PLN vows not to raise rates next year

PLN vows not to raise rates next year

Dadan Wijaksana, The Jakarta Post/Jakarta

Despite increases in oil prices this year and possibly next
year, state-owned power firm PT PLN vowed on Thursday not to
raise its electricity rates next year to avoid burdening the
country's people and businesses.

In order to cut costs and keep its rates unchanged, the firm
plans to reduce the use of fuel oil and use more gas and coal at
its power-generation plants.

PLN President Eddie Widiono noted, however, that such a plan
was only possible if the government was willing to cut the
royalties that gas and coal producers, who supply PLN, have to
pay the government.

"We do not need to be subsidized (in purchasing gas and coal),
like in Malaysia, but at least we can be freed of the royalty
payments," Eddie told reporters.

Currently, coal producers have to pay 13.5 percent of their
sales to the government in royalties, while gas producers give
the government 70 percent of their output, more than half of
which are considered as royalties and the rest as taxes.

The government, faced with a tight budget, is under pressure
to reduce fuel oil subsidies. World oil prices have soared to
record highs and show no sign of abating, further burdening the
government budget in regard to its subsidy payments. Analysts
predict that the new government will be forced to cut back on the
subsidies by raising prices on fuel later this year or next year.

A rise in fuel oil prices would greatly impact PLN as
currently oil accounts for about 60 percent of the fuel used by
PLN.

However, Eddy was of the opinion that the current power prices
were already "high", and that a further increase in the rates
would cause more burdens, not only to homeowners, but to
businesses, such as the troubled textile industry.

Past experience showed that an increase of Rp 100 in fuel oil
prices meant PLN's spending on fuel was increased by Rp 2
trillion, but PLN hopes to offset rising costs by switching to
gas.

The company has said that this year, it would spend a total of
Rp 29 trillion for oil, gas and coal, with oil making up the
lion's share of it. Last year, it spent Rp 12 trillion to buy
oil.

Critics have repeatedly urged PLN to use natural gas, rather
than oil in order to provide cheaper electricity.

They cite that PLN spends Rp 510 (about 6 U.S. cent) to
produce one kilowatt-hour of electricity using oil, while the
cost is only Rp 200 if it uses natural gas.

PLN has formulated plans to phase out its diesel-powered
generators, but the firm's officials have repeatedly said it
would take time to replace the existing diesel power generators
with gas or coal-fired power plants.

While the operating costs of coal- and gas-fired power plants
are cheaper than diesel, the former are much more costly to
construct.

PLN has made plans to reduce the use of oil to less than 5
percent by 2006, on assumption that a series of gas transmission
projects and coal-fired power plants, currently under
construction, start operating.

State-owned gas firm PT PGN has planned to build a 1,650
kilometer natural gas transmission pipeline from South Sumatra to
PLN's Muara Tawar and Muara Karang power plants in West Java.