Ririn Radiawati Kusuma & Dion Bisara, Jakarta – The on-again, off-again electricity rate hike for next year is officially off, with the House of Representatives voting on Tuesday to approve a 2011 state budget that does not include a rate hike.
The decision was a major blow to state-electricity provider Perusahaan Listrik Negara because the government has slashed its electricity subsidy bill in the 2011 budget by 25 percent to Rp 41 trillion ($4.59 billion).
That figure, according to PLN executives, is not enough to cover operational costs. PLN said the operational cost shortfall without the power rate hikes is equivalent to Rp 12.7 trillion.
"We expect PLN can fix its performance so that we do not have to bear a high subsidy bill," said Finance Minister Agus Martowardojo, who was present during the voting.
The government has instructed PLN to cut as much as Rp 8.1 trillion in operating costs through converting diesel-powered generating plants to use cheaper natural gas, and trimming maintenance, human resources and administrative budgets. But the rest of the Rp 4.6 trillion in shortfalls remains PLN's big challenge.
The government has budgeted Rp 10 trillion in a "fiscal risk" budget, or funds that are set aside to cover any severe fluctuations in macro-economic indicators, such as oil prices, inflation or the foreign exchange rate, that may cause subsidies to soar. The government also owes Rp 4.6 trillion from an unpaid subsidy bill in 2009, but it plans to give the funds to PLN in 2012.
Agus said the fiscal risk budget is only for emergencies, and not applicable in PLN's case. The government had previously discussed raising the electricity rate by an average of 15 percent for next year after PLN made a request for an increase.
After a marathon debate with lawmakers in the House's Commission VII, which oversees energy issues, the government agreed to lower the hike to 5.4 percent. But strong cries of protest from business owners and the public over PLN's performance put pressure on lawmakers to refuse the rate hike plan.
Melchias Markus Mekeng, head of the House budget committee, said the government can use the remaining 2010 budget to cover the debt to PLN.
The decision to rule out an electricity rate hike was welcomed by Chris Kanter, a member of the Indonesian Chamber of Commerce and Industry (Kadin), who said that with no increase in price, the private sector would have room to improve their competitiveness.
"It would be good for the companies. It means that we won't have to raise our operational costs. It makes our businesses steadier," he said, adding that he hoped the government would keep its promise and not reverse its decision during the process of revising the 2011 budget next year.
That budget was approved on Tuesday during a plenary session of the House. The 2011 budget sets a deficit of 1.8 percent of gross domestic product, equivalent to Rp 124.7 trillion, higher than the initial proposal of 1.7 percent of GDP. This year's deficit was set at 1.5 percent of GDP.
The economic growth target for next year is set at 6.4 percent, higher than the 6.3 percent the government had proposed. The rupiah was expected to hover at an average of Rp 9,250 per dollar, lower than the initial projection of Rp 9,300 per dollar.
The total energy subsidy for 2011 is set at Rp 136.6 trillion, compared to Rp 133.8 proposed by the government. The fuel subsidy was raised to Rp 95.9 trillion from Rp 92.8 trillion proposed. In total, government spending increased to Rp 1,229.5 trillion from Rp 1,202 trillion proposed by the government.