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Mon, Dec 27, 2004 - Page 12 News List

Decision to exclude foreign investors may hurt Indonesia


Indonesia's economy has been given a real boost by recent promises of financial reform but a controversial ruling that bars foreign investors from the country's struggling power sector could short circuit efforts to pull in vital overseas cash.

The decision by Indonesia's top court to scrap legislation that opened up the electricity industry to international investment has alarmed experts who warn the move will also do little to alleviate chronic power shortages.

Since President Susilo Bambang Yudhoyono took office in October, pledging to stamp out graft and cut red tape to attract the massive capital investment needed to revive his country, the money has started to trickle in.

Then last week a court ruled that a law passed in 2002 to promote efficiency and full competition in the power section violates Indonesia's constitution because electricity is a public commodity that must remain under state control.

The decision was seen by analysts as a setback, not only for Yudhoyono's grand plan, but also for efforts to drastically crank up power output in Indonesia as rising demand leads to more and more blackouts across the country.

Despite vast resources of oil, natural gas and geothermal energy, Indonesia's inefficient and graft-ridden state power company PLN is unable to meet the electricity demands of the huge archipelago's 214 million people.

Earlier this month PLN president Eddie Widiono said the company needed to raise US$30 billion over the next 10 years to increase its generating capacity by another 20,000 megawatts.

Tempo magazine said since 1998 there have been no new electricity supply created on the islands of Java and Bali -- home to more than half the country's people -- to add to the current capacity of 18,000 megawatts.

Peak demand already exceeds 14,000 megawatts, with reserves often below 25 percent, while areas outside Java and Bali have been hit by frequent blackouts.

The court's ruling is "unfortunate and has potentially important consequences, most immediately for the coming infrastructure summit," said a former World Bank expert, who spoke on condition of anonymity.

He referred to a scheduled January meeting in Jakarta to be attended by business executives seeking investment opportunities in the infrastructure sector.

Under the annulled law, PLN would have lost its power distribution monopoly within five years, after which private companies would be able to sell electricity directly to consumers.

The Constitutional Court ruled that competition was not always efficient and may not benefit the people.

"It is not enough for the government to control and supervise, it must also own and manage," the court said, adding that the private sector could help.

Luluk Sumiarso, the secretary general of Indonesia's energy ministry, said he hoped the ruling, which will prompt the drafting of a new electricity law, would not entirely close the sector to overseas interests.

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