The uproar from businesspeople over the 10-15 percent hike in electricity rates simply typifies what economics ministers of the Soeharto regime have criticized as an acute lack of coherent strategy, inter-ministerial coordination and leadership under the Susilo Bambang Yudhoyono government.
The noisy protests and the threats of massive worker layoffs that met the introduction of the price hikes early this month seem mind-boggling since the power reform measure has been elaborately deliberated at the parliament and discussed with industrial users.
Most agree that the current electricity tariffs, which are the lowest among ASEAN countries and are way below the production expenses of the State Electricity Monopoly (PLN), are not sustainable in the long term because they are a huge burden on taxpayers, discourage conservation and hinder new investment in power generation.
Most people also agree that the huge electricity subsidy (almost Rp 60 trillion or US$6 billion this year) should be gradually phased out and that the 10-15 percent hike in the power tariffs, as stipulated in the 2010 State Budget Law, are considered sufficiently moderate so as not to cause excessively strong inflationary pressures.
Yet a more socially and politically acceptable element of the tariff policy is that electricity users with load capacities of between 450 and 900 VA, which represent nearly 30 million low-income households and make up more than 75 percent of PLN’s 40 million customers, are exempt from the tariff hike.
But alas, businesses have calculated that the bottom line impact of the price hike is not just the 10-15 percent rise to their monthly bills, as they had initially assumed, but 30 to 80 percent. As it turns out, PLN was not entirely forthcoming about the whole impact of the price hike because what had previously been deliberated at parliament and consulted with business associations only related to the basic tariffs.
On top of the basic tariffs, PLN has also imposed two kinds of variable surcharges consisting of progressive rates for usage in peak-load hours and for usage larger than the maximum volume set for each category of users. This means that the larger the usage, the higher the rate charged by PLN. Industrial users seem to be not too well informed on these variable charges.
Coordinating Economic Minister Hatta Rajasa’s instruction that PLN and industrial associations again sit down to recalculate the tariff hike and its consequences on household and business customers is sensible.
Both the government and PLN should see to it that the bottom-line impact of the new tariff policy should be 10-15percent increases in the monthly bills. Price hikes above that range could cause inflation to spiral and deal a blow to many industries, causing massive layoffs and even social unrest.
The noisy protests over the power tariff hike should be a good lesson for the government in building up public-opinion support for its plan of a gradual decrease to fuel subsidies, which stand at an estimated $14.5 billion this year.
Without gradual increases every year to eventually raise the price of electricity and fuel oil up to their production costs, this energy problem will remain a time bomb. But this painful process could actually be shortened if the government helps PLN secure enough natural gas for its plants.
At present, several PLN gas-fired plants with a total capacity of 5,000 MW have to be run with the costly diesel oil due to gas shortages, thereby causing the company an annual loss of Rp 10 trillion a year, twice as large as what would be saved from the current 10-15 percent price hike.
