Court rulling raises uncertainty in energy sector<\/p>\n
Eddy Satriya, Jakarta<\/p>\n
Economic changes coupled with advances in new technology, the
\nneed to conduct good-governance practices, and intensifying
\npressure to reduce the central government's role have
\nsignificantly brought new developments to the provision of public
\nutilities and infrastructure in many developing countries.<\/p>\n
Waves of deregulation, liberalization and privatization
\nstarted in the 1980s have had an effect on decision makers in
\nsetting up their industries.<\/p>\n
The energy sector in Indonesia has also progressed
\nsignificantly in its reform through the issuance of new
\nregulations. Oil and Gas Law No. 22\/2001, Electricity Law No.
\n20\/2002, and Geothermal Law No. 27\/2003 were all promulgated
\nafter the economic crisis in 1997. The main themes of the new
\nlaws are improving the quality of services, abolishing monopoly,
\ndefining the new role of the government, and improving public-
\nprivate partnerships in infrastructure provision. As a result,
\nthe energy sector is now ready to open up the domestic market and
\nto redefine the government's role in the industry.<\/p>\n
Therefore, it was like a clap of thunder overhead on Dec. 15,
\n2004, when the news regarding the dissolution of Electricity Law
\nNo 20\/2002 reached all decision makers, investors and players in
\ninfrastructure who assembled in the National Development Planing
\nBoard's (Bappenas) hall on Jl. Taman Suropati, Central Jakarta.<\/p>\n
The reason for the annulment is that some of the main articles
\n-- article no. 16, 17, and 38 -- of the Electricity Law are
\nagainst article 33 of the 1945 Constitution. Having the
\nElectricity Law canceled means that the law is no longer
\neffective and all of the contracts and commitments being prepared
\nmust be stopped. Thus, at the moment there is no law or basic
\nregulation effectively in place for the electricity industry.
\nYet, some say that the annulment means that the old Electricity
\nLaw No. 15\/1985 is the prevailing law. However, that is not
\nautomatically the case since the old law had already expired and
\nthe decree made by the Constitutional Court canceled Law No.
\n20\/2002 but said nothing about Law No. 15\/1985. In short, the
\nannulment has caused a backlash and the virtual eclipse of the
\npower industry. The industry may be led into an even darker
\ntunnel, unless the government and related stakeholders make a
\nquick move to fill the gap.<\/p>\n
As a matter of fact, the enactment of Electricity Law No
\n20\/2002 has already marked a new era in the country's power
\nsector. A series of restructuring and reform steps have been
\ntaken accordingly. For example, the formulation of the so-termed
\nBlueprint for Indonesia's Power Sector -- also known as
\nGuidelines for the Development of the National Power Industry --
\nand the establishment of the Electricity Market Supervisory Board
\nthrough Government Regulation No 53\/2003 are among reform steps
\ntaken in the sector. In addition, good will for reform has been
\nsignaled by the resignation of the former director general of
\nelectricity and energy utilization as a member of the board of
\ncommissioners of state-owned electricity company PLN.<\/p>\n
On the other hand, unfortunately, PLN has not fully recovered
\nyet from the economic crisis. The fact that only half of the
\npopulation is connected to the grid shows PLN's difficulty in
\nexpanding its services. Blackouts and brownouts in some areas
\noutside of Java and Bali islands also indicate a lower grade of
\nelectricity services. The company's limited budget for new
\ninvestment and the rehabilitation of power generators, and the
\nprice increases of crude and diesel oil has hampered PLN's
\nactivities significantly since about one third of its power
\ngeneration is oil-fueled.<\/p>\n
Other alternative for funding new investments in the system --
\nranging from generation, transmission, and the distribution of
\nthe power to end-users -- are through foreign debt or loans.
\nHowever, financing new projects through foreign loans has not
\nbeen that easy for PLN. Most investors now seek government
\nguarantees due to the poor track record of PLN., as many of its
\nprevious projects suffered long delays in the implementation
\nstage.<\/p>\n
The other way to improve the power supply service is through
\nincreasing the selling price to users. As the sole operator in
\nthe country, PLN -- through a government decision -- has
\nsuccessfully increased electricity charges over the last four
\nyears. Statistics show that price increases in the electricity
\ntariff are much higher than those of other basic utilities, such
\nas water supply and public transportation. In addition, power
\nlosses and inefficiency in management have worsened the overall
\nperformance of the power sector. All of these difficulties and
\nthe \"wait-and-see\" attitude of investors in the power sector have
\ncaused the deterioration of overall services.<\/p>\n
Thus, we arrive at the question: How does this logic actually
\nwork? On one side, Electricity Law No. 20\/2002 encourages the
\nmodernization of the sector through, among other things,
\nredefining the government's role, gradually liberalizing the
\npower sector that has been controlled by one party for decades,
\nand by inviting private participation in the sector. The new
\nElectricity Law has also freed PLN from constructing facilities
\nand providing services in rural and remote areas. Article 7 of
\nthe law says that this task has now been transferred to both the
\ncentral and regional administrations.<\/p>\n
On the other hand, the cancellation of the law may throw the
\nindustry into uncertainty, which could lead to the deterioration
\nof power supply services and worsen the investment climate at a
\nnational level. In other words, the cancellation of Electricity
\nLaw No. 20\/2002 does not send out a positive signal ahead of the
\nInfrastructure Summit.<\/p>\n
The Constitutional Court has made its decision. Yet, we are
\naware that not all liberalization programs carried out across the
\nworld end as success stories. This is not a matter of \"the Lexus
\nand the Olive Tree\" as underlined by Thomas L. Friedman. But,
\nthis is purely a question of which one is now the real enemy to
\nthe welfare of the Indonesian people from transition to
\ntransition: Monopoly or liberalization?
\nOnly time will tell.<\/p>\n
The writer is a senior infrastructure economist, working for
\nBappenas. He can be reached at esatriya@bappenas.go.id.<\/p>",
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