RI urged to press ahead with power sector liberalization

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Former Philippine president Fidel V. Ramos has urged the Indonesian government to press ahead with its liberalization program on the electricity sector to avoid a power crisis across the country.

Ramos said on Friday that Indonesia inevitably needed foreign investors to develop the power sector because, as experienced by his country, the government would never be able to provide sufficient power.

"If you want to avoid a power crisis, it is clear that you must invite private investors quickly, otherwise you'll be too late," he said at a one-day seminar on electricity.

Any delays in luring private investors to build new power plants would result in lost industrial production, lost export revenue that in the end might lead to social unrest, he explained.

The Philippines experienced a severe power crisis in the mid 1990s, while Indonesia is facing an imminent power crisis, with predictions that Java and Bali could undergo power blackouts in 2004, and about 28 areas in other provinces could run out of power.

In the Philippines, the worst years of power shortage were in 1992 and 1993, when power was rationed among industrial, commercial and residential users, with eight- to 12-hour rotating blackouts occurring daily in metro Manila and other major centers.

Ramos, who assumed power in 1992 from Corazon Aquino, then decided to allow foreign investors to enter the power sector under a liberalization program, despite mounting criticism.

His administration gave various incentives to the investors, such as performance sweeteners, tax breaks and grace periods.

Up to 1998, private investors built power plants that produce more than 5,000 megawatts of power in the Philippines, which according to one estimate, is enough to supply more than 35 million households.

The Philippines has reached 100 percent electrification in 78 provinces, and in 70 percent of its 42,000 basic communities.

But as a consequence, people in the Philippines have to pay international prices of between 5 U.S. cents and 6 cents per kilowatt hour for electricity, compared to the subsidized rate of about 3 cents and 4 cents prior to the crisis.

In Indonesia, state electricity company PT PLN has launched several programs in an attempt to avoid a power crisis, including renegotiating contracts with 27 independent power producers (IPPs), to get them to resume either the operation or the development of power plants.

The contracts were annulled by the government between 1997 and 1999 as PLN was unable to pay the dollar prices originally agreed to with the IPPs prior to the sharp depreciation of rupiah during the financial crisis in 1997-1998.

By the end of January, PLN had secured seven new agreements with the IPPs in the Paiton I, Paiton II, Tanjung Jati B, Darajat II, Sengkang, Parepare and Salak projects, which will bring some 4,600 MW to the country at full capacity.

But the outcome of negotiations has been criticized because the rates to be paid by PLN to the IPPs -- between 4 cents and 5 cents per kilowatt hour -- is still high compared to PLN's average rates of about Rp 366 (3.6 cents).

The government claims it is in a difficult position as the country badly needs the IPPs to avoid a power crisis and due to the fact that the country' investment rating is low.

The government has been raising power rates gradually to eventually reach a rate of about 7 cents per kilowatt hour, in a bid to help lure more foreign investors to invest in the power sector.

The government has also proposed a new electricity bill to the House of Representatives aimed at liberalizing the sector, which will replace the prevailing Law No. 15/ 1985 on electricity.