Thu, 02 Oct 2003

Sell bonds, government tells PLN

Fitri Wulandari, The Jakarta Post, Jakarta

Following its decision to cancel the plan to increase the electricity rate for the last quarter of the year, the government urged state electricity company PT Perusahaan Listrik Negara (PLN) on Wednesday to raise funds from the debt market to finance its investment plans.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said PLN needed to adjust its future investment scheme with the current flat power rates.

"PLN will have to calculate its investments scheme and to consider the debt market as a financial source for its investments," the minister told reporters after opening the Indonesian Mining Conference 2003 on Wednesday.

"PLN could issue bonds and the like. But the most important thing is that the flat power rates should not affect PLN's investments," he added.

On Tuesday, the government decided not to increase power rates due to the stabilized rupiah. Additionally, the decision was taken to ease the financial burden of low-income people.

The government had permitted PLN to increase power rates each quarter starting early 2002 until 2005 under Presidential Decree No. 89/2002, to return the power rate to its pre-crisis level of 7 U.S. cents per kilowatt hour (Kwh).

The current average rate of Rp 574 per Kwh is approximately 6.79 cents.

Following the sharp depreciation of the rupiah against the dollar during the economic crisis of 1997, the power rate dropped to an average 3 cents. The situation forced the government to provide PLN with trillions of rupiah in subsidies every year to keep it afloat.

In order to cut the subsidies and strengthen PLN, the government allowed PLN to gradually increase its power rate to the pre-crisis level.

Experts said the increase was unnecessary, because the company was already making a profit at the current rate. They said the ideal power rate should be 5 U.S. cents per Kwh.

PLN has been criticized for its inefficiency, which has caused the cost of electricity to soar. Many people also blamed the high utility cost on the power purchase agreements signed by PLN and independent power producers, whose prices are in dollar terms.

PLN president director Eddie Widiono was quoted by Bloomberg as saying that the company may revive its plan to sell Rp 900 billion in bonds following the decision to cancel the power rate increase.

In August, PLN said it might delay selling the bonds and borrow an equivalent amount from local banks to help finance its $400 million Muara Tawar power project in West Java.

Meanwhile, PLN director of transmission and distribution Herman Darnel Ibrahim asserted the government's decision would affect the company's future investment.

He said with demand growing at 7 percent per year, the company needed $2.5 billion in investment funds each quarter, broken down into $1.7 billion for the construction of power plants and $800 million for transmission development.

"It (the flat power rates) does affect our financing ability," Herman said.

However, Herman said PLN would carry out a number of efficiency measures to help strengthen the firm's financial standing by, for example, focusing its investment budget on distribution and improving its services. In addition, the company would try to reduce technical and non-technical losses.

Another cost-cutting measure was to convert most of its oil- powered plants into natural gas-powered plants. Natural gas is a cheaper and cleaner fuel than oil.