Tue, 18 Feb 2003

Corruption, inefficiency equal expensive electricity

A'an Suryana The Jakarta Post Jakarta

Business Watch Indonesia said that one of the main reasons for the higher electricity charges in Indonesia was widespread inefficiency at state-owned electricity company PT Perusahaan Listrik Negara (PLN).

The independent business watchdog said in a report that the main source of inefficiency was the purchase of fuel for PLN's power generation facilities.

It said that PLN was well aware of the "price discrimination" in the purchase of fuel for years, but unfortunately the company had done nothing to address the problem.

The electricity company had purchased natural gas at prices much higher than prices paid by other state enterprises.

The firm bought natural gas from various domestic sources at US$2.45 to $3 per million British thermal units (MMBTU), while other businesses bought it more cheaply.

Fertilizer, petrochemical and steel companies, for example, bought natural gas in recent years at between $0.65 to $2 per MMBTU.

The gas price for PLN has also been much more expensive compared to the international market price.

State electricity firm in Malaysia, for example, only paid for gas at around $1.6 per MMBTU.

PLN could not be reached for comment.

But, a source at state oil and gas company Pertamina, the major supplier for PLN's gas, has said that corruption had contributed to the inflated price of gas.

Fuel expenses account for a significant component of PLN's operating costs. Thus, cutting down on such obvious markups to at least a reasonable market price would greatly reduce overall expenses at PLN.

The government late last year approved a request by PLN to increase electricity charges by an average of 6 percent each quarter of this year. But the move has been postponed amid widespread public protests.

The price increases, implemented since 2001, are aimed at bringing up the domestic electricity prices to an average of 7 U.S. cents per kilowatt hour (kWh) by 2005. Currently, people are paying for electricity at around 5.42 cents per kWh.

According to Business Watch, in order for PLN to be able to provide the public with cheaper electricity, they need to renegotiate the power purchase contracts with several independent power producers who were selling electricity at an inordinately high price to PLN.

Critics have said that the power purchase contracts, signed during the administration of Soeharto, was rife with corruption, which, in turn, meant that PLN had to pay for the power at prices well above the market norm.