From The Jakarta Post http://www.thejakartapost.com/detailheadlines.asp?fileid=20060216.B02&irec=5

It's a hard knocks life for business in RI


For industrialists in Indonesia today, it's like being the loser in a boxing match. First, the swift hard jab of the government's decision that industry must pay market prices for oil-based fuels -- more than double the previous subsidized prices -- starting July last year.

Then, PLN gets in a good right hand in September 2005 by raising prices and imposing penalties on power used by industrial consumers during peak hours -- between 5 p.m. and 10 p.m. -- to force firms to reduce demand.

Then came an almost decisive haymaker in the form of a doubling of domestic fuel prices in October that sent inflation skyrocketing to 17 percent and the central bank scurrying to increase interest rates.

Workers across the country demanded wage rises to cope with the higher prices, while loans became more expensive.

The country's business community is now waiting to see whether the government will go through with the proposal to increase power prices, which could double for some industries, according to a statement made some time ago by State Minister for National Development Planning Paskah Suzetta.

The proposal is now hanging like a sword of Damocles over members of the business community, who are fearful that it will administer the final coup de grace to the country's industrial sector, or so says the Indonesian Chamber of Commerce and Industry (Kadin).

The chairman of the powerful business lobby, MS Hidayat, said that all of the country's industrial associations say they will be unable to cope with an increase this year.

Energy-hungry industries, such as metal foundries, garment factories and steel mills, are already forecasting production cuts and ensuing layoffs. The association representing retailers and shopping malls has said that its members may have to reduce opening hours and cut back the number of shifts from two to one, thus reducing the number of sales staff by half.

Industry already shoulders a heavier burden than other consumers during peak hours of 5 p.m. to 10 p.m., when PLN doubles its prices and imposes a penalty of four times the off-peak hourly rates for additional usage above a quota set at half of average consumption, said Hidayat.

According to Kadin, as a result of this formula, industrial users now pay 8.66 U.S. cents on average per kilowatt-hour (kWh), higher than in neighboring countries such as Malaysia, where power for industry costs 6.2 U.S. cents per kWh, and Vietnam where it only costs 5.2 U.S. cents per kWh.

Charging even higher prices for industry would be grossly unfair as this would mean that the private sector was being forced to pay for the inefficiency of PLN, said Hidayat.

As regards the issue of cross-subsidization, Hidayat said, "It is the government's duty to pay subsidies for the poor."

However, some associations have said they could accept an increase in power prices of up to 10 percent if PLN abolished the higher rates applied during peak hours.

According to Kadin, PLN could still adopt various efficiency measures, such as securing cheaper oil-based fuels by importing them itself instead of buying from state oil and gas firm PT Pertamina, which charges a 15 percent margin for transportation and profit above the standard Mid Oil Platts Singapore prices.

Kadin is currently drafting a report detailing the likely consequences of any power price increases. (Leony Aurora)
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