Indonesia moves to improve power service, cut energy subsidy

The Indonesian government, state- run power utility of PLN and presidential task force authorized to monitor development (UKP4) signed on Friday an agreement on a particular scheme designed to improve PLN's service in expanding the country's electrification ratio thus reducing the energy subsidy set in state budget.Through the scheme called Service Level Agreement (SLA), 11 ministries, PLN and UKP4 are expected to intensify coordination in order to improve PLN's capability in securing power supply in the country."Continuing communication among institutions at the forum should be conducted so as to make PLN comply with its obligation. PLN is the only institution we rely on when it comes to increasing power supply capability," Vice President Boediono said in his remarks at the signing ceremony here.He expected that the SLA mechanism would work effectively and eventually help the country in attaining higher growth.The SLA scheme obliges PLN to provide power supply that fits the standards already determined, and assure the completion of power infrastructure on schedule.Besides that, through support and facilities discussed at the forum, PLN would be encouraged to efficiently manage the power subsidy, so that it can be minimized and rightly delivered to consumers who deserved to receive it.Indonesian Finance Minister Agus Martowardoyo expected that the SLA scheme would cut power subsidy which is estimated at 440 trillion rupiah (about 45.2 billion U.S. dollars) within the next four years, or 110 trillion rupiah (about 11.2 billion U.S. dollars) annually.The subsidy reduction is expected to be within a range of 20 to 50 trillion rupiah (up to 5.1 billion U.S. dollars), the minister said.Indonesia saw power subsidy swell up to 101 trillion rupiah ( about 10.3 billion U.S. dollars) last year from 65 trillion rupiah (6.6 billion U.S. dollars) allocated in the first place due to the increasing oil prices in international market."Besides that, the increasing power subsidy was also a consequence of PLN's increasing power sales that grew 10 percent per year in the last five years," the minister added.With implementation of the SLA scheme, he expected that it could also reduce the state budget deficit to 1.5 percent of GDP in 2014, setting the power subsidy at a maximum of 100 trillion rupiah (about 10.2 billion U.S. dollars)He said that Indonesia recorded the lowest electrification ratio in the region at 78 percent, compared with 100 percent in Singapore, 99.4 percent in Malaysia, 97.6 percent in Vietnam and 89.7 percent in the Philippines.