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.