PLN Eyes 30% Rate Hike for Electricity in Indonesia

The company will present lawmakers with
four different price-increase possibilities for 2010

With a reduced subsidy for electricity in the cards for next year, state power utility PT Perusahaan Listrik Negara wants to see power charges increased by 30 percent on average for household and industrial consumers, the company’s top executive said on Wednesday. However, the proposal was immediately condemned by senior business representatives, who said that any hike in charges would put the brakes on growth. “Price increases should be based on customer category and purchasing power,” Fahmi Mochtar, PLN’s president director, told reporters on the sidelines of a hearing at the House of Representatives on Wednesday, adding that “the increases are needed to cover our production costs as the government has cut the subsidy allocation in next year’s budget.” The firm is proposing four price-hike scenarios for 2010, which will be presented to the House in the near future, Fahmi said. These consist of a 20 percent increase for household consumers with an installed supply of less than 900 watts in their homes, and a 37.5 percent increase for households with an installed supply of up to 6,600 watts. The charges for both categories of consumer are controlled by the government and are set at a range of Rp 172 to Rp 621 per kilowatt hours. Meanwhile, PLN says that a charge of Rp 1,380 per kwh is needed to cover costs. For consumers with an installed supply of more than 6,600 watts, PLN wants the government to reduce the amount of power that it subsidizes. Currently, the subsidies are given for consumption of up to 839 kwh per month. Under PLN’s proposal, this would be reduced to 524.5 kwh. For businesses and industries, whose power is unsubsidized, the state utility is proposing a 30 percent rise in charges. Late last month, the House budget commission approved an electricity subsidy of Rp 35.3 trillion ($3.56 billion) for 2010. Together with Rp 2.5 trillion left over from this year, this brings the total subsidy payable in 2010 to Rp 37.8 trillion. PLN has insisted that it needed about Rp 50 trillion to cover operating costs. The company says that an average increase of between 20 percent and 30 percent is needed to make up for the subsidy cut. A new Electricity Law passed by the House on Tuesday, which will come into effect at the end of next year, requires the approval of the central government or relevant local government, along with the House or local legislative assembly, for electricity price increases. The price-hike proposal immediately sparked protests from business representatives, with Bambang Soesatyo, the chairman of the fiscal and monetary committee of the Indonesian Chamber of Commerce and Industry (Kadin), saying it would hurt growth. “We have objected to the proposal,” he told the Jakarta Globe by telephone, adding that it would increase production costs and hurt consumer purchasing power. “Now all the costs must be borne by the consumer? I was hoping they would seek another solution. Businesses are already struggling to survive at the present time.” PLN has been mired in red ink for years, mostly as a result of the fact that it has to supply electricity at below cost. Last year, it lost a record Rp 13.1 trillion, although the firm blamed much of this on the rupiah’s deep slide against the dollar in the second half of the year. Eric Alexander Sugandi, an economist at Standard Chartered Bank in Jakarta, said higher power prices would raise inflation next year, which could prompt the central bank to raise its key interest rate sometime in the first quarter of 2010.

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