Analyzing Electricity Rates Do Not Need To Be Increased

Illustration. (Photo: PLN)

JAKARTA - The government, through the Ministry of Energy and Mineral Resources (ESDM), has finally decided to continue to provide subsidies, by not applying automatic tariff adjustments to 900 VA Affordable Household (RTM) customers on January 1, 2020.

Previously, the Ministry of Energy and Mineral Resources planned to implement an automatic tariff adjustment for 900 VA RTM customers in line with the reduction in electricity subsidies from Rp 59.32 trillion in 2019 to Rp 58.62 trillion in 2020. If the subsidy for the 900 VA RTM class is withdrawn by following the automatic tariff adjustment, it is estimated that there will be savings in electricity subsidies of IDR 6 trillion in 2020.

However, Minister of Energy and Mineral Resources Arifin Tasrif decided to continue to provide subsidies to 900 VA RTM customers, by not including them in an automatic tariff adjustment, even though PLN had already submitted the request. The Minister of Energy and Mineral Resources decided to postpone this policy with the consideration of maintaining economic stability and people's purchasing power.

Automatic tariff adjustment is an automatic electricity tariff adjustment mechanism, which is used by PLN in determining the increase or decrease in electricity rates. The basis used is the variable that forms the cost of supply of electricity (HPP), consisting of: Indonesia Crude Price (ICP), inflation, the rupiah exchange rate against the United States dollar (US), and the price of primary energy, which forms HPP. The application of an automatic tariff adjustment can cause the electricity tariff to rise, but it can also decrease the electricity rate, depending on the magnitude of the variable that forms the HPP.

Gadjah Mada University Energy Economics Observer Fahmy Radhi said that if you look at the variables that make up electricity HPP in 2019, there is a tendency to experience a decline and strengthening. The ICP tended to fall in the range of US $ 60.84 per barrel in September 2019, even in August 2019 it had fallen to US $ 57.27 per barrel, lower than the assumed ICP price in the APBN which was set at US $ 65 per barrel.

Meanwhile, the rupiah's middle exchange rate against the dollar (US) until September 2019 tended to strengthen to an average of Rp. 14,148 per one US dollar, which is stronger than the assumptions of the 2019 State Budget and the PLN Work and Budget Plan (RKAP) which are set at IDR 15,000 per one US dollar. Inflation in September 2019 reached only 0.12 percent per month, or around 3.12 percent year on year throughout 2019.

"Apart from the three indicators, the primary energy cost variable that determines HPP for electricity also tends to decline," Fahmy told VOI, Monday, December 30.

He explained that PLN still uses coal energy for power generation with a proportion of 57 percent with fluctuating world coal prices. In early 2019, the world coal price once reached above US $ 100 per metric ton, then fell to a level of US $ 78.3 per metric ton in July 2019. However, based on the Ministerial Decree (Kepmen) ESDM Number 1395K / 30 / MEM / 2018, which sets the Domestic Market Obligation (DMO) price of Coal sold to PLN, is set at US $ 70 per metric ton, which will take effect from March 12 2018 to December 2019.

"With DMO coal prices of that size, the burden of HPP electricity can be lowered," he said.

Based on the downward trend in the ICP, he continued, the strengthening of the rupiah exchange rate against the US dollar, and the stability of inflation, the decline in primary energy prices, and the efficiency carried out by PLN so far, the HPP electricity should have decreased significantly.

"With the reduction in HPP electricity, determining electricity rates using automatic adjustments should not require an increase in electricity rates in 2020 for all groups of customers," he explained.

According to him, the government's decision not to revoke subsidies for 900 VA RTM customers was very correct, which showed the government's concern for the people. This is because some of the 900 VA RTM customers are actually included in the Vulnerable Poor Households. They will fall into poverty if the expenditure on electricity and fuel costs is increased, while their income remains.

However, so that the policy does not burden PLN amid fluctuations in world coal prices, the government must extend the DMO policy for coal prices of US $ 70 per metric ton.

In fact, the DMO for coal prices of 70 US dollars per metric ton needs to be considered to be reduced to 60 US dollars per metric ton. The consideration was that during 2019 coal prices tended to fall, reaching an average of US $ 63 per metric ton.