Thursday, 24 January 2013


Business players predicted that the Government’s plan to increase basic electricity tariff by 15% next year would downsize competitive edge of Indonesian products. And yet the latest report of the World Economic Forum [WEF] had it that Indonesia’s competitiveness level was in the 50th position or lower compared to last year’s position at 46th.

Once in 2010 Indonesia’s competitiveness was in 42nd position, but in the past 2 consecutive years Indonesia’s position had been constantly falling. Among the main causes was poor power supply for the domestic industry including textile and textile products.

Business circles rated that increase of electricity tariff was a heavy burden to the textile [TPT] industry which made Indonesia’s competitiveness continue to slump. To the textile industry, electricity constitute a big portion in the production cost structure. To fibre producers, for example, electricity constituted 25% of total production cost.

As with the weaving industry, electricity’s contribution 14.4% in the production process. Energy supply was one of the key factors in TPT production process; but the garment industry was less reliant on electricity, the percentage in price structure was only 1.3%.

Increase of Basic electricity Tariff [TDL] would increase production cost and finally increase selling price. Although TDL increase would mainly affect true upstream industry, it would also have serious impact on the downstream industry and the price of goods being produced. On the other hand consumer’s purchasing power would lessen as prices of products turned less affordable.

What producers feared was that increased production cost would force them to reduce production output which would have the chain effect of mass dismissal of workers. To keep selling price up by reducing production, producers had to dismiss about 10.000 workers. It would be hard for producers to increase price as it might lessen product’s competitiveness against imported products; even without increasing price, competition was hard enough for local producers.

Besides, the energy policy would affect national investment climate, among others that investors from Thailand, Vietnam and China would cancel relocation plan of their investment plan in Indonesia. For that matter businesspeople and industrialists could make recommendations to the Government to postpone TDL price increase or find solution to the matter. The national industry must not be allowed to collapse which would injure the macro process of national economic development.

Business people said one thing while the Government said another. The Minister of Energy and Mineral Industry assured that subscribers of electricity would have their subsidy, although tariff was based on the increased version of 2013. According to the Minister of Energy and Mineral resources, increase of electricity tariff was based on Law no 30/2007 on energy. The law had it that tariff of energy was based on justifiable economic principles while the Government extend subsidy for the low income group.

The increase of Electricity tariff of 15% was an average percentage, the tariff for each respective type of subscribers varied. However the specification of tariff for each type of subscriber still had to wait for the Law on APBN State Budget 2013. Furthermore the Government planned and Mineral Resources as legal base for price increase. It was almost certain that the Regulation would be released before tariff increase was put in effect in January 1, 2013.

According to scenario, the number of subscribers not having any further subsidy in 2003, i.e. household powered 6.600 VA [R3] business 6.600 VA – 200 KVA  and above [B3]. However, tariff increase for the three subscriber category was more economically reasonable price or basic cost of procurement plus margin of 7 percent. For R2 ands B2 classified as Low voltage subscribers [IR] the suitable economic tariff was Rp 1.352 per Kwh, while economic tariff of B3 category i.e. Rp 1.1134 per Kwh.

How did the UMKM small business react to the new tariff / they were worried that the TDL price increase of 15% to be in effect as per 2013, would hold back UMKM development in Indonesia. One thing was sure; increase of TDL tariff would weaken competitiveness of small industry so they could not compete against imported product. This meant that they would choose to become traders rather than producers. This was the one point to be observed by us all. Although the Government dared not to increase tariff of 450 volt and 900 VA such meant nothing at all to the industry. This was because there was practically no small industry who used power below 1.300 KVA.

The Indonesian Chamber of Commerce [KADIN] also admitted that tariff increase production cost by around 6%. Increase of TDL would have its impact variably on industrial sectors due to different type of electric powered equipments being used. Truly there were some who used electric power. So the one who would be affected were industries of high dependency on electricity power like TPT industry, metal melting and ceramics.

Nevertheless, as businesspeople they were trying to support Government’s plan to increase TDL tariff but on condition that the revenues obtained from price increase be used for infra-structure building which would propel development. Response also came from the Ministry of Finance who was ready to discuss tariff increase plan by 15% gradually as per next year to all businesspeople who objected the price increase policy.

No matter how bitter, the increase must be exercised because subsidy for electricity had swollen too big, reaching USD 80.9 trillion by 2013 while many people were untouched electrification plan. So be ready to save energy in all activities of life for the betterment of life.

Business News - October 3, 2012

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