PLN expects fuel costs to rise 50%

PLN expects fuel costs to rise 50%

Leony Aurora, The Jakarta Post, Jakarta

With the government applying market prices for oil-based fuels,
state power firm PT PLN expects its power-generating costs to
rise by 50 percent next year, hinting that it may be necessary to
raise power rates.

Power-generating costs will jump to Rp 45 trillion (US$4.5
billion) in 2006 from an estimated Rp 30 trillion this year,
PLN's director of power plants and primary energy generation, Ali
Herman Ibrahim, said on Sunday.

"Our petroleum-fuel usage will decline by some three million
kiloliters next year, but fuel prices have more than doubled," he
said on the sidelines of a celebration for PLN's 60th
anniversary.

PLN president director Eddie Widiono said the company would
deal with rising costs by boosting efficiency, requesting a
larger subsidy from the government and possibly raising power
rates.

"It will be difficult enough to maintain the efficiency level
that we achieved this year.

"Of course we will try to boost efficiency (to cover the
higher costs), but if it is impossible we may have to raise
rates," Eddie said.

According to Ali, PLN will use some 2.5 million kiloliters
(kl) of marine fuel oil (MFO) and 5.5 million kl of high-speed
diesel (HSD) to generate power next year. PLN's fuel usage will
decline as the power firm expects several producers to start
using natural gas in 2006.

Calculated using the current "special" market prices applied
to PLN -- July prices were Rp 2,900 per liter of MFO and Rp 4,740
per liter of HSD -- the company will spend Rp 33.32 trillion on
petroleum-based fuel in 2006. It is unclear whether PLN will
enjoy these special prices next year or face full market prices
like other industries.

PLN will spend another Rp 6 trillion on coal and Rp 6 trillion
on gas, said Ali, raising its total fuel costs to at least Rp
45.32 trillion.

"(Oil-based) fuels make up the bulk of our costs. Power-
generation costs, other than fuel, reach Rp 10 trillion a year,"
he added.

Eddie said the government and the House of Representatives had
yet to determine the size of the subsidy for power generation
next year.

In the second revision of the 2005 state budget, PLN will
receive a subsidy of Rp 12.5 trillion this year, more than triple
the Rp 4.1 trillion it was to have initially received. The
subsidy was increased to cover the fuel price hike in March and
the special market prices applied for some three million kl of
overquota fuel.

A member of the House of Representatives' Budget Commission,
Tjatur Sapto Edy, said that the subsidy for PLN would be set
lower next year.

"(The subsidy) cannot be as high as this year. Possibly it
will not exceed Rp 5 trillion," said Tjatur.

The commission will deliberate on the subsidy later this
month, he said, declining to say if an increase in power rates
would be approved to offset higher production costs and the lower
subsidy.