Government plans new power pricing mechanism
Fitri Wulandari, The Jakarta Post, akarta
The government plans a new mechanism to determine electricity prices for large businesses and households, which will be based on developments in three main cost components: fuel price, inflation, and rupiah exchange rate.
Director General of Electricity and Energy Utilization Yogo Pratomo said on Wednesday that under the new mechanism, power rates would change every month adjusting to the above three factors.
"It can be up or down just like fuel prices which are adjusted every month," Yogo told reporters, referring to the same market mechanism which has been applied by state-owned oil and gas firm Pertamina for the past year.
However, Yogo said, the government would still set floor and ceiling prices to protect consumers from uncontrollable price movements.
The government has allowed state-owned electricity firm PT PLN to raise electricity rates quarterly by an average of six percent starting in early 2002 until 2005 to reach an average rate of 7 U.S. cents per kilowatt hour (KwH), which is just above the break-even point, so that it generates a profit for investors in the power sector.
But for this year, the government decided to put on hold the price hike plan amid all the political campaigns recently.
The current power rate is Rp 574 per KwH or 6.68 U.S. cents.
Yogo said that as a first step to implement the new pricing mechanism, his office would conduct a study to decide on the most economical power rate level, which will become the benchmark price.
Future power rates will fluctuate around this benchmark adjusted to inflation, fuel prices and the exchange rate.
He said that the current benchmark of 7 U.S. cents per KwH was no longer feasible as it was set prior the 1998 financial crisis.
Yogo said the government would complete the study by the end of this year and would propose the new price benchmark next year.
The new market-based pricing mechanism is part of the overall liberalization drive in the power sector, and a bid to lure new investments in the sector as the country struggles to avoid an impending power crisis in the future due to surging demand a stagnant supply.
Yogo said, however, that the new pricing mechanism would be applied gradually starting from industry subscribers, but fell short of saying when exactly it would be implemented in its entirety.
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Donors plan to guarantee power investment
Multilateral donors have offered to provide guarantees for investors planning to invest in the country's power sector against the risk of changes in government policy or the political situation.
Yogo Pratomo, Director General of Electricity and Energy Utilization said in a initial meeting with representatives from the World Bank, the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC) are willing to mitigate political risks to investors.
"When these investors suffer losses because their projects were canceled or delayed due to the changes in policy, the international aid groups will reimburse them," Yogo told reporters.
The government would later repay the multilateral agencies, Yogo added.
He said the agencies offered the coverage in a bid to lure more investment into the power sector.
According to the World Bank, Indonesia needs US$30 billion to develop its power infrastructure over the next six years.
The cash-strapped government is now dependent on private investors to build the country's power infrastructure in order to match with the growing electricity requirements.