New power bill promises cheaper electricity
Moch. N. Kurniawan, The Jakarta Post, Jakarta Post
The House of Representatives is expected to approve the country's new power bill in March 2002, which is aimed at introducing a free market system to the country's power industry.
Ministry of Energy and Mineral Resources Director General of Electricity and Energy Utilization Luluk Sumiarso said that, in the long run, the new law was expected to encourage players in the power industry to provide better service, as well as adequate and affordable power supplies to the public.
Luluk also said that the new law, replacing Law No. 15/1985, would boost investment in the power sector.
The government introduced the bill in the House earlier this year.
"The House is expected to pass the bill into law in March next year," Reform Faction legislator Irwan Prayitno, who heads Commission VIII for science and technology, the environment and energy and mineral resources, told The Jakarta Post over the weekend.
"We want to liberalize the sector and thus put an end to the monopoly held by the state electricity company, PT PLN," he added.
Luluk said that, under the bill, the power generation and retailing sectors would be fully liberalized so that all companies would be free to do business in those sectors.
The government, however, would still control the transmission and distribution of power.
"The new bill will no longer permit an integrated company to control all aspects of the power business," Luluk said.
Currently, PLN has a monopoly over all aspects of the power sector in Indonesia.
PLN owns a number of power plants across the country that are operated by two of its subsidiaries, PT Indonesia Power and PT Pembangkitan Jawa Bali II (PJB II).
In addition, the state company also owns and operates all power transmission and distribution infrastructure across the country.
The government has allowed private investment in the power generation sector but maintained PLN's control of the country's power distribution and transmission networks. All private power producers are required to sign contracts with PLN for the sale of their power to the state company.
No private power producers may operate in the country without signing a power purchase agreement with PLN.
According to one estimate, the country must raise its power production to about 58,800 Megawatts (MW) by 2010, from the current 22,732 MW, to avoid a power shortage.
To realize this, the country needs about US$37.26 billion of new investment in the sector, a level almost impossible for the government or the ailing PLN.
Luluk said that the bill would allow the country's power sector to adopt a new system called "the multi-sellers and multi- buyers system", with power prices to be determined by free market mechanisms.
Under the current system, there are several sellers but only one buyer, PLN, which monopolizes the right to sell power to the public.
Under the new system proposed in the power bill, all power producers, including PLN, would sell power to the public through a bidding system. The cheapest power would be allowed to first enter the power grid, which would be operated by a special agency to be established by the government.
All power producers would have to pay a transmission fee to this agency.
The government would also form a regulatory authority to ensure fair competition in the industry. This regulator would also be responsible for determining the transmission fee.
According to Luluk, such a system has been applied in the U.S. state of California, Singapore, Britain, Chile and Argentina.
Luluk said that, after enactment of the law, the government would allow for a seven-year transition period in the most developed regions so that they could adequately prepare themselves before implementing the free market system.
The bill has drawn criticism from several non-governmental organizations (NGOs).
A group of NGOs, including the Indonesian Consumers' Foundation (YLKI), the Jakarta Legal Aid Institute, Geni Foundation, as well as PLN's labor union, voiced strong opposition to the bill during a meeting on Wednesday with the House of Representatives' Commission VIII.
They said there was no guarantee that the bill would provide cheap power for the public.
Another concern is that power producers would not be interested in investing in less developed areas due to the limited prospect of making a profit, and neither did the bill oblige them to do so. As such, some areas could experience power shortages.
Key points in the power bill
* PLN will lose its monopoly over the country's power industry.
* Private sector to be allowed to do business in power generation and retailing, as well as with PLN.
* The government will control power distribution and transmission networks, and charge producers a fee for using them.
* All power producers will sell their power to the public through competitive bidding. Producers which offer the cheapest prices will be allowed first access to the government-owned network.