Indonesia Commission Approves Increase in Power Tariff

An Indonesian parliament commission approved a government plan to raise the price of electricity, potentially reducing subsidy costs and encouraging investment in the nation’s power grid that is needed to boost economic growth.

The energy commission agreed to include an electricity subsidy of 78.6 trillion rupiah ($8.3 billion) in the 2013 state budget, Chairman Sutan Bhatoegana said yesterday after a meeting with the commission and the Ministry of Energy and Mineral Resources. That equates to a 15 percent increase in electricity prices. Households consuming less than 900 volt-amperes will be exempt from the higher rates, he said. The measure must still be approved by parliament.

An increase in electricity prices would boost state utility PT Perusahaan Listrik Negara’s ability to invest in power plants in Southeast Asia’s biggest economy, where about 74 percent of the population was connected as of March, according to data from Listrik Negara. That’s lower than the electrification ratio of Thailand with 99.3 percent and Vietnam with 97.6 percent.

“We have agreed that spending for infrastructure is too small,” Deputy Finance Minister Mahendra Siregar said today. “It will be one of our priorities.”

Electricity demand in Indonesia is expected to grow by 9 percent next year, Deputy Energy and Mineral Resources Minister Rudi Rubiandini said in a presentation during the meeting. The government will increase its capital spending by 15 percent in 2013 to boost infrastructure that is needed to ensure sustainable growth, President Susilo Bambang Yudhoyono said in his Aug. 16 budget speech.

Automatic Adjustments

To contain energy subsidies and make more funds available for spending that will benefit the economy, Yudhoyono proposed adjusting power tariffs automatically every quarter starting in January. The method of implementation for next year’s electricity rate increase wasn’t announced at yesterday’s meeting.

“The issue is not with the availability of funds,” Fauzi Ichsan, a senior economist at Standard Chartered Plc in Jakarta, said in a phone interview today. “Even without raising electricity prices or fuel prices, infrastructure projects are delayed because of problems such as land acquisition.”

Indonesia’s parliament approved a land-acquisition bill in December that will allow the government to accelerate road, port and airport projects. During the president’s first five-year term through 2009, 125 kilometers (78 miles) of toll roads were built, compared with China’s 4,719 kilometers of toll roads in 2009 alone. A 1961 law says that only the president can seize land if owners refuse to sell.

To contact the reporter on this story: Fitri Wulandari in Jakarta at fwulandari@bloomberg.net

To contact the editor responsible for this story: Greg Ahlstrand at gahlstrand@bloomberg.net

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