Firms told to negotiate power rates with PLN

Firms told to negotiate power rates with PLN

JAKARTA (JP): As some industrial associations continue to
oppose the power rates, the government encouraged firms to
individually negotiate discount rates with state owned power
company PT PLN.

Director General for Electricity and Power Development at the
Ministry of Energy and Mineral Resources, Endro Utomo
Notodisuryo, said that firms could negotiate with PLN, providing
that both parties would benefit from the deal.

"Negotiations should follow fair business norms," Endro told
The Jakarta Post on Saturday.

He said that when the government raised the power rates in
April, it also granted PLN the right to offer discounts under
mutually beneficial deals.

Several industrial associations, notably, the Indonesian
Textile Association (API) and the Federation of Steel Related
Producers, have been relentlessly protesting a government
decision to raise power rates since April.

The rate increases average 29.43 percent, but industrial users
face a hike of between 53 percent and 76 percent.

Some associations criticized PLN for failing to consult them
on the hikes prior to the increase, and API demanded that they be
exempted from an immediate increase.

PLN refused API's bid for a gradual rate increase, saying it
was beyond the company's authority.

Billet producers, PLN's largest customers, warned that the new
power rates would lead them to bankruptcy, while news reports
said that API had even threatened to refuse payment of their
electricity bills.

Endro said that instead of threatening PLN, associations
should have their members negotiate with PLN for special
treatment.

"It shouldn't be the associations that negotiate with PLN, but
their individual members," he said.

Because cost structures and operations were different for each
company, he said, only individual negotiations could arrive at a
true win-win solution.

For instance, Endro said, on Saturdays, Sundays and holidays
when power demand is low, PLN might charge firms lower rates.

"It's like Telkom rates, its cheaper when usage is low,"
Endro said, referring to the state owned telecommunication
company PT Telkom.

PLN would profit from offering such a deal, as it would
utilize its otherwise idle production capacity, he said.

"PLN cannot simply change the rates that the government has
issued, but for certain cases it can work out a special rate,"
Endro explained.

API has said that the recent hike in minimum wage and the
weakening of the rupiah to the US. dollar had drained the
companies' finances. The textile industry depends heavily on
imported raw material such as cotton.

It said that it was difficult to compete in the export market
if textile companies must also pay higher prices for electricity.

But Endro, quoting data from the Central Bureau of Statistics
(BPS), said that the cost of electricity made up only four
percent of a textile company's overall production costs.

"Some 84 percent of the production costs goes to raw
materials," he said.

According to him, the textile association should not blame PLN
if it had problems to compete in international markets.

"They (textile companies) should look at their problems
comprehensively," Endro suggested.

Furthermore, he said, power prices in Indonesia were still
below international price levels.

He said that before the government had raised power rates, it
practically subsidized industrial users by Rp 3.6 trillion
(US$413 million) each year.

The decision to raise power rates followed an agreement with
the International Monetary Fund (IMF) to progressively lift
subsidies on electricity and fuel in the 2000 budget year that
runs from April 1 through Dec. 31.

Endro further said that PLN was reselling electricity to the
public below the cost of purchasing it.

PLN buys electricity from independent power producers (IPP) at
an average price of 5.5 U.S. cents or about Rp 478 per kilowatt
hour (KwH), but resells it to the public at an average of Rp 250
per KwH.

"Industries should really take a look at their cost structure,
before picking on PLN," he said.

The state company suffered losses of Rp 11.3 trillion in 1999,
and in the first six months of this year, has already booked a
net loss of Rp 11.58 trillion.

Although earnings were up since the April price increase, a
stronger U.S. dollar led IPP's power prices to jump four fold
compared to the same period in 1999. (bkm)