Government plans new power pricing mechanism
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.
For i-box
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.