Govt wants to increase subvention to energize PLN

The Jakarta Post , Jakarta | Wed, 06/06/2007 9:09 AM | Business

Ika Krismantari, The Jakarta Post, Jakarta

The government may increase the subvention it pays to state power firm PT PLN by between Rp 5 trillion and Rp 13 trillion (US$1.47 billion) as part of the 2007 mid-year budget revisions to help the company cope with surging operating costs and return it to profitability, a minister says.

Speaking during a hearing with the House of Representatives' energy commission Monday evening, Energy and Mineral Resources Minister Purnomo Yusgiantoro said the additional subvention would be needed not only to cover the surge in the company's production costs, but also to put the company back in the black after suffering losses for eight consecutive years.

With production costs expected to rise to Rp 883 per kilowatt hour from Rp 818 per kWh previously, and the volume of fuel projected to increase to 8.8 billion kiloliters this year from the 6.6 billion kiloliters predicted originally, the government will need to pay a subvention totaling some Rp 30.8 trillion this year to help PLN cover the increase in its production costs alone.

However, the minister said that the government also needed to pay more so as to enable the company to return to profitability. For this, the government was still mulling whether to provide for a profit margin of 2.5 percent, 5 percent or 7.5 percent.

If the government were to choose the first option, the total subvention would amount to about Rp 33.42 trillion, while if the second and third alternatives were decided on, the total subvention would amount to Rp 36.03 trillion and Rp 38.64 trillion, respectively.

Under the original 2007 budget, a total subvention of Rp 25.8 trillion was earmarked for PLN.

""Allowing for a reasonable profit margin is necessary so as to improve the company's financial performance and make its bonds more attractive to investors,"" he said, adding that in addition to issuing more rupiah bonds, PLN also planned to sell global bonds worth about US$1 billion to raise fresh funds to finance a major network expansion.

The minister said that the government might choose the second option, giving the company a 5 percent profit margin. Under this scenario, the state would need to provide an additional subvention to PLN of about Rp 11 trillion.

All three options were based on an oil price assumption of $60 a barrel, a rupiah exchange rate of Rp 9,100 per U.S. dollar and assumed electricity demand of 118.8 million megawatts.

These figures differ from those given in the original budget, which was based on an oil price assumption of $63, rupiah exchange rate of Rp 9,300 and domestic electricity demand of 111 million megawatts.

The company uses oil-based fuels to fire 24 percent of its total power plants.

PLN managed to considerably cut its losses to Rp 1.08 trillion (US$120 million) in 2006 from a whooping Rp 4.92 trillion in 2005.

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