Jakarta. Energy and Mineral Resources Minister Ignatius Jonan has signed a ministerial decree to end the monopoly of state power company Perusahaan Listrik Negara, or PLN.
The decree, which still needs to be ratified by the Ministry of Justice and Human Rights, will allow independent power producers (IPP) to sell their power directly to customers, particularly in remote areas or regions that are not serviced by PLN.
"They [the IPPs] will act as mini PLNs. They can build their own plants and distribute power. They will also have to calculate their own costs," Alihuddin Sitompul, director of electric power program at the energy ministry, said.
According to Alihuddin, the new regulation will allow smaller IPPs that produce renewable and fossil fuel power to operate in 2,500 villages across the country which have not been connected to PLN's power grid.
Earlier, IPPs had to sell their power to PLN. The process required long negotiations that made small-scale projects infeasible.
This is the second time Jonan ends the long-standing monopoly of a state enterprise since his return to the cabinet last month.
A decree signed by the minister on Nov. 10 allows private companies to build domestic refineries, import crude oil and sell fuel directly to their customers, ending a monopoly long held by state oil company Pertamina. The companies can now also apply for tax incentives from the government.
Both decrees reflect state-owned companies' struggle to keep up with growing demand.
According to the deputy chairman for renewable energy and environment at the Indonesian Chambers of Commerce and Industry (Kadin) Halim Kalla, PLN should focus on large projects to support the government's target of adding 35,000 megawatts to the country's power grid by 2019.
However, he added that while the government need IPPs to pick up the slack from PLN, residents may not able to afford IPP-marketed electricity.
He estimates the cost of electrifying remote areas at $8 billion, which will be high above PLN's average base cost of Rp 1,352 (1 US cent) per kilowatt hour.
"The government needs to step in and subsidize the private sector," Halim said.