THE JAKARTA POST/JAKARTA – July 5th, 2010
A recent power tariff increase may help the government cope with electricity budget deficit in a short term, but analysts say this will not automatically boost investment in the sector. Energy and Mineral Resources Minister Darwin Zahedy Saleh said last weeks recent power tariff increase by an average of 10 percent also aimed at attracting more investors. Tor investors and power producers, the new tariff will send positive signals for them to invest in the sector,” Darwin said.
But, Pri Agung Rakhmanto, energy analyst fromAï¿½ReforMiner Institute, said the increase would have no significant impact on investment as the tariff was still far lower than the market price. Citing data from the 2010 revised state budget, Pri Agung said that with the tariff increase of 10 percent, the average power tariff from state power firm PLN would be at Rp 732.08 (8.1 US cents) per kilowatt an hour (kWh) or still far less than the companys production cost, which is Rp 1,105.94 per kWh. “Even with the 10 percent in-crease, the power tariff is still subsidized, thus it will not attract much investment,” he said.
Pri Agung added that the growing number of power projects during the first three years was not because of the power tariff but more to guarantee the incentives provided by the government under its 10,000 MW fast track electricity program.Investments in the power sector began to increase in 2006 following the government launching the 10,000 MW fast track program. Between 1997 and 2006, investment in the sector was almost at standstill due to the governments retrenchment program to reduce the impact of the Asian financial crisis in early 2008, which also severely hurt Indonesia. Since most of the power plants under the projects are still construction, most regions across the country are still prone to blackouts due to limited power supply and overburden grids. At present, the electricity service has covered only about 65 percent of the population.
The new electricity law actually provides wide opportunities for private investors as it allows the regional governments to activelywork with state-owned enterprises or independent power producers (IPP) to provide electricity to their respective areas. Former PLN deputy president director Rudiantara said that the power increase by 10 percent would slightly help the companys cash flow, but do almost nothing for investment “This will not increase PLNs profitability and, as the results show, this will not increase the interest of the IPP to cooperate with PLN,” he said. Energy analyst Herman Darnel Ibrahim said PLNs lenders did not see the tariff as the factor, but it would look at the margin given by the government to PLN. For the past two years, the government began to allocate what is called the “margin” or return for PLN to help the company finance new investments. As for this year, the government and lawmakers agreed to provide PLN with a margin of 8 percent of the companys production cost PLNs business and risk management director Murtaqi Syamsuddin said that PLNs total production cost would reach Rp 140 trillion, meaning that the company would receive a gross return of about Rp 1.L2 trillion.