PLN holds back on raising rates

Though the recent fuel price increases will push up the production costs of electricity firm PLN by about 30 percent, the company has said it will not increase electricity rates until June at the earliest.

PLN director for power plants and primary energy generation All Herman Ibrahim could not say whether the increased production costs would be translated into a hike in electricity tariffs.

?Production costs will rise by (an average of) 30 percent as fuel costs make up about 40 percent of our total production cost. However, I cannot say whether we will raise the power rates,? All told The Jakarta Post on Friday.

He said the company was already struggling to produce power within its current cost structure.

Earlier this week, PLN director Eddie Widiono said during a business visit to Singapore that the increase in fuel prices would likely force the firm to increase its rates.

He said there had been ongoing discussions about the issue with the government.

Fuel prices rose by an average of 29 percent on March 1 after the government reduced subsidies on fuels, cutting their allocations in the budget.

The last time PLN raised power rates was in 2003 by an average of 6 Percent for every quarter ? a result of Megawati Soekarnoputri government?s commitment to gradually reduce fuel subsidies.

However, with an eye on the general elections, the Megawati administration abandoned the commitment last year.

The government may raise electricity rates in the second half, of the year if PLN cannot afford the higher fuel costs, said Yogo Pratomo, director general of electricity at the Ministry of Energy and Mineral Resources.

?After the first half we will calculate the costs again. (Whether rates will be raised) will depend on whether PLN recorded a profit or not in 2004,? Yogo said as quoted by Dow Jones.

The company has not released its 2004 financial results, but PLN management has said the company likely remained in the black last year.

At present, almost 25 percent of 25,218 power plants across the country are diesel oil-fired, with natural gas, coal and geothermal energy powering the remainder.

Every year, PLN requires some nine million kiloliters of oil to fire the power plants.

Ali said PLN has been working to reduce its dependence on oil by gradually using cheaper alternative energy sources.

The government is planning to build nine more coal-fired power plants and one more gas-fired power plant by 2007.

?Our target is to reduce power plants using oil down to 5 percent (of the total) by 2008 ? that is why we are designing more coal-fired and gas-fired plants,? Au said.

Due to soaring global oil prices, the company posted a decline in profits from Rp 2.33 trillion (US$ 251.1 million) in 2003 to Rp 1.01 trillion last year. (*)