The Price of Electricity in Indonesia

Persistent shortages of electric power and of capital to fund power system expansion have recently prompted the Indonesian government to allow the private sector to supply electricity. Price has become a controversial issue—both the retail price private producers would charge the public, and the wholesale price at which they would seil in bulk to the state utility, PLN The government has traditionally kept the retail price below cost to support economic development objectives, and subsidies have covered PLN's losses. Opponents of private power argue that without subsidies private suppliers would have to raise the retail price to unacceptable levels—according to PLN, almost 50% more per kilowatt-hour than its own price. The paper assesses PLN's claim by quantifying hidden subsidies, and demonstrates that, if these were properly taken into account, the average retail price per kilowatt-hour for 1980–93 should have been 46% higher than it was.