Indonesian Government Puts Cap On Electricity Rate Hike

President Susilo Bambang Yudhoyono said the rate hike was an unavoidable “bitter option,” and warned companies not to take advantage of the situation. (Antara Photo/Bhakti Pundhowo)

Jakarta. The government on Monday vowed to cap an electricity rate increase for industrial users at 18 percent.

Hata Rajasa, the coordinating minister for the economy, said most industries would see an increase of between 12 percent and 15 percent, as outlined when the rate hike was passed last month.

“Only a small number will see a price hike that reaches 18 percent,” the coordinating minister said at the State Palace.

Meanwhile, President Susilo Bambang Yudhoyono said the rate hike was an unavoidable “bitter option,” and warned companies not to take advantage of the situation by introducing excessive price increases on goods and services for consumers.

He said the rate hike was not too severe for companies, and that the government had already considered its impact on production costs.

“It is morally unacceptable for companies to take advantage of the situation by doubling [prices] despite the fact that the actual increase is relatively small,” Yudhoyono said. He said he had instructed Hatta to ensure the rate increase by PLN would not make the public suffer.

“I will not be reluctant in warning those who heartlessly increase the cost of production, goods or services more than the proper rate,” he said.

Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), said an estimated 60 business associations had agreed to delay any price increases or layoffs as a result of the rate bump until the situation was clarified, or until Aug. 1, when they were scheduled to receive their power bills.

Erwin Aksa, chairman of the Indonesian Young Entrepreneurs Association, said on Monday that the association’s members could accept a cap of 18 percent.

Erwin, president director of cement producer Bosowa Production, said the electricity rate for the cement industry had soared by 40 percent, and if unchanged would lead to a price increase of up to 15 percent.

“Electricity costs account for roughly 25 percent of production cost,” he said.

The House of Representatives last month approved an Energy Ministry decree enabling state utility PT Perusahaan Listrik Negara to raise rates.

The rate hike was intended to enable PLN, which has been forced to sell electricity at below costs for years, to raise revenue and invest in the nation’s ailing power infrastructure. The government electricity subsidy was Rp 56 trillion ($6.2 billion) last year alone.

However, the government promised a rate hike of between 6 percent and 15 percent for industrial users, and was later forced to acknowledge that some rates had climbed by 40 percent, while some industries claimed their rates soared by 80 percent or had even doubled.

The government blamed “extra variable fees” for the discrepancy. These fees impose additional charges for large industries during peak usage hours and for those that exceed average consumption levels.

Effendi Simbolon, an Indonesian Democratic Party of Struggle (PDI-P) lawmaker and deputy chairman of House of Representatives Commission VII, which deals with energy affairs, said the commission would support a cap at 18 percent if businesses agreed.

He also urged the government to issue a presidential decree to enact the rate hike, instead of the existing Energy Ministry decree.

He said a presidential decree was needed because any rate hike must supersede a presidential decree establishing the existing rates, and a ministerial decree could not do that legally.

“The ministerial decree can be considered illegal as the [existing] presidential decree is superior to the ministerial decree. A ministerial decree can’t cancel out a presidential decree,” he said.

“If PLN insists on using the ministerial decree to calculate monthly power rates, the rates can be considered illegal and an act of corruption.”