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Kalla says no hike in power rates this year JAKARTA - Vice President Jusuf Kalla confirmed Friday the government would drop a planned increase in electricity rates this year amid widespread opposition. Kalla said the government would likely provide around half of the extra subsidies needed by state electricity company PT PLN to cover rising fuel costs without having to increase rates, while the other half would have to be shouldered by PLN chiefly through efficiency measures.

"The government actually has no intention to increase the power rates," he said Friday during a visit to PLN headquarters here. "But the problem is who will bear the Rp 10 trillion (US$1.09 billion) extra subsidy (needed by PLN). The government is willing to cover half of the amount, while the other half will be borne by PLN so that the public doesn't have to burdened. Kalla met with top PLN officials as part of a campaign to push for greater efficiency in the state company.

A credible source at the State Palace told The Jakarta Post on Thursday that President Susilo Bambang Yudhoyono and Kalla had decided not to raise power rates this year, fearing a political backlash after objections from businesses, lawmakers and the public. Kalla acknowledged that an increase in electricity rates would be burdensome to the business sector, especially with the government attempting to revive the weakened real sector and help boost employment.

Asked about the source of government funds to cover the extra subsidies needed by PLN, Kalla said it was still exploring ways either to increase revenue through taxes or the sale of more bonds. He played down concerns that the move to drop the hike would cause a widening of the state budget deficit, saying that a deficit of more than 1 percent of gross domestic product was still manageable.

Businesses roundly opposed the plan after the government more than doubled selected fuel prices in October last year. Indonesian Employers Association chairman Sofjan Wanandi said the government's decision sent a positive signal to the private sector. "We thank the government and the legislature for having heard our complaints. Now, the private sector will have certainty in calculating costs. We can also avoid layoffs."

However, Sofjan added the government must ensure there would be no additional costs applied by PLN outside of the base rate. "Just make sure that PLN does not then impose extra costs that would burden businesses," he said. Industry players have complained about PLN's additional costs imposed on consumption of electricity during peak hours, as well as onerous infrastructure costs.

Sofjan added that if the economy improved next year, the private sector would not mind sharing the burden of an increased electricity rate. The cancellation would help ease inflationary pressure and allow the central bank to cut its benchmark interest rate sooner than expected. Bank Indonesia has predicted inflation would start easing in the second half of the year, and it would cut the benchmark rate, which is at 12.75 percent, accordingly.



Posted in Power supply @ 18 March 2006 07:33 CET by Jeroen · 'Blog' RSS feed · permalink






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