The government, under pressure from the House of Representatives, has asked the state electricity company (PLN) to postpone the implementation of its tariff policy for big household customers with a load capacity of between 6,600 and 10, 500 volt-amperes (VA).
This is another sign of an embattled government that is reeling from the political turbulence set off by the preliminary conclusions of the parliamentary inquiry into the Bank Century bailout, which has declared it legally flawed and infested with corruption.
The specified capacity, we believe, is the range of power load capacity connected to the homes of most House members, senior government officials and upper middle-income residents.
Under the new rate policy, big customers will have to pay PLN its commercial rate of Rp 1,380/kilowatts per hour or kwh, (14 US cents) if their consumption exceeds 50 percent of the national average for their category (6,600-10,500 VA load capacities).
This means that well-to-do households will still pay the subsidized price (Rp 638 kWh) if their consumption is not higher than the national average.
The question then is why such high-income people, who can afford to pay PLN's normal tariff and who usually have big houses with big air conditioners and refrigerators and various other luxury amenities, should continue to pay subsidized prices for their power.
The long planned tariff policy for big customers was stipulated in the 2010 Budget Law, meaning the measure was approved by the parliament. Yet the government has bowed to strong parliamentary lobbying to postpone that measure.
By PLN estimates, the progressive rate policy could reduce power subsidies this year by Rp 2.8 trillion (US$280 million). This potential saving could have better been used to subsidize the interest rate of micro-credits for millions of small and micro-businesses.
We therefore find it mind-boggling to understand how the government could have been so pathetic as to defer the implementation of such a sound a policy designed to conserve energy and reduce gas emissions and stimulate investment in electricity generation.
This is the second bad energy policy measure taken by the government over the past five weeks as President Susilo Bambang Yudhoyono's leadership seems to have weakened under the political heat generated by the parliamentary investigation into Bank Century.
Early last month the Cabinet threw out a sound fuel policy by canceling its January 2009 decision to float fuel prices on the international market in a bid to gradually reduce the nation's dependence on fossil fuels.
Instead of fully implementing the policy through gradual monthly price adjustments, the government decided to increase budget allocations for energy subsidies (mostly for fuel and electricity) for this year by 50 percent to Rp 150 trillion (US$15 billion) as international oil prices have now risen to around $75-80/barrel, higher than the average $65 assumed for the 2010 fiscal year. The January 2009 fuel price-floatation would have been quite conducive to energy conservation and diversification.
The electricity rate policy also could have helped improve the investment climate in the power sector and could have strengthened PLN's competitiveness in facing a new liberalized power sector, which will be ushered in later this year by the new electricity law.
The new law, which was approved by the House last September, will break up the PLN monopoly of the power sector and allow private investors and regional administration-owned companies to generate, transmit, distribute and sell electricity to consumers.
However, the latest policy flip-flop, as evidenced by the postponement of the sound power tariff policy, could create new uncertainty in the electricity sector and consequently discourage new investment.