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NEWS UPDATES Asean Affairs        21  May 2011

Indonesia to increase power rates

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Indonesia is planning to raise electricity rates again next year to trim the power subsidy, Finance Minister Agus Martowardojo said, drawing mixed reactions from businesses as well as economists.

“As stated in the state budget, there was plan to increase the electricity tariff this year, but it did not happen,” Finance Minister Agus Martowardojo told a hearing at the House of Representatives on Friday.

“Today, we have announced to the public our plan to raise the tariff in 2012 by 10 percent to 15 percent, and we want state utility company PLN to have its sales margin trimmed down to 3 percent from 8 percent.’’

Last year, the government approved Perusahaan Listrik Negara’s proposal to increase its sales margin to 8 percent, or Rp 11.2 trillion ($1.3 billion), from 5 percent in 2009. The margin is the premium the utility charges the state to compensate it for selling power at below cost.

Agus said the state subsidy had increased exponentially over the years. “In 2004, the electricity subsidy was only Rp 2 trillion, but last year it reached Rp 57 trillion,’’ he said. This year’s PLN subsidy is budgeted at Rp 41 trillion, he said.

“The government is aiming to reduce subsidy costs by Rp 15 trillion by increasing the tariff’’ to compensate for less state funding, Agus said.

He added that the money could be better spent on infrastructure, health care and education. He said that total state subsidies, including for food and energy, could reach Rp 200 trillion this year.

Economists such as Winang Budoyo at CIMB Niaga Bank said that the proposed power hike would be good for the economy, but said that government should carefully time the move. “It will impact inflation,” he said.

Sofyan Wanandi, chairman of the Indonesia Employers Association (Apindo), said the planned hike showed inconsistency in the state energy policy and could put companies out of business.

“Last year, the government had agreed to revoke a cap of electricity price hikes of 18 percent. Now they said they want to increase it by up to 15 percent. The government and lawmakers had agreed before that there will be no hike this year,” he said.

“Households accounts for 80 percent of electricity consumption, why should we, business players, handle the burden? We want the increase to also be applied to households,” he added. Millions of households were unaffected by last year’s rate hike due to their low electrical capacity.

Tulus Abadi, an official at the Indonesian Customer Protection Foundation (YLKI), said the government should reduce the electricity subsidy, but asked PLN to add new connections in more areas.

“About 31 million poor people still do not have electricity anyway,” he said.

Enrique Blanco Armas, a World Bank senior economist, estimated last year that electricity prices in Indonesia were among the cheapest in the world because the government heavily subsidizes power.

Indonesia government has pledged to gradually cut power and fuel subsidies and aimed to remove them all by 2014.

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