The Indonesian Government has increased the electricity tariff sold by the sole electricity provider, State Owned Company PLN, effective as of January 1, 2013. The tariff will keep increase every quarter until it reaches a total increase of 15% by the years end.
The rate increase that was approved by the House of Representatives aims to reduce the subsidies and to allocate funds on other more appropriate target. PLN is paying more to generate electricity sometimes six times the tariff of electricity sold when using diesel fuel which still power most of Indonesian generation capabilities.
The electricity subsidy without the increase is around USD 9.6 billion per year, while with this price hike it is expected to be reduced to be around USD 7.8 billion in 2013. The price hike will also enabled PLN to use the money instead to increase rural area electrification level and provides better energy supply.
“If we talk about the energy (subsidy) there is more than USD 30 billion (per year), out of which USD 20 billion for fuel and more than USD 9.6 billion for electricity. Many said (the subsidy) is already too big and should be better allocated,” said Minister of Energy and Mineral Resources, Jero Wacik on Apa Kabar Indonesia Pagi television show.
Currently the segment of the population that enjoys the fuel subsidies is car owners and electricity subsidies are people with a big house. If the price hike is delayed further, the subsidies will be out of control and drained the state budget. There are also around 3 million new subscribers that need to be connected to the grid and without new investment from PLN, these new connection cannot be fulfilled, added Wacik.
Wacik explained that the increase will only affect people with big house that uses a lot of power, the 1,300 VA segment. The normal household of 450 to 900 VA will not be affected. The increased is staged in 4 steps within a year to ease the burden to the affected subscribers.
The price hike of 15% by end of 2013 would result in cost savings of more than USD 1.5 billion in subsidy. The largest electricity subsidy recipients are currently the two lowest classes which are R1/450 VA and R1/900 VA with total subscribers of around 39 million or about 53.1% of electricity subsidy requirements in 2013.
Responding to this increase the Gerindra Party Vice Chairman Fadil Zon says that this will only be a burden to the Indonesian people. “This policy is very hard to be accepted if the aim is solely to reduce the subsidy. The reason is that the domino effects of this (increase) for things such as food and household items required by the people” he said.
Zon added that the industry will also increase its selling price because of the increase in their production cost. “The domino effect will result in high inflation and if the market cannot take the high price (of goods) then the workers (of those factories) might be out of work as an efficiency measure” he said.
Zon suggested the Government to increase its efficiency instead. The State Auditing Agency discovered that PLN inefficacy was as big as USD 3.6 billion in 2011.