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.