Indian Law Opens Power Sector to Private Investment
Source: Wall Street Journal, Reuben Carder and Patrick Barta (9/9/09)
"Indonesia's parliament moved to open the state-dominated power sector to more private investment. . ."
However, key elements of the new law passed by the legislature Tuesday remain unclear, and further overhauls will likely be needed before some investors—especially foreign companies—will be willing to commit large sums to upgrading the country's power infrastructure of money.
Still, some analysts welcomed the news as the latest sign that the government is trying to make Indonesia more attractive for foreign capital by trying to resolve some of the regulatory and infrastructure problems that have hindered growth in the past.
The government estimates about $84 billion in investment is needed in the electricity sector by 2018 to provide basic services and make the country more competitive with other major Asian manufacturing powerhouses, such as China.
The new law allows private investors and local authorities to generate, transmit, distribute and sell electricity without working with state electricity company PT Perusahaan Listrik Negara (PLN).
PLN accounts for more than two-thirds of domestic generating capacity and has held a monopoly on sales and transmission.
Under the new law, state-owned companies will still be given the right of first refusal to develop power projects. However, the central government and local authorities will be given the power to approve projects, and local authorities may form their own.
Producers will in principle be able to set their own electricity rates, though the central government and regional authorities will retain some authority over the prices to ensure they aren't too onerous for consumers.
Nick Cashmore, an analyst at CLSA in Jakarta, said he is skeptical the changes will mean much in the short term. A similar law, approved by Indonesia's parliament in 2002, was overturned two years later by the Constitutional Court on the grounds that electricity provision is too vital to be left to the private sector.
"I think it's a bit too soon to get excited," Mr. Cashmore said.
But many investors are hopeful the law will stand this time as it becomes clearer that Indonesia needs more private capital to solve its electricity woes.