PLN to propose 20-25% electricity rate hike

JAKARTA (JP): State electricity company PT PLN said on Friday that it would soon propose to the government an electricity rate increase of between 20 percent and 25 percent.

PLN president Eddie Widiono said raising the rates was necessary to bridge the wide gap between PLN's production costs and its selling price.

"We'll submit our proposal to the government as soon as possible, maybe next week," Eddie told reporters following a public discussion on PLN's plans to increase its power rates.

Raising power rates this year, he said, was part of PLN's strategy to gradually reach an average electricity rate of 7 U.S cents per kilowatt hour (kWh) by the year 2005.

PLN said earlier that an average power rate of 7 cents per kWh would cover its production costs.

Currently PLN charges an average of Rp 194.13 per kWh (about 1.9 cents per kWh) for household consumers, Rp 319.58 for commercial users and Rp 213.01 for industrial users.

"We plan to gradually increase (the rates) until the year 2005," he said.

The weakening rupiah is causing PLN's production costs to soar, as the company has to buy power from independent power producers (IPPs) at an average price of 6 cents per kWh.

Furthermore, according to PLN's power purchase agreement with the IPPs, the state company must buy electricity from the IPPs even if it has the supply to meet demands.

A steep drop in demand for power since the 1997 economic crisis and the establishment of several IPPs are among the main factors that sent PLN into the red for three consecutive years.

Last year, PLN suffered a loss of Rp 22.5 trillion, up sharply from Rp 11.3 trillion in 1999 and Rp 5.9 trillion in 1998.

Eddie said the proposal would not specify when the rates should be hiked as its timing would depend on the discretion of government.

He said the government and the House of Representatives were more capable of calculating the impact of a rate hike on the economy and the public.

PLN raised its electricity rates by an average of 29.43 percent in April last year.

The decision came after intense debates with legislators who were facing pressure from industrial users opposing the rate increase.

Until late last year, many companies refused to comply with new power rates on the grounds that they had been effected abruptly.

PLN said between April and October last year, arrears of unpaid electricity bills soared to Rp 600 billion, of which Rp 400 billion were owed by only 29 companies.

However, Eddie was unsure whether the government or the House would accept the proposal, given the present unfavorable economic conditions.

"We're just hoping. There are many factors that could influence the way the public perceives a rate hike," he explained.

A recent government decision to set fuel prices for industries at between 50 percent and 100 percent of international prices as of early this month, could embolden opposition to a power rate hike. Prices of fuel sold to industries have increased by up to 200 percent.

The International Monetary Fund (IMF), which is sponsoring a bailout fund of $5 billion for Indonesia, requires the government to reduce its subsidies.

Senior economics ministers warned early this week that this year's state budget deficit could widen to more than 5 percent of the gross domestic product (GDP) from the initial estimate of 3.7 percent of GDP. (bkm)