PLN to avoid tariff hike despite rising fuel prices

PLN to avoid tariff hike despite rising fuel prices

Urip Hudiono, The Jakarta Post, Jakarta

State-owned electric company PT PLN said that its power
generation costs could increase by Rp 8.5 trillion (US$944
million) if the government goes ahead with its plan to hike
domestic fuel prices by 40 percent next year.

Despite a possible surge in its operational costs, the company
has promised not to burden the public by raising its rates as
well, provided that the government helps secure the supply of
liquefied natural gas (LNG) for its combined-cycle power plants.

"It would also help if the government reduces the import
tariffs on equipment we need to develop and maintain our power
plants," PLN president director Eddie Widiono told reporters on
the sidelines of an electric power seminar on Friday.

"Meanwhile, for PLN's part, we will try to cut down on the oil
consumption at our power plants, and increase the efficiency of
our operations to prevent further losses."

PLN has planned to reduce its use of oil to less than 5
percent by 2006, by phasing out its diesel-powered generators
with combined-cycle coal- and gas-fired power plants.

PLN said it would require Rp 29 trillion this year to buy
crude oil, coal and LNG to run its power plants. Crude oil makes
up the bulk of that at Rp 14 trillion.

Past experience shows that an increase of Rp 100 in fuel oil
prices translates into an increase of PLN's annual spending by Rp
2 trillion. By using LNG, the company could save between Rp 10
trillion and Rp 15 trillion annually.

Lack of LNG, however, has forced PLN to switch to fuel oil to
run many of its combined-cycle power plants, which have also
reduced the life span and performance of its power plants as
well.

PLN and state-owned gas company PT PGN are currently
constructing LNG terminals and transmission pipes from Sumatra to
supply PLN's main power plants in West Java.

Eddie acknowledged that it would be a tough challenge for PLN
not to raise electricity rates, as the estimated additional power
production cost would only come from the direct effects of the
fuel hike alone.

"It has not included the possible rise in transportation fees
of coal and gas supplied to our power plants, or the possible
hike in the regional minimum wages," he said.

Another possible alternative to prevent a rate hike, Eddie
said, was therefore to postpone the time PLN was supposed to
achieve its breakeven point, which was planned for next year.

"PLN does not want to continue suffering losses, but the
government could let it do so for the next two years to prevent a
rate hike," he said.

PLN reported a loss of Rp 3.74 trillion in the first half of
2004, and a loss of Rp 2.85 trillion in the same period last
year.

It also booked a foreign exchange loss of Rp 1.68 trillion
during the period, after a gain of Rp 1.25 trillion a year ago.