Mandiri Sekuritas Electricity tariff to increase 20%-25% next year

􀂄 Government plan to increase the electricity tariff by 20%-25% in 2010. In the first phase, the increase would only set for above 6,600 VA or nonsubsidized household, business, and industries subscriber. Currently, government allocated Rp48.2tn and Rp40.4tn in 2009 and 2010 budget respectively for electricity subsidy, as PLN sold electricity below its cost of around Rp1,400/kWh (the tariff for household, business, and industry were Rp600/kWh, Rp980/kWh, and Rp780/kWh, respectively).

􀂄 Although we believe, the increase would be positive for PLN financial performance that could provide room for expansion, we concern on its impact to inflation next year. Electricity tariff is one the biggest contributor on CPI basket of around 2.8%, compared to rice, which is the highest contributor, of around 4.2%. At this juncture, we maintain our inflation forecast at 6.3% in 2010, which is higher than this year expected inflation of 4.0% yoy.