Power price hike must take place soon: Finance Minister

Finance Minister Agus Martowardojo expects both the Energy and Mineral Resources Ministry and the House of Representatives (DPR) to immediately reach a deal on the plan to increase electricity prices for the sake of the state budget.

“If we do not adjust the price, our subsidy for electricity will further increase,” Agus told reporters at the House in Jakarta on Thursday. “We have always exceeded our allotted subsidy. This is not a very good way to manage our finances,” he added.

The government subsidizes the price of electricity to bridge the gap between state electricity company PT PLN’s current production costs at Rp 1,100 (12 US cents) per kilowatt-hour (kWh) and the price of electricity at Rp 729 per kWh.

The Energy and Mineral Resources Ministry has proposed two options for increasing the price of electricity and easing pressures on electricity subsidies. The first option stipulates that any price increase will only apply to customers with an installed electric capacity above 450 volt-amperes (VA).

The other option would outline a plan to gradually raise prices for 450 VA and 900 VA customers if they consume more than 60 kWh. According to the ministry’s calculation, maintaining current rate of Rp 729 per kWh would require Rp 53.9 trillion, outstripping the Rp 45 trillion allocated in the 2012 state budget.

The ministry said that electricity prices could increase by 10 percent this year, but it would only discuss the issue after April, when the government plans to implement its fuel restriction plan to ease pressures on the state budget’s fuel subsidy.

Differing with the Energy and Mineral Resources Ministry, Agus said that he expected an electricity price plan to be endorsed and implemented as soon as possible. “It [electricity price plan] must be implemented by April 2012,” he said.

A legislator on the House’s Commission VII on energy, Golkar Party’s Satya W. Yudha, said that legislators would only be able to make a decision on the electricity rate issue after the government had completed its assessment on both the electricity and fuel subsidies.

“The completion of the assessment will make it easier for the House to choose which issue to be the priority,” Satya told The Jakarta Post.

Legislator Ismayatun from the opposition party Indonesian Democratic Party of Struggle (PDI-P) said that her party would not approve the electricity price hike plan unless PLN managed to fix its energy mix.

“Too many generators are using fuel because there is no source of gas energy. PLN should have tried to optimize cheaper alternative energy sources, such as gas and coal,” she said.

The idea to raise prices, even on an limited scale, has never been a popular decision. Industries have already raised concerns over the proposed plan.

Indonesian Employers Association (Apindo) deputy chairman Anton Supit said recently that the power price increases would affect businesses. But he said that the association would support the price hike if it is imposed on all PLN consumers.

Energy expert and executive director of the Institute for Essential Services Reform, Fabby Tumiwa, said that decision makers had to have the guts to make a socially and a politically unpopular decision to raise power prices as soon as possible.

“The government can no longer run away from this issue and run away from raising electricity rates because this matter is a ticking time bomb. The discussion on this has been going on for years and the government is still not brave enough to raise power prices,” Fabby said.

“The impact of this hesitation was shown last year, during which time we saw the electric subsidy baloon to around Rp 90 trillion, far over from the allocated amount of around Rp 62 trillion in last year’s state budget,” he added.

Fabby said that the government had to also understand that the price hike percentage was not the main issue.

“What matters most is which segments of society the government plans subsidize. Subsidy recipients must be properly identified and then the government can make a clearer assessment on necessary increases,” he said.

Fabby estimated if the government once again delayed its power price plan in 2012, the electric subsidy could exceed last year’s figure.

Fabby also blamed the government for failing to implement alternative energy programs despite the massive number of ideas and plans.

“Almost none of the planned alternative programs were implemented,” he said.