Reva Sasistiya – The House of Representatives' approval of the electricity bill on Tuesday means an industry long dominated by the state power provider will now finally be partially deregulated, and allows the possibility of fairer electricity pricing between regions.
Coming after five years of discussion, the landmark piece of legislation removes PT Perusahaan Listrik Negara's monopoly on selling electricity directly to consumers by allowing private companies into the run-down, blackout-prone sector, which is in great need of new investment.
It will also change how electricity is priced among the regions and is likely to see richer, more developed areas like Java and Bali paying more than poorer ones. The legislation is expected to speed up rural electrification in the 35 percent of the country that has no electricity coverage.
The bill was approved at a House plenary session, with nine factions in favor, and only lawmakers from the Indonesian Democratic Party of Struggle (PDI-P) abstaining.
It now needs to be formally signed into law by President Susilo Bambang-Yudhoyono and is not expected to be implemented until next year or 2011.
Speaking after the law was passed, a PDI-P legislator warned that the new legislation could damage national unity.
"With the bigger role of private companies in the country's power utilization and the implementation of regional tariffs, which will set different rates in different areas, the law could have a negative impact on the country's unity," PDI-P lawmaker Ismayatun said.
Replacing the 1985 Law on Electricity Generation, the new legislation means PLN will now consult with central and regional governments to set regional power rates, with the state electricity company supposed to charge regions based on the quality of services they receive.
It also allows private power producers to sell electricity directly to consumers in areas that have no electric power, without having to sell first to PLN. By giving priority to non-electrified areas, the government hopes it can speed up rural electrification.
"As long as [producers] have power transmission and networks to distribute power from their plants, they can sell power to the people directly," said Purnomo Yusgiantoro, minister of energy and mineral resources, after the plenary session. "If they do not had any transmission and distribution networks, they can rent PLN's network, and we hope this could become PLN's main business in the future."
Although the law allows a bigger role for private companies, the government will keep subsidizing electricity to rural areas and low-income customers, he said.
"The subsidy now will be more selective," Purnomo said. "In the future, we can assure that tariffs in elite areas, such as Pondok Indah or Menteng, will not be the same as tariffs in Depok."
Ali Herman Ibrahim, president director of PT Bakrie Power, a private power producer that plan to build plants in East Kalimantan, East Java and North Sumatra, welcomed the new law, saying it would open up opportunities for the company.
"Now we can monetize all the resource potential in the country without having to worry about a complicated bureaucracy," Ali said.
However, he warned that business and government would have to first agree on power prices and permits before investment came into the sector because of the high investment costs in building transmission and distribution networks.
Fabby Tumiwa, an electricity analyst from the Institute for Essential Service Reform, said that the regional tariff model, while well-intentioned, could be difficult for PLN to implement.
"First we need to know what the benchmark will be for PLN to propose higher tariffs in an area. Better service, higher purchasing ability or what? It will be difficult to set rates," Fabby said.
Inadequate local government supervision of the sector could also cause problems, Fabby said. "We already have [local governments] supervising local water companies, and they often do a bad job."
With electricity demand growing by 9.2 percent per year, the country will need to add 16,183 megawatts by 2010 in order to curb power shortages and meet increased demand.