As Indonesian govt hikes electricity rates for some, small businesses express concern

Small businesses and middle- and high-income households in Indonesia are expressing concern about a sharp rise in electricity costs, when they are still recovering from the impact of the COVID-19 pandemic and a hike in fuel prices.

On Monday, the Indonesian government announced it would raise electricity tariffs to between 17.6 and 36.6 percent for businesses and middle- to high-income households that install 3,500 volt-ampere circuits or higher.

Mahyudin, the owner of a car repair shop in West Jakarta, said businesses like his would suffer because of the price increase.

“For me, this is another burden because my business has not recovered due to the pandemic of the last two years. Prices of essentials have also gone up,” the 49-year-old told BenarNews.

The sharp increase in the utility rates, combined with ballooning prices for commodities and other essential items in Southeast Asia’s largest country, are among the worldwide economic ripple effects from Russia’s war in Ukraine.

Another Jakarta resident, Muhammad Sujamal, said he felt cheated after the state power company, PLN, persuaded him to switch from a 2,200VA to a 3,500VA circuit a year ago with a promise that there would be no additional cost. He switched so he could run more appliances such as air conditioners. 

“I’m sure many people were like me at that time,” he told BenarNews. 

“But now I feel like I have been ambushed because I will have to pay more,” said Jamal, who said his electricity bills ran to 1 million rupiah (U.S. $68) a month.

The head of the Indonesian Micro-, Small- and Medium-Sized Enterprise Association called on the government to reconsider the electricity price increase.

“This will certainly lead to increased production costs. Besides, the prices of essentials, like cooking oil, are still not stable,” the news portal kumparan.com quoted Hermawati Setyorinny as saying.

The association said about 70 percent of small businesses in the country use 3,500VA electricity or lower.

In April, the government raised the price of the 92-octane fuel intended for middle-income car owners, to 12,500 rupiah (U.S. 85 cents) from 9,000 rupiah. The price of the regular, 90-octane gasoline remains at 7,650 rupiah, but Pertamina, the state energy company, is trying to limit its sale to low-income people.   

Additionally, prices of cooking oil made from palm extracts have doubled in recent months, prompting the government to temporarily stop exports of the world’s most-widely consumed commodity in April, following a public outcry. The ban was lifted in May but the price of cooking oil has yet to recover.

The Energy and Mineral Resources Ministry said the decision to raise electricity costs was due to the weakening of the rupiah and the high price of crude oil in the wake of Russia’s invasion of Ukraine. Electricity generation in Indonesia still relies on fossil fuels. 

It said the move was expected to save 3.1 trillion rupiah (U.S. $210.6 million) in power subsidies annually. 

“Among the economic assumptions, the most influential is the ICP (crude oil price) which is more or less influenced by the global situation, including the crisis in Ukraine,” Rida Mulyana, director general of electricity at the ministry, told reporters Monday.

At more than U.S. $100 per barrel, the price for crude oil is higher than the U.S. $63 assumed in the national budget. Rida meant that global oil prices are the most important factor in the decision to raise electricity prices.

PLN President Director Darmawan Prasodjo said the government had decided not to raise industrial electricity rates because it wanted to stimulate the economy and keep inflation levels low.

Mamit Setiawan, executive director of Energy Watch, a private watchdog, called the price hike “appropriate.” 

“If no adjustments are made, it will put pressure on state finances and PLN,” Mamit told BenarNews. “The last price adjustment was made in 2017. So, this is the right step.”

Bhima Yudhistira, director at the Center of Economic and Law Studies (CELIOS), said the rise would not hit rich people or lead to higher prices.

“It will have an impact on inflation and purchasing power if it affects lower middle-income people,” Bhima told BenarNews.

But Trubus Rahadiansyah, a public policy researcher at Trisakti University in Jakarta, blamed rising prices on what he called the government’s economic incompetence.

“I see that all this stems from the government’s poor economic performance and failure to control the prices of essential items,” he told BenarNews.

“All the ministers are already busy with politicking [ahead of the 2024 general elections] as most of them are political party people.”