Monday, November 21, 2005

Privatize PLN!

An economist who is also a member of the parliament was cited in Kompas today. Commenting on the 2004's Rp 2.02 trillion loss of PLN, the state-owned electricity monopoly, he said, "PLN is a public-service oriented company. Therefore, it should not be treated as a profit center". He then asserted, "Accounting practice for PLN should differ from those for private companies. Furthermore, PLN should not be decentralized, because otherwise it will create cost inefficiency, since prices will be different across regions".

This is like a father telling his adult son. Son, you have to support your brothers and sisters. Therefore, I will keep supporting you. Just do your work, no matter how bad you do. Where I got money to support you from is of no concern for you. (Of course I'll tax your brothers and sisters).

The only way to make PLN more efficient is to leave it to private and expose it to competition.


  1. i don't know where we got the idea that state-owned cos should not generate profit. by all means, government supposed to govern, and state-owned cos are not charity foundation. just because they are running to service the whole nation doesn't mean they have to suffer losses. what the hell happened with win-win situation?

    privatize and monopolize at the same time might be a bad idea but as long as everything makes sense and affordable, i couldn't see why one should complain. PLN, PJKA, PAM, you name it.

    and they stop acting like beggars, for god's sake. we all know the money is there, at least it should be there!

  2. Well, it's a political thing. Having a full control over energy is a HUGE political power. Now, if you are the state, will you just give away that power simply because of few billions loses? Well, if you're a hard-core liberal you would probably say yes. I would say let's at least consider our options first...

    Maybe by just introducing few simple but effective mechanism you can increase PLN effeciency to a more acceptable level, which may be a good enough trade off...

  3. what should be the "acceptable level"?

  4. Deciding what "acceptable" is in itself is probably just a matter of agreement between the state and public.

    Deciding what should be used as the "performance index" to decide acceptability is more difficult. I don't have the answer, since I am not an expert in corporate economy :) But I suppose things like: ratio between anual production and investment can be used, the ratio between production and labor seems useful too, ...

  5. Defining "acceptable" is in itself only a matter of aggreement between involved parties (e.g. the state and the public). However we will need some sort of "performance index" to distinguish what acceptable and what not in the first place. I think that's the hard part. I am not a corporate business economy expert to give you a reasonable answer, but my naive guess is that things like the ratio between anual production and investment, or ratio between production and labor could be part of such a peformance index. We could look at the history of PLN and point at where these ratios are close to ideal, and use them as the norm against which the performance today is compared.