Indonesia faces higher subsidy costs

Despite a forecast lower electricity production cost next year, the government proposes a higher budget for the power subsidy than this year's, because of increased national power consumption.

The Energy and Mineral Resources Ministry told a hearing with lawmakers on Thursday that the government proposed to increase the budget allocation for the electricity subsidy next year to between Rp 43.25 trillion (US$4.19 billion) and Rp 48.39 trillion, up from Rp 42.46 trillion allocated for this year.

J. Purwono, the ministry's director general for electricity and energy utilization, said the projected subsidy cost was largely based on two assumptions - Indonesia crude oil price (ICP) of between $50 and $60 per barrel and a rupiah rate of between 10,000 and 10,200 per dollar.

"The proposed subsidy is higher than the Rp 42.46 trillion allocated for this year. The increase is mainly caused by the growth of electricity consumption, which is forecast *to grow* at 6 percent next year," Purwono told lawmakers from Commission VII overseeing the energy and mineral resources ministry.

State utility PT PLN, the sole distributor of electricity, plans to use more coal to generate power next year partly due to the running of newly constructed power plants under PLN's 10,000-megawatt (MW) power program to meet power demand in Java and Bali.

Purwono said that the subsidy proposal would be incorporated into the 2010 state budget bill, along with other allocations. Thursday's hearing was part of the series of meetings to formulate government revenue and expenditure for next year.

PLN forecasts it will sell as much as 144.52 TWh (tera watt hours) of power in 2010, up from 135.99 TWh forecast to be sold this year, president director Fahmi Mochtar said.

He added PLN's average production cost would decline from Rp 962 per kWh (Kilowatt Hour) in 2009 to Rp 931 per kWh next year. "We will reduce our oil-based fuel consumption and this will reduce our costs," Fahmi said.

He said PLN expected to reduce its oil-based fuel consumption from 8.01 million kilo liters in 2009 to 4.56 million kilo liters in 2010. As a consequence, PLN consumption of coal and gas will increase.

Fahmi said that coal consump-tion would increase from 23.77 million tons in 2009 to 31.70 million tons in 2010, while gas consump-tion would increase from 313,716 Billion British Thermal units of gas (BBTU) in 2009 to 323,447 BBTU in 2010.

Although PLN's production cost will be lower next year, Fahmi said the company would still not be able to make a profit.

"Our average selling price is still lower than our average production cost," he said, adding that PLN's average electricity price was at Rp 654 per kWh.

Last year, the company suffered around Rp 13.1 trillion in losses.

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