PLN holds back on raising rates

PLN holds back on raising rates

Fabiola Desy Unidjaja, The Jakarta Post/Jakarta

Though the recent fuel price increases will push up the
production costs of state electricity firm PLN by about 30
percent, the company has said it will not increase electricity
rates until June at the earliest.

PLN director for power plants and primary energy generation
Ali Herman Ibrahim could not say whether the increased production
costs would be translated into a hike in electricity tariffs.

"Production costs will rise by (an average of) 30 percent as
fuel costs make up about 40 percent of our total production
costs. However, I cannot say whether we will raise the power
rates," Ali told The Jakarta Post on Friday.

He said the company was already struggling to produce power
within its current cost structure.

Earlier this week, PLN director Eddie Widiono said during a
business visit to Singapore that the increase in fuel prices
would likely force the company to increase its rates.

He said there had been ongoing discussions about the issue
with the government.

Fuel prices rose by an average of 29 percent on March 1 after
the government reduced subsidies on fuels, cutting their
allocations in the budget.

The last time PLN raised power rates was in 2003 by an average
of 6 percent for every quarter -- a result of Megawati
Soekarnoputri government's commitment to gradually reduce fuel
subsidies.

However, with an eye on the general elections, the Megawati
administration abandoned the commitment last year.

The government may raise electricity rates in the second half
of the year if PLN cannot afford the higher fuel costs, said Yogo
Pratomo, director general of electricity at the Ministry of
Energy and Mineral Resources.

"After the first half we will calculate the costs again.
(Whether rates will be raised) will depend on whether PLN
recorded a profit or not in 2004," Yogo said as quoted by Dow
Jones.

The company has not released its 2004 financial results, but
PLN management has said the company likely remained in the black
last year.

At present, almost 25 percent of the total 25,218 power plants
across the country are diesel oil-fired, with natural gas, coal
and geothermal energy powering the remainder.

Every year, PLN requires some nine million kiloliters of oil
to fire the power plants.

Ali said PLN has been working to reduce its dependence on oil
by gradually using cheaper alternative energy sources such as
coal or natural gas.

The government is planning to build nine more coal-fired power
plants and one more gas-fired power plant by 2007.

"Our target is to reduce power plants using oil down to 5
percent (of the total) by 2008 -- that is why we are designing
more coal-fired and gas-fired plants," Ali said.

Due to soaring global oil prices, the company posted a decline
in profits from Rp 2.33 trillion (US$251.1 million) in 2003 to Rp
1.01 trillion last year.