The Subsidy Dilemma
The DPR questions the plan to raise electricity tariff in 2020. State electricity company PLN’s finances are at stake.
New leadership for state electricity company PLN will not only determine a new direction for the company’s business model in line with State-Owned Enterprises (SOEs) Minister Erick Thohir’s wishes; the plan to revoke 900-volt-ampere (VA) tariff subsidy for well-to-do households will only become increasingly uncertain until PLN’s new directors take their posts. “We want to discuss it first. We will look at the urgency,” said Energy and Mineral Resources Minister Arifin Tasrif on Monday, December 9.
The plan to revoke electricity subsidy, which was agreed upon during the 2020 state budget deliberation in September, has recently experienced a setback. The symptoms began when the 2019-2024 House of Representatives (DPR) energy commission held its first working meeting with PLN’s management, led by its acting chief executive officer (CEO), Sripeni Inten Cahyani, on Monday, November 25.
The over five-hour meeting, which was led by energy commission chairman, Sugeng Suparwoto, reached in six conclusions. Most importantly, the energy commission pressured PLN to submit a complete data on household categories that are entitled and not entitled to electricity subsidy. Two days later, it was Minister Arifin’s turn to be questioned by the DPR about the plan. Arifin showed the same stance. “We need to study the data in further depth to make an appropriate policy,” he said.
It is as if the energy ministry is taking a step backward. On September 3, the energy ministry also led the deliberation with the DPR budget committee in the previous period. Revoking subsidy for the 900-VA household group was considered feasible. Furthermore, the group has been seen as the most burdensome customers to the subsidy budget as the group is made up of 24.4 million households. The budget committee agreement was also the basis for trimming electricity subsidy in the 2020 state budget down to Rp54.79 trillion from its 2019 budget of Rp59.32 trillion.
At the time, the energy ministry had made clear calculations. If a tariff adjustment was to be made for this group, the subsidy budget could be lowered by Rp6.9 trillion. The group’s electricity tariff of Rp1,352 per kilowatt hour (kWh) would be raised to Rp1,552 per kWh, which means a tariff increase of around Rp200 per kWh, amounting to a monthly electricity bill that is Rp21,000-29,000 more expensive. “Not so much because it doesn’t reach Rp1,000 per day,” said Energy Ministry’s Director-General of Electricity Rida Mulyana.
Still, according to Sugeng Suparwoto, the decision’s shortcoming is in the weakness of its data basis. “Are they truly well-to-do?” Sugeng told Tempo on Thursday, December 13.
Sugeng says the energy commission does not want the government to hurry in trimming energy subsidy. There is worry that the subsidy’s revocation amid the pressures of a global recession would slow economic growth in 2020. Especially when the people’s purchasing power appears to be in decline, marked with the slowing of household consumption gross domestic product (GDP) of only 5.01 percent in the third trimester of 2019 compared to the 5.17 percent in the previous trimester. “The state budget is currently uncomfortable, but the people are also in a difficult position,” he said.
The World Bank’s most recent report released on Wednesday, December 11, supports Sugeng’s argument. Indonesia’s economic growth next year is predicted to only reach 5.1 percent, below the 2020 state budget’s optimistic assumption of 5.3 percent. The World Bank predicts that inflation will rise from 3.1 percent to 3.5 percent due to the revocation of electricity subsidy, an increase in national health insurance premium, and cigarette tax.
A delay in increasing electricity tariff would exert pressure on the company’s treasury, which has thinned out due to the high cost of electricity procurement (HPP). Last year, the average HPP reached Rp1,406—Rp283 per kWh higher than the average selling price in the country. But as when tariff increase was delayed in the previous years, this time PLN’s management will also simply accept its fate. “The technical ministry will make the decision,” said PLN Strategic Procurement 2 Director, Djoko Abumanan, on Thursday, December 12.