Govt to totally liberalize power sector in 5 years
JAKARTA (JP): The government plans to liberalize the power sector over the next five years to allow independent power producers (IPPs) to directly sell power to the public in competition with state electricity company PLN.
Minister of Mines and Energy Kuntoro Mangkusubroto said yesterday the government would soon start on all the necessary requirements, including restructuring PLN and changing the existing electricity law, to pave the way for a free power market in Java and Bali by 2003.
Outer regions will gradually adopt the free market mechanism in later years, he said.
"The government believes that competition is the best means to secure efficiency and the lowest possible price for electricity," Kuntoro said at a gathering to mark the long-term restructuring of the power sector.
The ceremony drew hundreds of local and foreign power company executives.
Under the existing 1985 electricity law, IPPs are obliged to sell their power to PLN at negotiated prices. PLN then sells the power together with electricity generated by its own plants to the public. PLN is thus the single seller and the single buyer of power.
Under the free market mechanism, IPPs and PLN would both send power to a state power distribution and transmission company which would offer the pooled power for sale to power retailers and corporate users through an open bidding system.
The distribution and transmission company would be entitled to charge a fee for its services.
The system would thus feature multiple sellers and multiple buyers with prices determined by market forces.
"The power market would evolve around a 'power purchase pool' into which (power) generators would bid and from which retailers and large end-users could purchase.
"There would be free entry into both the generation and retailing segments. Only transmission and distribution, as natural monopolies, would continue to be regulated," he said.
The system is applied in countries like Singapore, Britain, Chile, Argentina and the U.S. state of California.
Kuntoro said that after the free market scheme was fully implemented in Java and Bali, the government would no longer provide subsidies to consumers on both islands, except for the very poor.
Consumers in other regions will still receive government subsidies until the free market system is fully implemented nationwide.
Under the plan, the government will take over PLN's current transmission and dispatch division for the Java-Bali grid and turn the division into the Java-Bali Transmission Company (JBTC), separate from PLN.
PLN's power generation division will be transformed into two separate companies: the Java-Bali Electricity Company (JBEC), which will control all power plants built on both islands, and the Regional Electricity Company (REC), which will control all power plants in other regions.
JBEC will be an independent, profit-oriented company ready for privatization, while REC will be directly owned and subsidized by the government.
Kuntoro said JBEC would be formed next year, while JBTC and REC would be created the following year.
PLN currently has two power generation subsidiaries: PT Pembangkitan Listrik Jawa Bali (PJB I), which controls power plants in West and Central Java, and PT Pembangkitan Jawa Bali II (PJB II), covering power plants in East Java and other regions.
The multiple buyer/multiple seller market system is in sharp contrast with the system outlined in the power purchase agreements signed by the country's 27 IPPs.
Under the agreements, PLN is required to buy power from IPPs at an average fixed price of 7 U.S. cents per kilowatt hour (kwh) and as much as 80 percent of their power generation capacity.
Under the free market system, power prices and sales volumes would be determined by a supply-demand mechanism.
The current agreements stipulate that IPPs have to transfer their assets to PLN after 30 years of operation. The free market system, however, would allow IPPs to own their properties forever.
Kuntoro, acknowledging the differences between the current power purchasing agreements and the incoming free market system, said all 27 IPPs would be directed to operate under the new system.
The government has postponed the development of several IPP power plant projects to cope with the monetary crisis.
PLN has also tried to renegotiate its contracts with IPPs to alleviate its financial problems amid the crisis.
Kuntoro said President B.J. Habibie would soon issue a decree to set up a task force headed by Coordinating Minister for Development Supervision and Administrative Reforms Hartarto to help end the dispute between PLN and the IPPs. (jsk)