JAKARTA (TheInsiderStories) – The Joko Widodo government is committed to maintain the current electricity tariff until 2019, as a move to maintain price stability, Energy and Mineral Resources Ministry Ignasius Jonan said on Thursday (22/02).
He said this was the message he received from the President during a meeting recently. “The government will try not to raise the electricity tariff until 2019,” Jonan said at a conference on renewable energy in Jakarta.
He made the statement in response to concerns among business players and the general public that a spike in global crude and coal prices would eventually force the government to pass on the extra expense and raise the electricity tariff.
Minister Jonan said that the decision was not politically motivated, instead aiming at husbanding the public’s delicate purchasing power. The decision is in line with the government’s target to maintain a low inflation rate environment.
Most likely to be hard-hit by a rise in crude and coal is state electricity company PT Perusahaan Listrik Negara (PLN) as it buys coal from producers based on market price.
PLN has assumed coal price at an average of US$63 per ton for 2017; however, in reality, the price surged to over $80 per ton. In February, the Indonesian Coal Price (ICP) further rose, to $100.69 per ton, 11 per cent up from the $95.54 per ton figure set the previous month.
PLN Director for Strategic Procurement Supangkat Iwan Santoso admitted the surge of coal prices has added an extra Rp14 trillion to PLN costs. However, the extra price paid by PLN to fuel its coal-fired power plants could not be passed on to consumers as the electricity tariff is set by the government.
The rise of the coal price has exerted a significant impact on PLN, since around 60 per cent of its power plants are presently coal-fueled, as the cost of electricity from coal-fired power plants at Rp650 per kWh is far cheaper than that generated by diesel, which costs Rp1,600 per kWh.
In order to minimize the impact of the commodity price rise on the company, PLN is pushing the government to set floor and ceiling prices for the coal which the company purchases from producers, under a domestic market obligation (DMO) scheme.
PLN holds that the government needs to set a price band, or otherwise it will be forced to raise the electricity tariff.
Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance (INDEX) recently said that the government may have to inject around Rp20 trillion into PLN if it opts not to raise the electricity tariff.
Over the last few weeks, there have been intensive talks between representatives of national coal producers and the Energy and Mineral Resources Ministry; however, the two sides are still far apart, and no agreement has been concluded.
The Energy and Mineral Resources Ministry was reported to be setting a lower coal price to be paid by PLN at US$60 per ton and a ceiling price at $70 per ton, which is far lower than the current global coal market price of around $100 per ton. Meanwhile, the coal producers propose the ceiling price be set $85 per ton.
The issuance of the coal price band ruling is currently on hold, pending the conclusion of a public hearing between the Energy and Mineral Resources (EMR) Ministry and representatives of national coal producers.