Govt reviews electricity price hike plan following protests

The government is reviewing a plan to increase electricity rates amid complaints by businesses that the new rates could hamper their competitiveness by making them vulnerable to cheaper imports, The Jakarta Post reported on Thursday.

Energy and Mineral Resources Minister Darwin Zahedy Saleh said after a meeting with economic ministers on Wednesday that the government would review the new rates, which businesses said could rise up to 80 percent for certain sectors.

?We want to share objective rates,? he said, adding that rates for certain sectors declined by 20 percent.

The average increase should be by 10 percent as demanded by the 2010 state budget revision.

Businesses said they would accept the new tariffs if they were ?reasonable?.

?High electricity tariffs will force businessmen to increase the price of their products, making them less competitive both for exports and domestic sales;? chairman of the Indonesian Employers Association Sofjan Wanandi told a discussion.

Indonesian businesses have been facing tough competition from cheaper Chinese products since a free trade agreement between ASEAN countries and China was made effective on Jan. 1 this year.

Sofjan said state power firm PT PLN was not consistent with its initial presentation to businesses, which stated that electricity rates for industries would only be increased by between 6 and 15 percent, adding that some industries could be hit by an 80 percent increase.

Franky Sibarani, chairman of the Communication Forum for National Associations, calculated that under the new rates, electricity bills for food industries would increase by 30 percent, hotel industries by 33.3 percent, solid cosmetic industries by 50.6 percent and herbal industries by 32.3 percent.

He said the new rates have severe consequences for the economy, including increasing prices of basic needs and transportation costs, which would lead to higher inflation, which could undermine economy growth.

The Indonesian Cement Association estimated that the power rate like would raise cement production costs by up to 49 percent, while the 1ndonesian Electronics Association calculated that electronics production costs would increase by up to 40 percent.

Franky said businesses might have to lay off workers and cut expansion to cope with the tariff increase. ?There will be a cut or halt in productions that may lead to layoffs;? he said.

Sofjan even suggested the government delay the tariff increase until mid-August while negotiations with businesses continued.

Coordinating Economic Minister Hatta Rajasa said electricity tariffs would still be raised by 10 percent on average, but the government would study the effects of the new rates. He also said the government would curb inflation resulting from the new rates.

?Inflation caused by the increase in electricity tariffs is about 0.2 to 0.4 percent.?

The government expected to keep inflation at 5.3 percent this year to support an economic growth of 5.8 percent.

Sixty percent of Indonesia?s economic fueled by people?s purchasing power, which will decline if inflation continues to climb. (*)