Indonesia's Power Outage and Its Economic Calamity

Electricity has become a part of humans' daily lives; so many advanced technologies and even simple household items are powered by electricity. Without it, many activities will go awry. However, last Sunday Jakarta, along with its outskirts (West Java and Banten), experienced city-wide electrical shutdown, that affected millions of lives. It went on for almost 7 hours before everything was on again. It was the worst power outage since 2005 when the whole Java and Bali experienced power outage due to transmission line fault which resulted in approximately 100 million of lives unable to do their activities.

Everyone was frustrated and disappointed with Perusahaan Listrik Negara (PLN)'s incapability to conduct check-ups on the transmission lines which caused a shutdown that was uncalled for and extremely unnecessary. The blackout happened last Sunday and another brief one on Monday. Due to this blackout, the economic catastrophe felt by both PLN and its consumers is humongous.

Financial Meltdown

Such dismal shutdown on Sunday and a weekday when most of economic activities are being conducted hurt Indonesia's economy. From PLN's point of view, the amount of loss from this blackout is substantial. Already getting a reprimand from the President; PLN also has to compensate for the losses of the power users, as mandated by the law, if they demand to do so and they can get a lawsuit that amounts to fifty trillion rupiahs by an advocate forum. Fortunately for PLN, its sales revenue will not decrease as PLN monopolises the energy market. Even so, this creates doubt on PLN since there are no other companies that can back up the electricity in case PLN experiences more problems.

There is a Winner and There are a lot of Losers

Meanwhile, consumers (households, firms, banks, etc) were not able to operate due to the shortage of power. While most banks, MNCs, and state-owned enterprises were able to continue their operations thanks to early warnings from the PLN and the presence of generators, households and SMEs were affected badly by this incident. Many of them lost their sales revenue since they did not have the electricity necessary to work.

As a result, their production is halted which may cause delay or even cancellation of orders. For example, due to power shortage in Bandung, a barbershop was estimated to have lost more than 10 million rupiahs because most of its tools require electricity. Since nothing could function, they had to use the conventional ones instead which took longer to cut a customer's hair, resulting in a decrease in efficiency, increase in waiting time for customers. This reduced the number of consumers to have their hair cut resulting in a decrease in sales revenue.

However, there is a winner amid the chaotic blackout. The blackout caused an influx in demand for generators to power up firms and households resulting in many generators were sold out within minutes. For example, an electronics store in Bekasi managed to sell forty units of generators in total due to the blackout. 

One of the buyers was a football jersey confectionery entrepreneur who was in desperate need of a generator to finish up the orders and shipped them to his respective customers. Overall, many electricity consumers are the losers in this gargantuanly chaotic situation. However, generator firms surely took advantage of this influx of demand to increase their revenue.

Lower Barrier to Entry?

Due to this disappointing and repugnant incident, many Indonesians have demanded change from the PLN and the government; complete reshuffle of PLN's Board of Directors, impeachment of the Minister of Energy and Natural Resources and Minister of State-Owned Enterprises, improvement of renewable energy resources, etc. 

However, many people rarely discuss about another solution; opening the electricity market to the private sectors. According to Act 30 Year 2009 Clause 11 regarding electricity (Undang-Undang Republik Indonesia Nomor 30 Tahun 2009), private sectors can provide electricity however it also states that State-Owned Enterprises (in this case PLN) shall be the main priority to be the provider of electricity to the public.

This law becomes the barrier to entry for the private sector to contribute to the provision of electricity for the public, assuming they are capable of building their own power stations to do so. With this law, PLN does not have any incentive to constantly improve their service or monitor to ensure that everything remains perfect. With increased competition from the private sector, PLN can constantly improve their service to maintain its customer satisfaction of their service. 

Besides that, this can prevent another blackout since when one of the companies experience problems, other companies can provide backup. This will prevent another mass catastrophe such as what happened a few days ago. Besides, consumers have to pay for the electricity bills instead of being provided for free which correlates to the idea that PLN acts as a profit-minded company. This further justifies the involvement of the private sector and erases the perspective of people regarding private sector being "profit-chasers".

For example, in the United States of America, electric system which consists of generation (production of electricity from primary energy source), transmission (transmitting electricity to substations), and distribution (distributing electricity from substations to consumers) is owned by a mix of entities. 

Private sector owns 38% of net generation, 80% of transmission and 50% of distribution while publicly-owned enterprises own 15% of net generation, 12% of transmission, and nearly 50% of the nation's electric distribution lines. With this, the last major blackout ever experienced in USA due to unforced errors was California's 2011 Southwest Blackout in California and Arizona. Thus, the government can consider lowering down the barrier to entry for the private sector to also become the provider of electricity considering there are benefits of actually doing so.

All in all, this catastrophe shall not happen again even in its smallest extent. This calamity had caused a surreal effect on the consumers of electricity since it is a vital element of their lives. Indonesia was fortunate that the blackout only lasted 7 hours last Sunday and a few more hours the following day. If it happened longer than that, the economic effects would be even more abysmal, just like Venezuela.

By Christian Anugrah Leonardo | Ilmu Ekonomi 2018 | Staf Divisi Kajian Kanopi 2019

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