Players doubt free power market

Players doubt free power market

Fitri Wulandari, Jakarta

A free market may be successful in providing customers with sufficient and affordable goods and services, but can a free market ensure an uninterrupted power supply at affordable prices for customers in Indonesia?

Consumer protection activists concluded during a recent discussion on the issue that free market competition in the country's electricity sector would likely result in a sharp increase in power prices of up to 40 percent.

The government is preparing to liberalize the power sector in a bid to lure badly needed investment. Law No. 20/2002 on electricity allows private companies to produce power, build transmission and distribution networks, as well as sell power to the public in areas declared "competition zones".

It is not yet clear, however, when full competition, where power firms will be able to sell their power directly to consumers, will be realized. The government has said the liberalization drive will be implemented gradually starting in 2007.

"As private companies control different aspects of the power business, it (free market competition) will make the power supply chain longer and in turn push prices higher for consumers," Fabby Tumiwa, coordinator of the Working Group for Power Sector Restructuring (WGPSR), said during the discussion.

According to the WGPSR, power prices could rise by between 30 percent and 40 percent the power sector implemented open competition.

Price rises could be expected because consumers would have to pay taxes to purchase power, as well as having to subsidize the development of the power infrastructure in undeveloped areas, Fabby said.

Currently, only state-owned electricity company PT PLN is authorized to sell power to the public. Private power producers are allowed to produce power, but they are only be able to use the power themselves or sell it to PLN.

Independent energy consultant Nengah Sudja said electricity prices could rise under free market competition because the commodity would be traded in the spot market, where prices would be determined by supply and demand.

"If supply is less than demand, prices will be high," Nengah said. "To maintain a sufficient supply at reasonable prices, it must be secured via a long-term contract."

Fabby said Indonesia was not ready for an open power market because the high demand for electricity here would require capital-intensive investment, which eventually would cause power prices to rise as investors sought to recoup their investments.

"Free market competition can be applied in a country where (power) demand is low and the infrastructure is mature. It will be difficult for Indonesia because it is too risky and costly for consumers," he said.

Yogo Pratomo, the director general of electricity and energy utilities at the Ministry of Energy and Mineral Resources, said the outlook for the sector was not that grim.

"The government will be very careful in applying competition in the power sector," Yogo told the Post. "Competition is not the objective, but a tool to provide a sufficient supply of electricity in an efficient manner."

Yogo acknowledged there were conditions that had to be met before entering full-fledged free market competition.

The first condition is that transmission and distribution networks should be ready to store massive loads of power to guarantee an uninterrupted supply for consumers.

Another condition is that power prices must achieve an economic level, which means power prices can cover the cost of supply and provide a margin for investors.

These conditions, Yogo said, cannot be achieved in a short time.

"Full market competition down to the end users is still a long way away. It will take time until the power sector is ready," he said.