PLN Opts for Rate Adjustment Rather than Compensation

4 July 2019

PLN expects compensation for impact of external factors PLN sells electricity below supply costs.

State-electricity firm PLN hopes the government will allow it to make a price adjustment or continue its compensation scheme next year to offset financial losses.

PLN finance director Sarwono Sudarto said after a hearing with the House of Representatives in Jakarta recently the compensation scheme would be needed if the government did not allow the company to raise electricity prices next year. “We hope there will be a compensation if there is no rate adjustment. Without the compensation it will be hard for us to deal with the impact of external factors [global crude price, inflation and currency exchange],” he said. PLN sold its electricity below the electricity supply costs (BPP) following a request from President Joko “Jokowi” Widodo in 2018.

The low price policy was criticized by observers as part of Jokowi’s populist policy to win votes in the May presidential election. As a consequence, PLN booked Rp 18.50 trillion (US$1.22 billion) in losses as of the end of the third quarter of 2018.

We hope there will be a compensation if there is no rate adjustment. Without the compensation it will be hard for us to deal with the impact of external factors [global crude price, inflation and currency exchange] said Sarwono Sudarto, PLN Finance Director.

The government disbursed compensation of Rp 23.17 trillion in the third quarter to cover the losses. The company expects to receive similar compensation this year as it has to maintain its current price until the end of 2019. However, the government has not decided whether the compensation will continue next year.

Sarwono of PLN further said that without a compensation scheme, the only way to reduce the financial deficit would be to improve efficiency such by improving the net plant heat rate. The heat rate is the amount of energy used by a power plant to generate 1 kilowatt-hour (kWh) of electricity.
“Besides that [net plant heat rate], we also hope that the ICP [Indonesian crude price] will decline and the US dollar will weaken against the rupiah,” he added.

Djoko Abumanan, PLN acting president director, also concurred that a rate adjustment would be a better option for the company rather than taking compensation from the government. “We will be happier if we are allowed to make a price adjustment,” he said.
According to PLN data, the national electricity supply cost (BPP) in 2018 stood at Rp 1,406 per kWh, but the firm sold electricity to customers for Rp 1,127 per kWh or 19.8 percent less.

Previously, the head of the Finance Ministry’s Fiscal Policy Agency, Suahasil Nazara, said the government was seeking a more appropriate scheme to compensate PLN because the current one carried high fiscal risk. “The compensation is of course for the interest of the people, but on the other hand, there is high risk for the state budget,” Suahasil said during a meeting with the House of Representatives’ budget committee last Tuesday.
“The policy guidance in the future is to reduce the compensation that will affect state finances,” he added.

Gerindra Party lawmaker M. Hekal, who sits on Commission VI overseeing state-owned enterprises, questioned on Thursday the existence of compensation in PLN’s financial report, saying that there should be an explanation on the difference between compensation and a subsidy.
He said PLN should be transparent and disclose its cost structure so that the public was aware of its financial conditions, he said.

Sourcce: The Jakarta Post, 3 July 2019