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State-owned power company PLN is likely to face another
threat to its 10,000 megawatt coal-fired power plant project as steel
prices have soared by about 34 percent, the Indonesian Tower
Fabrication Association says.
Chairman Ahmad Fahmi urged PLN to revise its budget for power
transmission networks under existing contracts with 42 developers,
considering tower materials such as angle steel had jumped from about
Rp 7,000 per kilogram in October to Rp 9,700 as of this week.
"The rising prices of steel will surely affect the budget for tower
construction as the material accounts for 70 percent of the cost,"
Ahmad told reporters during a press conference Friday.
He said 50 percent of raw materials for angle steel, including billets
and slabs, were imported and tower makers couldn't do anything about
volatility of global markets.
Hence, he said, average costs of transmission towers would be 24
percent higher than the Rp 123 million price term in contracts between
PLN and builders and towers could cost as much as Rp 152.52 million.
The situation, he said, would undoubtedly lead to developers demanding
to renegotiate contracts.
"We suggest that transmission power grid contractors and PLN reevaluate
existing budgets as the price estimates on the contracts are no longer
adequate."
Otherwise, he said, developers might try to draw out contract
performance waiting for prices to drop again, which would hurt the
already-troubled power project.
The government has already pushed back the project completion date from
year-end 2009 to mid-2010 due to financing problems.
PLN and tender winners are still scrapping for an estimated $6.5
billion in loans out of a total $8.3 billion needed to complete the
project.
Spending on electrical transmission, which includes erecting tower
sequences for carrying power lines, is expected to cost about Rp 21.6
trillion (about US$2.3 billion).
PLN has secured funding for only five out of 32 power plants planned as
part of the project.
When asked about renegotiating contracts, PLN director for transmission
Herman Darnel Ibrahim said it was "possible" depending on existing
regulations and the consent of the central government.
"Nevertheless, I believe that before signing the contracts, both
parties had agreed on the steel index prices," he said without
elaborating on the price.
He explained that the state-owned company had signed transmission
facility contracts worth around Rp 15 trillion with 42 companies which
covered about half of the necessary transmission grids, expecting to
close more deals this year.
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