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)