Subsidy increase or power rate increase, PLN tells govt

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.