Free competition in power sector will begin in Batam, Java, Bali
The Jakarta Post, Jakarta
The government will begin liberalizing the country's power sector in 2007, with Batam, Java and Bali expected to be the first areas to introduce free-market competition.
"We hope (the liberalization) will start in 2007 at the latest," Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Thursday.
Purnomo said the government would tread carefully in liberalizing the power sector, and would only open up the market in those areas ready for the competition.
The government believes the industrial island of Batam will be ready to implement free-market competition in five years time, pointing to the fact that power prices in Batam are already higher than in other areas of the country.
"Java and Bali will also probably be ready to implement the free competition," Purnomo was quoted by Antara as saying.
In less developed areas of the country, the government will continue providing subsidies for power consumers, determining power prices until the areas are developed enough for open competition.
The House of Representatives passed a new power bill into law last week, after more than one and a half years of deliberation.
Under the new law, expected to be approved by President Megawati Soekarnoputri later this month, the government will strip state electricity company PT PLN of its four decade-long monopoly of the power sector.
The new law will allow private companies to produce power and sell it to the public.
Under the current system, only PLN is authorized to sell power to the public. Private companies are allowed to produce power, but they are only able to use the power themselves or sell it to PLN.
At least one year after the new law takes effect, the government is required to set up a special agency -- called the Power Market Supervisory Body -- to supervise the competition in the power sector.
And five years after the new law takes effect, the government is required to have selected one area for the implementation of free-market competition.
The law says that while the power generation and power marketing sectors will be opened for competition, the government will continue to control the power transmission and distribution network. However, any company will be free to use the network for a fee.
The minister said the transmission and distribution network would be operated by a state company.
A number of different parties campaigned against the law, saying open competition would result in a sharp increase in power prices, which has occurred in many countries.
But Purnomo said the competition would encourage more investment in the power sector, and power producers would vie to provide the best service to customers. And investors, he added, will be attracted to those regions with abundant supplies of power.
There have been numerous blackouts around the country over the past two years, and there are worries that the situation will worsen in the coming years unless the government is able to attract more investment in the power sector.
The government has said power demand on the islands of Java and Bali alone could exceed the supply by 2003, when the peak load is expected to hit 15,441 MW compared with an installed capacity of 15,285 MW.
Indonesia needs about US$28.45 billion in new investment over the next 10 years to build new power plants and a power network to stave off a power crisis in Java, Bali and other parts of the country, according to the government.