PLN needs electricity rate hike<\/p>\n
By Faisal Harahap<\/p>\n
JAKARTA (JP): The heatedly debated electricity rate increase
\ncould lead to a different perspective if we look into it from a
\ndifferent angle.<\/p>\n
Critical statements were addressed against the government as
\nwell as PLN state electricity company regarding the determination
\nof the rate base and its three-monthly adjustments, after Mines
\nand Energy Minister I.B. Sudjana announced the new policy on Oct.
\n21, 1994. The rate adjustment is linked to inflation, rupiah
\ndepreciation, fuel prices and cost to PLN of electricity bought
\nfrom private companies.<\/p>\n
Based on those factors, rate would be raised at the average of
\n7.68 percent as of this month. That would be valid for a period
\nof three months and would be continuously readjusted thereafter.<\/p>\n
Legislators, businessmen, manufacturers, lecturers, newspaper
\neditors, consumers and people on the streets had their share of
\nopinion on the steps taken by the government to allow PLN
\nundertake the rate adjustment.<\/p>\n
There are people who opined that PLN should \"go public\" to get
\nextra funding rather than increase the electricity tariffs.
\nAlternatively, they argued, the Rp 240 billion (US$ 12 million)
\nadditional monthly revenues to be received from the rise in
\ntariffs, could be obtained through a more efficient handling of
\nthe state company.<\/p>\n
Hard-liners tried to point out that consumers would be paying
\nthe extra Rp 240 billion a month for the inefficiencies in PLN
\nresulting from electricity loses and thefts, as well as unpaid
\nbills. They described the rate adjustment as unfair, irrational,
\nburdening the poor and would lead to higher inflation rate.<\/p>\n
Some questioned the method of setting up the rate base and the
\ncalculation of the three-monthly adjustment, and urged for a
\nreview. Others tried to convince the public on the minor effect
\nof the increase in electricity tariffs on the cost of
\nmanufactured goods, in view of the small portion of electricity
\nin the structure of production costs. Some , however, were afraid
\nthat the psychological impact of the adjustment would result in a
\nmore than proportionate increase in the prices of manufactured
\ngoods.<\/p>\n
But as some people see it, the Rp 240 billion additional
\nmonthly income may not be used to the full amount by PLN to
\nfinance new investments but to partly cope with its obligation to
\nprivate companies. With the buying prices of electricity from
\nprivate generators fixed in US dollar and the electricity prices
\nfixed in the depreciating rupiah, PLN would need some
\ncompensation to fulfill its obligation.<\/p>\n
The issue, according to this line of thinking, centered to a
\ngreater extent on how Indonesia could attract investments from
\nabroad in power generation. Using Repelita VI as its guidelines,
\nthe government is determined to construct generating and
\ntransmission facilities capable of supplying 115.3 thousand GWh
\nof electricity by the end of 1998\/99 to meet the rising demands
\nfrom industries and households.<\/p>\n
About 67.8 percent of the electricity would go to industries
\nand the rest to households and other purposes. Bearing in mind
\nits significant role in the non-oil industries, non-oil exports,
\nand employment, the government understandably puts high priority
\non these power projects.<\/p>\n
President Soeharto said at the opening of the World
\nInfrastructure Forum-Asia 1994 in Jakarta on Oct. 17, that
\nIndonesia will spend more than Rp 100 trillion (US$ 50 billion)
\nin the next five years on infrastructure alone.<\/p>\n
Government funding would clearly be not enough to finance
\ninfrastructure projects such as toll roads, electricity,
\ntelecommunication, water supply and ports. Multilateral and
\nbilateral donors would need ten years to provide the funds for
\nthe infrastructure projects, as the Consultative Group for
\nIndonesia (CGI) could only pledge roughly US$ 5 billion annually.<\/p>\n
The last alternative would be foreign investment through
\nthe so-called BOT (Build, Operate and Transfer) or the BOO
\n(Build, Own and Operate) method.<\/p>\n
Two stumbling blocks in agreeing a BOT or a BOO project in
\nIndonesia are the issues of security in the availability of
\nforeign exchange and security in the value of revenues received
\nby the foreign investor. Foreign exchange availability is
\nimportant for capital repatriation purposes while rate adjustment
\nis needed to protect the investor from losses because he receives
\nincomes in rupiah which unfortunately is depreciating.<\/p>\n
The government is normally firm on the issue of foreign
\nexchange because Indonesia pursues free foreign exchange system.
\nWith regard to rate adjustment, however, no investor receiving
\nrupiah incomes would be willing to undertake a project unless he
\nis provided with sufficient protection, which could be in the
\nform of rate adjustment, pre-determined exchange rates or
\nforeign-currency-denominated sales.<\/p>\n
Indonesia is nearing the end of the first year of its Repelita
\nVI but only one of the nine power projects with 2,950 MW capacity
\nsupposed to be implemented by the private sector is under
\nconstruction.<\/p>\n
There are good reasons to believe that the new rate policy is
\naimed at facilitating inflows of investments into the power
\ngeneration through BOT or BOO schemes. It might be that the
\nthree-monthly adjustment system is a step to familiarize
\nconsumers with floating tariffs of electricity. If the test case
\nproved to be successful, the road to BOT or BOO projects would be
\nwidely open.<\/p>\n
While the arguments contained in this article should not be
\nconstrued as defending PLN's inefficiency, all the headaches that
\nstem from rate adjustment would not happen if we could manage to
\nkeep inflation low and the rupiah exchange rate stable.<\/p>\n
The writer is a civil servant based in Jakarta.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/pln-needs-electricity-rate-hike-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }