Chauvinistic verdict

Chauvinistic verdict

Indonesia after Soeharto is full of surprises. Almost daily we
are greeted by more surprises, both pleasant and unpleasant. We
woke up on Thursday to yet another surprise, this one supplied by
the Constitutional Court: it had annulled Electricity Law No.
20/2002.

What is so shocking and deeply troubling about this verdict is
that it sets a completely wrong precedent for future decisions by
the court. The electricity law is the first to be annulled by the
court since its establishment last year. Unfortunately, it was
the wrong law to annul.

Most of the arguments presented by the court in annulling the
law were extremely weak and did not provide the intellectual
justification expected from honored judges.

We agree with the court that electricity is an important
commodity pivotal to the lives of the people and the success of
businesses. We also can accept the court's argument that
electricity -- as such an important commodity -- must be
controlled by the state and developed to provide maximum benefit
for the people.

However, the judges' next argument that controlling the
commodity means the government, through state companies, must
have a majority stake in every company doing business in the
electricity sector is completely baseless and unacceptable. It is
ridiculous for the court to interpret "controlling" to mean
having a majority stake in companies in the electricity sector.

It has been well proven in Indonesia and elsewhere that state-
owned enterprises are often riddled with corruption,
inefficiencies and a lack of innovation. And the Constitutional
Courts tells us to maintain the monopoly by the inefficient state
electricity company PT Perusahaan Listrik Negara (PLN).

Because of past corruption and inefficiencies, PLN is saddled
with trillions of rupiah in debt and is virtually bankrupt. If it
was a private entity, it would have disappeared long ago. We are
the ones who are bailing out PLN and keeping it afloat.

In fact, the court recognized the weakness of PLN, saying that
private companies were in a better position because of their
superior management, technology and finances.

We can understand the court's next argument that PLN is given
preferential treatment because it has to provide electricity to
less developed areas outside Java, Madura and Bali, while having
to compete with private companies on the three developed islands.

However, this problem can be solved with regulations, not by
revoking the law. The government could provide incentives to PLN
to provide electricity outside the three main islands, or if
necessary the government could continue to provide subsidies, but
with a clear and definite calculation of costs.

Why didn't the court see the other side of the coin, i.e.
competition would make PLN stronger? By any measure, competition
is good for both the companies and the people. Healthy companies
will prosper, and the people will benefit from lower prices.

But introducing competition does not mean we would simply
leave everything up to the market. In all free market economies,
the government still plays a controlling role in sectors that
have characteristics of a natural monopoly, like electricity. But
such a controlling role can be better pursued through stronger
regulations -- not government involvement in businesses.

As a whole, it can be said this court verdict will benefit PLN
at the expense of the people. Does the court want us to continue
paying high electricity rates because of PLN's continuing
inefficiency?

The weak arguments provided by the court in announcing its
decision are not our only concern. What is truly troubling is
considering the consequences of this decision.

The immediate impact will be the reaction of prospective
investors in the electricity sector. It is hard to imagine these
investors even considering putting their money into the country.
Sadly, this is happening at a time when Indonesia badly needs
investment in the electricity sector to keep up with growing
demand, both from the people and industries.

At the same time, PLN is not expected to invest significantly
in new infrastructure and networks -- unless it receives loans or
grants from the government. This means we can expect to continue
to pay high prices for our electricity and to suffer frequent
blackouts, and those without electricity can expect an even
longer wait to get connected.

The bigger concern is that this verdict will set the wrong
precedent for future decisions by the Constitutional Court on
other important laws that encourage private participation in the
economy.

The court is currently debating a judicial review of the water
law, which has drawn criticism from anti-globalization groups.
Judging from this verdict, we can expect the water law to meet
the same fate as the electricity law. The next likely victim will
be the oil and gas law that strips inefficient state oil company
Pertamina of its monopoly in both the upstream and downstream oil
sectors.

It is troubling just to think about the consequences of such
verdicts. But we were the ones who put these chauvinistic, anti-
privatization judges in the Constitutional Court, the only
institution that has the authority to interpret the Constitution,
as well as laws and regulations. Perhaps we should consider
restocking the court with broad-minded judges.