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)