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NEWS UPDATES 25 September 2009

Indonesian power firm to reduce fuel cost by $2.6bn

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Indonesian state power firm PT PLN expects to cut production costs by 20 trillion rupiah ($2.06 billion) this year on lower oil-based-fuel consumption at its power plants, the Jakarta Post reported.

The firm’s Vice President Director Rudiantara said PLN expected total production costs to drop from 160 trillion rupiah in 2008 to 140 trillion rupiah this year.

"We'll save about 20 trillion rupiah, mainly from using less oil-based fuels in our energy mix," Rudiantara said.  "We're taking advantage of both lower oil consumption and lower oil prices."

Fuel expenditure accounts for 70 percent of PLN's total spending, he went on, making efficiency in energy consumption a crucial part of the company's financial performance.

In the first half of this year, PLN's power plants used up 4.45 million kiloliters oil-based fuels, down from 5.93 million kiloliters the same period last year.

"In the first six months of 2009, we saved about Rp 9.4 trillion on fuel," said Murtaqi Syamsuddin, PLN's director for Java and Bali. He added most of the savings came from PLN's plants on the two islands, as most plants elsewhere were still highly dependent on oil-based fuels.

PLN estimates that by the end of the year, its consumption of oil-based fuels will be 7.91 million kiloliters, down from 11.32 million kiloliters last year.

Regardless of the improved efficiencies, PLN's financial condition is unlikely to improve significantly, Rudiantara said. He pointed out the efficiency effort would only reduce the subsidy provided by the government, but would not see the company book a profit.

"Since the power rates remain financially unviable, the efficiency efforts will only reduce our dependency on the government's subsidy," Rudiantara said. Electricity rates are determined by the government.

The average rate is 650 rupiah per kilowatt hour (kWh), while this year's average production cost is estimated to be somewhere between 1,100 rupiah and 1,300 rupiah per kWh, Rudiantara said.

He added the low rates against the high production costs had forced PLN's revenue down against total costs. In 2008, PLN's total spending was 160 trillion rupiah, but the company's revenue was only 60 trillion rupiah.

Rudiantara said the subsidy covered the gap, but PLN still had problems funding expansion to meet electricity demand growth. To secure its investment plans next year, PLN has asked the government for a margin of 8 percent of the production costs for the company in 2010.

However, the government and the House of Representatives have only approved a margin of 5 percent. Rudiantara said that decision had forced PLN to re-evaluate its investment plans.


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