The current power-supply crisis, which has caused rotating blackouts in many provinces and inflicted big losses upon household and industrial consumers, should serve as a stern warning to the judges at the Constitutional Court not to be so narrow-minded as to annul the new electricity law for being too liberal.
Given the strong opposition from the employees of the State Electricity Company (PLN) who had staged massive street demonstrations against the enactment of the law Tuesday, they will surely continue to fight for their case and ask for a judicial review of the law at the Constitutional Court.
The new law on electricity stipulates provisions that break up the PLN monopoly of the power sector and allows private investors and regional administration-owned companies to not only generate but also, transmit, distribute and sell electricity to consumers without cooperation with PLN, but still under a government-controlled tariff system.
It was by and large the same provisions that led the Constitutional Court in 2004 to annul the 2002 electricity law and re-enact in its place the 1985 power law, citing article 33 of the Constitution as stipulating that electricity, as a vital commodity, shall be controlled by the government for the greatest benefits of the people.
But we are confident the Court judges will not so narrowly define the meaning of control as their predecessors did five years ago, taking into account the severe damages caused by the acute shortage of power to the economy and consequently the welfare of the people.
The new law also mandates provincial, regency and municipal administrations to issue electricity business authorization to private investors, including local administration-owned firms, to produce and sell power, either through own or leased transmission and distribution lines, to consumers but limited to their respective areas.
Even though the central government retains the power to set electricity tariffs with approval of the House, the new law also liberalizes electricity tariffs though still under government-controlled tariff structure. This means regional administrations, with the approval of local legislature, are authorized to set electricity tariffs for their respective regions even though the regional tariffs must still be based on the guidelines set by the central government.
This tariff liberalization is quite crucial because the current universal tariff structure imposed on PLN cannot provide it with adequate revenues to achieve long-term financial sustainability, hindering it from raising financing for investment in generation-capacity expansion and new transmission and distribution lines.
The universal tariff structure, irrespective of the varying costs associated with providing electricity in different regions, places the company in a financial quandary as it is not able to cover its cost of supply.
The distorted tariff structure also gives the wrong signal to private investors and creditors who play a crucial role in financing power supply. Yet more damaging is that it puts other provinces outside Java at a great disadvantage in attracting new investment in power generation because the costs of electricity provision on the outer islands are often much higher than in Java.
Look at how East and West Kalimantan, which have become one of the world’s largest exporters of thermal coal, still often suffer from power outages due to an acute shortage because PLN simply does not have money to expand their supply capacity in that region.