Expert finds irregularities in PLN's costs

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.