Update 2: Constitutional Court revokes electricity law

The Constitution Court decided on Wednesday to annul Electricity Law No 20/2002 because it was considered conflicting with the constitution.

The Court said that the annulment must be carried out within 30 days after the decision was made.

The law, which was passed in 2002 amid protests from several parties, including several legislators and non-governmental organizations, aims to liberalize the nation’s power industry and scrap the decades-long monopoly held by state owned electricity company PT PLN in the sector. The law stipulates that the nation’s electricity sector should be “unbundled” to allow other players than PLN to produce power and determine the price based on supply and demand.

However, presiding judge Jimly Asshidique, reading the Court’s decision, said that in line with the constitution which stipulates that all production sectors that affect the public should be controlled by the state, the electricity industry should be controlled by the government or state enterprises.

Under the nation’s legal system, the Court has the right to review laws endorsed by the House of Representatives and the government.

The petitions for the review of the law were filed several parties, including a lawyer association, PLN’s labor union, and the association of PLN’s retired workers, in late 2003. In their petition, they argued the law should be revoked because a liberalization of the power sector would result in the increase in power price and thus hurt the public’s interest.

The Court, in its ruling, agreed that the unbundling system would weaken PLN and thus would potentially jeopardize the supply of electricity to the public. It also noted that the liberalization of the power sector through the unbundling system in several countries has brought problems than benefits to the public.

“Four countries, that is Thailand, South Korea, Brazil and Mexico, have recently delayed or dropped the restructuring plan of their power sector,” the Court said. Before making its decision, the Court held hearings with several experts, including David Hill, a director at the Public Services International Research Unit at the Business School of London-based University of Greenwich.

Since electricity is a pivotal commodity and affects the lives of all members of the public, in line with the Constitution, the sector must put under the government’s control, the Court said.

“This means only state owned enterprises are allowed to manage the electricity business, while national and foreign private companies can only participate in the industry in partnership with state owned enterprises,” the Court said.

Analyst said that the ruling would deal a serious blow to investment climate in the nation's electricity sector as investors would be discouraged to enter the sector. (Bodega)