Beware of Philippines-style electricity crisis<\/p>\n
By James Castle and Todd Callahan<\/p>\n
JAKARTA (JP): In many ways Indonesian consumers are no
\ndifferent than consumers in other countries. From San Francisco
\nto Jakarta it is a universal truth that no customers take
\npleasure in being asked to pay more. This is particularly true in
\nthe case of utility subsidies, which in many countries have
\nbecome viewed as an entitlement and are thus difficult to roll
\nback once they are in place.<\/p>\n
The current debate over electricity prices in Indonesia is a
\ngood example. Those in favor of the average 17.5 percent price
\nhike planned for July 1 report that Indonesia, now one of the
\nmost indebted countries in the world, can no longer afford to
\nfoot the bill for individual and business electricity users. Even
\nafter the July increase, annual subsidies for electricity will
\nstill amount to Rp 4.7 trillion.<\/p>\n
Meanwhile, those opposed to the plan have sounded the alarm
\nthat such a move would worsen economic conditions, especially for
\nthe poor. Critics intent on mobilizing public opinion contend
\nthat inflation will rise, industries will close and workers will
\nbe retrenched. In general, the arguments in the domestic media
\nrepeat this refrain.<\/p>\n
What has not been adequately covered, however, is the extent
\nto which electricity prices are subsidized in Indonesia. Indeed,
\nmany people are unaware of the huge gap that exists between what
\nthey pay for power and the real market cost.<\/p>\n
Others are unaware that Indonesian electricity tariffs have
\nplunged to the lowest in the region since the onset of the Asian
\neconomic crisis. For instance, neighboring developing countries
\nsuch as Thailand, Malaysia and the Philippines all charge much
\nhigher retail tariffs than Indonesia.<\/p>\n
Even poor countries such as India and Pakistan, with lower
\naverage levels of personal income, pay far more for their power.
\nThe accompanying bar graph comparing retail tariff rates across
\nAsia helps to put things in perspective. Although the data was
\npublished last year and the numbers are from 1998, it is worth
\nnoting that the overall comparisons remain valid.<\/p>\n
Another poorly appreciated point is the consequences of a
\nsevere electricity shortage, which even PLN officials admit could
\noccur by 2003 if new power development plans are not initiated
\nsoon. While the prospect of nationwide blackouts has been
\nreported by the local press, none have laid out what this would
\nactually mean for the country.<\/p>\n
On this score, the extreme power crisis experienced in the
\nPhilippines between 1989 and 1993 provides a glimpse of what
\ncould happen in Indonesia if the right decisions are not made now
\nto avert a disaster.<\/p>\n
On a macro level, the impact of the electricity crisis on the
\nPhilippines economy was disastrous. According to Peter Wallace,
\npresident of the Philippines chapter of the Economist
\nIntelligence Unit, manufacturing production declined by 30
\npercent during this period.<\/p>\n
An Asian Development Bank (ADB) source also remarked that
\ndebilitating blackouts contributed to economic losses and
\nunemployment estimated at US$600 million to US$800 million per
\nyear, which was equivalent to approximately 1.5 percent of gross
\ndomestic product (GDP). Indeed, insufficient power capacity was
\nsuch a drain on the economy that it was one of the key reasons
\nwhy GDP growth plunged from 6.2 percent in 1989 to negative 0.6
\npercent in 1991 and 0.3 percent in 1992.<\/p>\n
On a micro level, what happened during this period is even
\nmore disturbing. Anecdotes from Filipino expatriates now working
\nin Jakarta reveal that power rationing had to be practiced in
\nManila and industry associations such as the chamber of commerce
\nactively coordinated with Meralco, the capital's electricity
\ndistributor, to apportion the available supply.<\/p>\n
The National Power Corporation's (Napocor) generating deficits
\nwere so serious that power barges were even towed to Manila and
\nconnected to the grid. At the end of the day, many companies
\nwere simply forced to invest in their own generating capacity.
\nProcter & Gamble, as an example, could not afford disruptions in
\nits manufacturing lines, so it invested in expensive co-
\ngeneration facilities to cope with the frequent interruptions in
\nsupply.<\/p>\n
Great personal hardship was also inflicted on the Filipino
\npeople during the electricity crisis. At the height of the
\nemergency in 1992 and 1993, blackouts became unbearable and
\nsometimes lasted as long as eight to 10 hours. Frequent night-
\ntime cuts occurred, which had implications for crime and personal
\nsecurity. Traffic lights did not work, which made moving around
\nmore difficult than usual.<\/p>\n
In desperation, affluent Filipinos often bought generators for
\ntheir homes, and demand for such generators soared to such levels
\nthat waiting lists for some brands were as long as seven months.
\nThe noise produced by the generators created acrimony and
\nfriction between neighbors. The generators also served to
\nilluminate the gap between society's haves and have-nots, both
\nfiguratively and literally. In wealthy areas of Manila akin to
\nJakarta's Pondok Indah and Menteng, it was not uncommon for the
\nlights to be burning while less prosperous areas nearby were
\nblack or lit by lanterns.<\/p>\n
The easing of the Philippines power crisis finally came in
\n1994 due to decisive leadership by former president Fidel Ramos.
\nOne of the first things he did was to coax congress into passing
\na law that gave him emergency powers to fast track the
\ndevelopment of more electricity capacity. Slow bureaucratic
\nprocesses were bypassed and the government focused its attention
\non building power plants that were fast to put up.<\/p>\n
Electricity rates were also increased and enabling legislation
\nwas pushed through the system to encourage private sector
\nparticipation in the power industry. As a result of these
\ncourageous decisions, eventually there was enough electricity
\nsupply to meet demand, albeit at a huge cost.<\/p>\n
At a recent conference in Jakarta, the Indonesian Director
\nGeneral of Electricity shared his vision of an industry able to
\nprovide coverage for households, and industrial and commercial
\ngrowth across the country. Privately, many industry insiders see
\nlittle chance of this materializing until Indonesia's politicians
\nare willing to make the tough decisions to fix the country's
\nproblems.<\/p>\n
For Indonesia's sake, let us hope the July 1 rate increase
\ngoes ahead as planned and authorities begin to focus on the
\npolicies and actions necessary to ensure a stable power sector.<\/p>\n
The writers are Technical Advisors at PT Jasawenang
\nCitrasempurna, a subsidiary of the Castle Group in Jakarta.<\/p>",
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