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NEWS UPDATES 9 July 2010

New power rates high, businesses claim

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Businesses say the government has violated its commitment on new electricity rates as a further study suggests the rates had sky rocketed from initial proposals in previous consultations.

The Indonesian Employers Association (Apindo), which represents local manufacturing companies, says the new rates, in effect since July 1, are 30 to 40 percent higher than before, instead of 10

to 15 percent as promised by the government.

Apindo secretary-general Suryadi Sasmita told The Jakarta Post that the “unexpected escalation of prices” emerged because the government had not scrapped the so-called fees for maximum and multi-purpose power usage as promised. “This will lead to the adjustment of factory prices, thus affecting overall price inflation in the economy,” Suryadi said.

The contribution of spending on electricity to overall production costs of business varies depending on the type of industry. Apindo illustrates that electricity spending could range between 5 and 10 percent for manufacturing companies and up to 60 percent for retail industries.

Inflation climbed 0.97 percent last month, a year-on-year escalation of 5.05 percent, the Central Statistics Agency reported last week.

Bank Indonesia Deputy Governor Hartadi Sarwono said Thursday the pace of inflation might pick up due to the new electricity rates. However, he said, the contribution of the new rates to overall inflation would not significantly change BI’s policy on the benchmark rate, which has been at 6.5 percent for 11 months. “BI has calculated that an average 18 percent electricity price hike would contribute an average 0.3 percent to inflation,” he told the Post. However, BI spokesman Diffy A. Johansyah said the central bank had to further calculate the potential contribution of the recent electricity price hike to inflation. Indonesian Textile Association (API) executive secretary EG Ismy confirmed the unexpected increases in electricity rates. “The electricity price hikes might slow growth in the textile manufacturing sector,” he added, expressing concern about the possibility of massive layoffs in textile manufacturing companies.

The adjustment to electricity rates is not the only variable that will significantly affect inflation as the economy enters the fasting month of Ramadhan and the Idul Fitri holidays, which will undoubtedly see an increased of demand for consumer goods. Additionally, the Metereology, Climatology and Geophysics Agency (BMKG) said the rainy season would start earlier this year in 69 percent of the archipelago. Such a condition, the BMKG said, would further affect farmers, who had suffered from the impact of a “wet” dry season on their farms.

In response to Apindo’s statement, Energy and Mineral Resources Minister Darwin Zahedy Saleh denied the government had made any promises regarding the new electricity rates. Darwin said he would request Dahlan Iskan, the president director of state-owned electricity company PT PLN, to explain detailed calculations on the new power rates to business associations on Friday.

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