Government to share cost of power subsidies with regions

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Fri, 06/13/2008 10:04 AM  |  Business

Local governments will be made to share the cost of the electricity subsidy under the upcoming electricity law, an official says.

Director general for electricity and energy utilization at the Energy and Mineral Resources Ministry, J. Purwono, said that starting in 2010, the central government could impose regional electricity rates.

Provincial government authorities and regencies would be made to share the cost of power subsidies, which currently are paid for entirely by central government.

"Under the new power rates system, local governments will be allowed to set different rates from the national ones. They will also be allowed to set lower rates, but if they do they will have to subsidize the gap," Purwono said.

The government's move to impose regional power rates is part of central government's strategy to share the burden of the electricity subsidy with local administrations, which now receive windfall profits from soaring oil prices but do not contribute to central government power subsidy costs.

Currently, only two areas, Batam in the Riau Islands and Tarakan regency in East Kalimantan, have set regional power rates, as most of their customers are businesses and not households, unlike most areas in the country.

Purwono said that the government would propose provisions allowing the burden-sharing policy in the new electricity law, which currently is being discussed by the House of Representatives.

He also said that 2010 would be the right time to start imposing the policy as the state power firm PLN is expected to complete its 10,000 megawatts (MW) power plant program by then.

PLN has been trying to construct 35 new coal-fired power plants with a total capacity of 10,000 MW since 2007. The project is expected to be completed by 2010.

The government originally expected that the operation of the new power plants would bring the average power cost down by 25 percent to Rp 700 per kiloWatt (7.6 US cents). However due to soaring energy costs and prices, Purwono now estimates that PLN can only achieve a cost reduction of about 15 percent.

Under the new power rates system, the government will stop subsidizing household consumers in the upper income bracket and henceforth allocate the electricity subsidy only to households consuming between 450 and 900 watts.

The plan is aimed at reducing the electricity subsidy burden which was originally estimated at about Rp 60.3 trillion (US$6.6 billion) this year. The subsidy cost is expected to increase as high as Rp 68 trillion should the oil price stay around the level of $120 a barrel. The state budget is based on an assumed oil price of $95 a barrel.

The Associated Press reported Thursday that sweet crude for July delivery was down $1.75 in electronic trading on the New York Mercantile Exchange to $134.45 per barrel.

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