Expert finds irregularities in PLN's costs

A'an Suryana, The Jakarta Post, Jakarta

A noted expert called on Thursday on state electricity company PT PLN to cancel its plan to keep increasing power prices to the level of 7 U.S. cents per kilowatt-hour by 2005, saying the price target was too high.

The target could be lowered, should PLN be willing to improve its efficiency, said professor of industrial technology at private Trisakti University Dadan Umar Daihani.

In his presentation to an energy seminar here, Dadan found "irregularities" in PLN's production costs.

The irregularities, which were mostly caused by PLN's inefficiencies, had lifted PLN's production costs, which, in turn, had raised PLN's prices to the public, Dadan said.

"PLN must strive to end the irregularities and promote efficiency, so that the public can ultimately enjoy a fair power price," Dadan told participants to the seminar.

One of the irregularities was the high costs paid by PLN for non-power generation activities.

Citing Purnomo Yusgiantoro in his book The Economy and Energy: The Practice and Theory, Dadan said a power price could be deemed "fair" if 75 percent of the price paid was to cover power generation costs and the remaining 25 percent was for non-power generation costs, including transmission and distribution.

This means the ratio between the power price, or production cost, to power generation cost should be about 133 percent.

However, Dadan found that, since a couple of years ago, the ratio had risen sharply. In 1996, the ratio was 167 percent and it reached a staggering 321 percent in 2000.

Another irregularity that Dadan discovered concerned the purchasing of fuel to generate electricity.

PLN was known to have paid more for gas compared with other state enterprises, said Dadan.

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

Fertilizer, petrochemical and steel companies, for example, bought natural gas in 1998 at $1 to $1.5, $2 and $0.65 to $2 respectively.

"It is ironic. PLN, which operates as a public service, had to buy fuel at rates much higher than other businesses that are less strategic to the public," said Dadan.

He asserted that, in order to be efficient, PT PLN had to make every effort to trim its production costs: The lower the production cost, the lower PLN's selling price could be to the public.

"Only in this way can the public benefit from a fair price," he added.

Cash-strapped PLN has operated a quarterly rate increase policy since 2001, aimed at bringing electricity rates to 7 cents by 2005.

The controversial move, which was taken following financial losses following the 1997 economic crisis, was aimed at improving its financial soundness as well as allowing it to accumulate funds for new investment.

However, the policy has drawn sharp criticism from various members of the public, who consider it unfair. They have accused PLN of raising its prices partly to cover for its inefficiencies.