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New price formula set to ease PLN’s burden
The government plans to modify the electricity price formula by taking coal prices into account in its new calculation, a move that may ease the financial burdens on state electricity firm PLN at the expense of its customers
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he government plans to modify the electricity price formula by taking coal prices into account in its new calculation, a move that may ease the financial burdens on state electricity firm PLN at the expense of its customers.
In early 2017, the Energy and Mineral Resources Ministry announced that the electricity price enjoyed by PLN’s 13 groups of non-subsidized customers would be adjusted once every three months by taking into account the rupiah exchange rate against the US dollar, the Indonesian Crude Price (ICP) and inflation.
However, the ministry had never actually adjusted the price because of its concern, it claimed, for preserving people’s purchasing power. As a result, PLN has had to bear the burdens of the increasing ICP.
In this latest development, Energy and Mineral Resources Minister Ignasius Jonan revealed a plan to include Indonesia’s coal reference price (HBA) in the electricity price formula following the rapid increase in the
portion of coal-fired power plants in the country’s power generation capacity.
“In the past, ICP played a big role in the electricity price calculation, along with the exchange rate, because previously we relied heavily on diesel-fueled power plants,” Jonan said recently.
But now, he said, the portion of diesel-fueled power plants had decreased significantly, while the number of coal-fired facilities continued to increase.
“Hence, we have to use the HBA instead of the ICP [in the price formula],” Jonan said.
In 2017, Indonesia operated a variety of power plants with a total capacity of 60,491 megawatts (MW). Of that figure, 57.22 percent were coal-fired facilities, while diesel-fueled plants accounted for a mere 5.81 percent.
Therefore, every increase in global coal prices is a major blow for PLN, especially considering the so-called pass-through principle in the company’s power purchase agreements (PPAs) with private developers of regular coal-fired power plants. This principle does not apply to the developers of mine-mouth plants.
In the PPAs, PLN and private developers usually make a deal over the price of coal-fired electricity based on a certain coal reference price. If later the price of coal purchased by the developers from their suppliers surpasses the initially agreed rate, PLN is obliged to cover the price gap under the pass-through mechanism.
As a consequence, as the country’s HBA climbed by 9.05 percent to US$94.04 per ton throughout 2017, PLN’s financial health was impacted.
The company saw its net profits fall by 72.2 percent year-on-year (yoy) to Rp 3.04 trillion between January and September 2017, partly triggered by a nearly 9 percent increase in its own fuel cost and a 27.06 percent increase in its power purchase from private developers. During the same period, its total liabilities also grew 11.2 percent annually to Rp 429.3 trillion.
Hence, Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said the government might want to ease PLN’s financial burdens by including the HBA in the electricity price formula, which
would mean customers would bear the burden of the recent jump in coal prices.
“It’s better for the government to remove the ICP component in the price formula if the ICP is deemed no longer relevant instead of including the HBA as a new component, which would only weigh on customers’ shoulder,” Fabby said.
Indonesian Private Electricity Producers Association (APLSI) chairman Arthur Simatupang said such a new formula might only benefit PLN and coal producers in the country as private developers would likely still see a fixed coal price with a pass-through mechanism in their PPAs with PLN.
“The most important thing for us is policy consistency,” he said.
Meanwhile, Indonesian Coal Companies Association (APBI) executive director Hendra Sinadia said coal producers only expected the government to formulate a fair policy for all relevant parties, regardless of whether the price of coal plunged or soared.
“We will certainly comply with the government’s policies. But is there a guarantee for us that the government will not change its policies again when the coal price falls in the future?” Hendra said.
