Sell bonds, government tells PLN

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.