PLN sets cost-saving target at Rp 1 trillion

PLN sets cost-saving target at Rp 1 trillion

JAKARTA (JP): State electricity company PT PLN said on
Wednesday that it expected savings of up to Rp 1 trillion (about
US$88.49 million) through its cost reduction program, which is
geared to help ease the company's heavy losses for the year.

PLN president Eddie Widiono said the company's efficiency
drive program was aimed at cutting operational and capital
expenditures.

"We designed our efficiency drive program after receiving
Arthur Anderson's audit results," he said on the sidelines of a
two-day seminar on the program at PLN's headquarters in South
Jakarta.

Eddie was referring to the 1999 Arthur Anderson audit on PLN.

The audit revealed that PLN could have saved an average of Rp
5.26 trillion in losses per year in the period from 1995 to 1998.

Eddie said the figure consisted of about Rp 1.12 trillion in
operational and Rp 4.14 trillion in investment inefficiencies.

But last year, he continued, the program had saved PLN about
Rp 800 billion in operational and investment inefficiencies or
capital expenditures.

PLN said that of the Rp 800 billion, Rp 88.66 billion were
savings in investment inefficiencies.

Savings from operational costs amounted to Rp 387.38 billion
in power generation costs, Rp 297.88 billion in distribution
costs and Rp 30.71 billion in transmission costs, it said.

For this year, PLN's operational director Tunggono said PLN
would derive most of its savings from operational expenditures.

He said PLN hoped to get Rp 800 billion of the targeted Rp 1
trillion in savings from operational inefficiencies.

"We've told our units in Java to contribute some Rp 500
billion in operational expenditure savings," he said.

To achieve these targets, he said, PLN's units could speed up
the collection of electricity bills.

"We don't do many projects now, so we expect capital
expenditures to contribute only about Rp 200 billion in savings,"
he added.

Tunggono said PLN's units had their own internal cost
reduction targets, the progress of which should be reported every
month to headquarters.

Since the economic crisis struck in 1997, PLN's financial
health has been deteriorating rapidly every year, making it among
the worst performing state companies in terms of losses.

The company booked a walloping net loss of Rp 24.61 trillion
in the year 2000, or more than double the Rp 11.36 trillion the
year before.

PLN attributed much of its financial woes to forced contracts
with independent power producers (IPPs).

While PLN buys IPP power in dollar-denominated prices, the
state company charges its customer in rupiah, which has been
steadily weakening against the greenback.

The more power PLN buys from the IPPs, the more it must spend
to cover the currency gap in the prices. The burdens have grown
as more IPPs have gone on stream.

The company expects to cut losses this year to about Rp 4.4
trillion, mainly on confidence that it can secure lower power
prices from the IPPs. (bkm)