RI urged to press ahead with power sector liberalization

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.