Power prices to keep on rising until 2005

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Strapped for cash, the state-owned electricity company, PLN, has increased power rates by an average of six percent for the first quarter of the year, while each quarter of the year will see continued hikes.

Is that enough? Not really.

The company said Friday that it will continue raising its power rates until after 2005, when the rates are expected to reach the economic level of 7 cents per kilowatt hour (kwh).

PLN's vice president for tariff and trade affairs, Aji Sabarto, told reporters that PLN, which had been in the red since 1998 amid the economic crisis, would only start to regain profits after its power price reached the 7-cent level.

"The 7-cent price level is the standard price in many countries for power companies to gain profits," he said.

PLN has been approved by the House of Representatives to raise electricity rates by an average of 16 percent this year, in a bid to cut government's subsidies for the company.

The company has been relying on government subsidies to continue operation since 1998.

Under this year's budget, the government will reduce subsidies for PLN to Rp 4.1 trillion ($394 million) down from Rp 4.7 trillion last year.

As part of the 16 percent power price increase this year, PLN has raised power rates by an average 6 percent for the January- March period. It will raise the rates by another 6 percent in March, July and October.

According to Aji, the 16 percent increase will lift PLN's selling price to Rp 461 per kwh by the end of this year, or 98 percent of its production costs, which will reach Rp 466 or 4.5 cents Kwh this year, based the assumption of Rp 9,000 per U.S. dollar.

He noted, however, that PLN's production costs will increase next year, once PLN "revaluated" its assets, but declined to elaborate.

"Our production costs will increase starting next year, once we proceed with our plan to revaluate assets," he said. "Therefore, we can't avoid power rate hikes until 2005."