New power bill promises cheaper electricity
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.