Govt plans to raise fuel and power prices

Govt plans to raise fuel and power prices

JAKARTA (JP): The government plans to hike fuel prices by at least 20 percent and electricity tariffs by 35 percent after April 1.

Minister of Mines and Energy Susilo Bambang Yudhoyono promised on Monday the government would move cautiously in order not to hurt the poor.

"The increases will take place in April 2000 at the earliest. The weak and small-income consumers will be exempted from the increases," Susilo told Antara on the sidelines of a meeting with the heads of provincial mines and energy offices.

The government will cut fuel subsidies for private car owners but provide fuel for public buses at relatively low prices, he said.

While power prices for businesses and industry would be increased, the government would maintain subsidies for households using less than 450 kilowatts per hour, he said.

Susilo did not say whether the proposed increases were agreed upon to by the International Monetary Fund (IMF).

On Friday, he said the government and the IMF were still at odds over the timing and the amount of increases of the two commodities. He disclosed then that the IMF proposed introduction of the increases in January. The IMF also suggested a 40 percent increase for electricity rates.

The government last increased fuel and power prices in May 1998, sparking nationwide unrest which contributed to Soeharto's loss of power despite his attempt to scale back the price increases.

Susilo said on Monday the government understood the IMF wanted to ease the state budget's burden from subsidization.

The fuel subsidy for the current fiscal year ending March 31 is estimated to surge to Rp 25 trillion (US$3.6 billion) from the initial projection of Rp 10 trillion.

Separately, state electricity company PT PLN said on Monday that it would require a subsidy of Rp 17 trillion ($2.4 billion) from the government next year if prices were not increased and operational inefficiency continued to hamper the company's financial performance.

Citing a preliminary study by independent auditor Arthur Anderson, PLN president Adhi Satriya said the company could save Rp 6.1 trillion by reducing inefficiency.

Some Rp 5.1 trillion would be obtained if PLN succeeded in renegotiating the prices it pays to 10 independent power producers (IPP), he said.

"Under the present contracts, we have a financial obligation of Rp 9 trillion to our IPPs," Adhi told reporters following a hearing with the House's Commission VIII on mines and energy.

Under a take-or-pay clause, PLN must cover the IPPs' investment and operational fixed costs, even if it does not purchase the electricity due to a lack of electricity demand.

"The more we increase sales, the bigger our financial obligation to them will be," he said.

PLN has proposed a price range of between 3.5 U.S. cents to 4.5 cents per kilowatt hours (kWh), against the average of 6.4 cents demanded by the IPPs, he said.

Another Rp 800 billion could be saved by renegotiating the prices of natural gas and geothermal which PLN buys from state oil and gas company Pertamina, he said.

A further Rp 200 billion in savings would come from PLN's own operations, such as through more efficient maintenance and reducing electricity theft.

Commission VIII said after the hearing that it would not endorse any hikes in electricity rates unless PLN presented a comprehensive view on how and whom the planned hike would affect.

Commission chairman Iwan Prayitno said a team would be set up to study any rate increase proposals to ensure that they reflected a fair decision for the weaker consumers.

Ramson Siagian of the Indonesian Democratic Party of Struggle (PDI Perjuangan) faction said the government should not burden the public for PLN's inefficiencies.

Hatta Rajasa of the Reform faction said household consumers using less than 2,200 kWh of electricity should be exempted from price hikes. The subsidies should not benefit the wealthy, he added. (03/jsk)