about possible corruption charges were slowing the projects.