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JG/Businesses Say Another Electricity Rate Hike Could ‘Kill’ Competitive Advantage
Finance Minister Agus Martowardojo said late on Monday that the next hike would see average rates rise 15 percent as part of an effort to reduce government power costs.
The 2011 state budget draft cuts electricity subsidies by 34 percent to Rp 41 trillion ($4.6 billion).
Agus said the proposed rate hike took into account rising consumer purchasing power and the competitiveness of local industries. He also emphasized that the plan still needed the approval of the House of Representatives.
“The hearing with the House of Representative will start in October,” he said.
According to Agus, the hike is also intended to raise the revenue of state electricity utility Perusahaan Listrik Negara as it attempts to connect 90 percent of Indonesia’s population to electricity by 2014.
But the proposed hike was immediately countered with strong resistance, led by the Indonesian Employers Association (Apindo).
Sofjan Wanandi, the group’s chairman, warned that domestic industries would lose their competitive advantage if the hikes become a reality.
“Give us a break. Our industry is struggling to cope with a surge of imported products. Imports increased by 70 percent this year. The electricity tariff increase could kill us,” he said.
Sofjan added that the government should improve electrical distribution systems and related infrastructure before it applies the increase.
“Logistics costs in Indonesia are among the highest in the world. Infrastructure is not well developed and our energy policy is poorly formulated - we’re exporting gas when we could be using it to generate electricity,” he said.
According to the draft of the 2011 budget, the raises in electricity rates will be applied to households, business and consumers who have an electricity capacity of 6,600 volt-amperes and whose power needs exceeds the national average by 50 percent or more.
In addition to electricity price hikes, the budget draft proposes several other ways to reduce subsidies, including improving the efficiency of electricity distribution, optimizing gas usage and using high-speed diesel as a substitute for marine fuel oil.
The government has also set aside Rp 7.5 trillion this year in loans for PLN to fund the fast-track program to add 10,000 megawatts to the national grid, the first time the state has given loans to the utility.
On July 1, the government hiked electricity rates for households and industrial users.
Although the rise was to between 6-15 percent, the government capped the hike at 18 percent after businesses complained their rates had risen as much as double.
