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.