Subsidy increase or power rate increase, PLN tells govt

Leony Aurora , The Jakarta Post, Jakarta

The government will have to increase the subsidy for state power firm PT PLN next year or raise power rates, a company official says.

The subsidy of Rp 15 trillion (US$1.5 billion), allocated by the House of Representatives from the state budget, will not cover the company's costs now that it is required to pay market prices for petroleum-based fuel, PLN president director Eddie Widiono said on Wednesday.

"Without a rate hike, the subsidy will run out in the second quarter (of 2006)," said Eddie on the sidelines of a seminar on the challenges and opportunities for the use of coal in the country's power plants.

In the company's 2006 budget, which was approved by the government on Tuesday during a general shareholders meeting, PLN targets a 63 percent increase in revenue from power sales, to Rp 99.6 trillion next year from the estimated Rp 61 trillion booked in 2005.

Power generation costs in 2006 are expected to jump to Rp 108.52 trillion from Rp 76.6 trillion this year, Eddie said.

PLN will have to pay market prices, instead of the subsidized prices it has enjoyed in previous years, for some nine million kiloliters (kl) of oil-based fuel in 2006. The company will spend Rp 51.4 trillion to buy marine fuel oil and high speed diesel next year, almost double the Rp 27.3 trillion it paid in 2005.

Earnings before interest, taxes, depreciation and amortization (Ebitda) is targeted at Rp 17 trillion next year with a net profit of Rp 900 billion, Eddie said.

In a presentation to the House on Oct. 7, PLN requested that electricity rates be raised by between 23 percent and 39 percent next year, to make up for rising costs.

The government is dancing around its decision on whether to raise rates, although analysts have said a hike is inevitable. The House has asked PLN to simplify its rate structure and implement efficiency measures before holding further discussions on a possible rate increase.

The state firm missed several targets this year, including lowering network losses to 9.84 percent from 11.47 percent. PLN said this target was not achieved because the money to improve its network had to go toward covering fuel costs.

"As of the third quarter of the year, losses stood at some 11 percent," said Eddie.

The Ebitda this year is expected to stand at Rp 8 trillion, compared to Rp 16 trillion estimated in the company's budget. Only 40 percent of financing allocated for investment has been realized.

PLN suffered a net loss in 2004 of Rp 2.02 trillion, better than the Rp 5.09 trillion booked the previous year. In 2004, the company booked an operational profit of Rp 2.56 trillion, its first operational profit since the 1997 monetary crisis. The operation, however, made a glaring return to the red in 2005.