The Electricity Law and its impact on competition<\/p>\n
Lalu A. Damanhuri, Jakarta<\/p>\n
Electricity has long been a state-regulated sector in
\nIndonesia. The main idea behind regulation was that it was
\nnecessary because the market for electricity services was a
\nnatural monopoly. Regulation was imposed to protect consumers
\nfrom monopolistic abuses.<\/p>\n
With the promulgation of Electricity Law No. 20\/2002, a
\ncomprehensive legal framework is in place for the development of
\nelectricity sector. The policy initiative and the legislation
\ntogether have paved the way for private sector participation in
\nthe development of electricity in Indonesia.<\/p>\n
Private sector participation is arguably the most important
\nelement of the electricity sector reforms. For Indonesia, faced
\nwith an increasing burden of capital requirements for expanding
\npublicly owned electricity systems, private participation is an
\nalternative source for securing the much-needed investments in
\nthe sector.<\/p>\n
Market experts are quite sure that competition will improve
\nefficiency in the generation segment and lead to lower prices.
\nIndonesia can benefit from adopting a single-buyer model combined
\nwith competition among the generators for supplying power to
\nlarge users. Even at this modest level of reforms, Indonesia may
\nnot have enough industrial customers to enhance competition among
\nproducers. Retail competition, at best, may remain an exclusive
\nlong-term objective.<\/p>\n
The present level of private-sector participation in the power
\nindustry is bound to grow in the future as the momentum of
\ngovernment's policy for involving more and more private companies
\nas independent power producers (IPP) grows. As the private sector
\ngrows, a regulatory body will be essential to provide a level
\nplaying field for public as well as private sector participants.
\nSuch an authority is also needed to protect the interests of the
\nconsumers against the possibility of abuse of market power and to
\nensure the adequate supply, affordability and reliability of
\nelectricity services.<\/p>\n
Despite the deregulation, PLN (the state electricity company)
\nstill dominates all electricity markets in Indonesia. A number of
\nlawsuits against PLN by new competitors (IPP) for anti-
\ncompetitive actions are still under court proceedings.<\/p>\n
The way deregulation was implemented in Indonesia failed to
\ncreate an environment in which competition would thrive. Most
\nimportant was the failure to understand that the incumbent
\nmonopolist in the all aspects of electricity could leverage its
\nmarket power to deter new entrants into the electricity business
\nas well as to hinder competition.<\/p>\n
Currently, PLN with two of its generating subsidiaries,
\nconstitutes the largest business player in the Java-Madura-Bali
\n(Jamali) system. Several IPPs are already operating and have
\nstarted to distribute power to the Jamali electric energy system.
\nThe power sales and purchase contracts between PLN and the
\ngenerating companies -- private and PLN subsidiaries -- are based
\non a Power Purchase Agreement (PPA).<\/p>\n
There is not yet a single transmission contract and power
\nsales contract with a distributing company, except for contracts
\nbetween big consumers and PLN, because transmission and
\ndistribution are undertaken by operational units that still form
\nan integrated part of PLN.<\/p>\n
One might say that the current structure is that of a \"Single
\nBuyer\" model, where the Central PLN acts as a single buyer.
\nBefore this year, the burden of purchasing electricity was
\ndelegated to the Central PLN, in this case P3B (the Center for
\nRegulator of Loads, Control and Supervision) while the
\noperational units that purvey the power receive income from the
\nsupply of transmission services.<\/p>\n
More than two years after the promulgation of the law, many of
\nits provisions have been disputed in court, the law's
\nimplementation has been very slow and clouded with significant
\nuncertainty. There have only been a few new IPPs in the
\ngeneration field. The market structure in the electricity sector
\nwill depend crucially on the resolution of PLN's legal challenges
\nto the electricity law. These challenges have derailed the
\nimplementation process of the law and have increased
\nsignificantly the uncertainty in the electricity sector.<\/p>\n
Benefits and costs of reform vary from time to time, the more
\nefficient a sector is at its starting point, the closer the
\npotential gains will be to increased transaction costs. However,
\nthe task of designing well-functioning reforms for Indonesia
\nstill remains a work in progress. Problems have occurred in this
\nreforming process, and many questions remain unanswered.<\/p>\n
The intent of the electricity law was to promote competition
\nand the public interest. It will be a significant failure of
\nIndonesia's political, legal and regulatory systems if the
\ninterests of an entrenched monopolist rather than the public
\ninterest, dictate the future of the Indonesian electricity
\nsector. Unfortunately, the lack of progress in the implementation
\nof the law has been a victory in itself for PLN and a defeat for
\nthe citizens of the country. If the present trend continues, the
\nintent of the electricity law -- to open all electricity markets
\nto competition -- will not become a reality.<\/p>\n
The writer is a senior specialist from the Committee On Policy
\nfor Acceleration of Infrastructure Development (KKPPI).<\/p>",
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