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fter ordering an electricity rate hike in July, the government may again increase the price of power by 15 percent by 2011 and reduce subsidies given to the country’s electricity sector, a minister said.

The government does not have many other choices other than to cut the subsidy to reduce state spending, Finance Minister Agus Martowardojo said at a press briefing on the proposed 2011 state budget Monday.

“In the 2011 draft state budget, the subsidy for electricity would be reduced to Rp 41 trillion [US$4.55 billion] from Rp 55.1 trillion in 2010,” Agus said.

State electricity company PLN would need to increase electricity rates by 15 percent to avoid a revenue shortfall due to the reduced subsidy, he added.

The Rp 41 trillion subsidy of the power sector will be part of Rp 184.8 trillion in total government subsidy spending in 2011: Rp 133.8 trillion for the energy sector and Rp 51 trillion for the non-energy sector.

Total government subsidies in 2010 were estimated at Rp 201.3 trillion.

The proposed increase was part of President Susilo Bambang Yudhoyono’s prepared speech during the presentation of the 2011 budget.

Yudhoyono did not specifically mention the increase but elaborated on general aspects of the government’s subsidy policy.

The Indonesian Employers Association (Apindo) said that the plan should be avoided because most of the businesses in the country were still struggling with higher overhead costs from July’s electricity rate increase.

“We have to oppose the plan. We may be able to increase prices of our goods to cope with the increase,
but this will make our prices too high for buyers,” Apindo chairman Sofjan Wanandi said Monday, as quoted by detik.com.

He said businesses had not yet felt at ease after electricity prices increased, adding that local manufacturers would face difficulties in competing against imported goods if there was another rate hike.

The government should reconsider the proposal as it will also affect foreign investment plans, Sofyan said. (ebf)