Advantage of power liberalization questioned

Advantage of power liberalization questioned

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Debates on the electricity bill, which aims to lift the monopoly
of the state electricity company PT PLN in the country's power
sector, could heat up considerably, as many legislators now have
begun to challenge the benefits of lifting the monopoly and
imposing a free market system in the sector.

Husni Thamrin of the Golkar faction questioned the benefits of
liberalizing the country's power sector, while Tunggul Sirait of
the Love the Nation Democratic faction strongly rejected the
idea.

Husni added that Indonesia had to learn from the failure of
California in implementing a free market system in its power
sector and, on the other hand, the success of France to keep in
place the monopoly system in its power sector.

"This electricity liberalization spirit is going too far...,"
Husni told the Jakarta Post.

Husni said he could not predict when the power bill
deliberation would be completed.

The government submitted the power bill to the House in early
2001, but they did not start deliberating upon it for several
months thereafter.

Many expected that the debate would wind up in March, but the
House failed to do so.

The planned power law, which will replace Law No. 15/1985, is
aimed at revoking PLN's decades-long monopoly in the power sector
to allow private firms to produce, as well as directly distribute
power to the public.

With the bill, the government seeks to encourage investment in
the power sector, create free-market competition, and to obtain
competitive prices for power. New investment is needed in the
power sector to help avoid a predicted power crisis in the
future.

The government has often faced obstacles in dismantling
monopolies in the economy. For example, the government needed
nearly three years to obtain the approval of the House for the
new oil and gas law, which ends the decades-old lucrative
monopoly of state-owned oil and gas firm Pertamina.

Under the existing power law, only PLN is allowed to produce
and sell power to the public. Private firms have been allowed to
produce power but they could only sell the power to the public
through PLN. PLN has signed power purchase agreements (PPA) with
27 independent power producers (IPP).

Under the proposed power bill, all producers, including PLN,
will have to sell to distribution companies through a bidding
system. The lowest bidder will be allowed to enter the power
grid, which will be operated by a special agency to be
established by the government.

The power distribution companies then would sell to the end
users: households, industries and others.

The bill stipulates that there will be a seven-year transition
period before a fully liberalized power system will be
implemented in particular areas.

The government will also form a regulatory authority to ensure
fair competition in the industry. This regulator would also be
responsible for determining the transmission fee.

Many analysts say through the bill, the government seeks to
apply a system resembling the one being applied in California,
which was blamed for raising power prices to an unaffordable
level which caused a crisis in the state for several months last
year.

Learning from the power crisis in California, they called on
the House to reject the bill proposed by the government and
maintain PLN's monopoly.

They said, however, supervision should be boosted to prevent
the monopoly holder from abusing its privilege or wantonly
raising its rates.

Tunggul said he was against the idea of imposing full
competition in the sector because "the public was not yet ready
to implement it and accept its consequences."

"So what is full competition for? Just to lure investors?," he
asked.

He said to lure investors the government should better focus
on improving the security situation, introducing attractive
prices for power and providing incentives to attract investors
rather than seeking to implement a free market system.

"Those are the important factors that can lure investors to
build more power plants to provide electricity for all people
across the country," he said.

According to Tunggul, the best system for the country for
about the next 15 years was the current multi sellers-single
buyer system, in which private firms are allowed to produce power
but could only sell them to the public through PLN.

"We have experience in handling it. What we need to do is to
eliminate corrupt practices, such as marking up power prices, to
avoid public and government's losses" he said.

He said once the current system was considered obsolete in the
future and the full competition was needed for the country's
power sector, the government and the House could revise the law.