The Danger of Unbundling, Electricity Privatization removes the State Control over Electricity Provision and Violation of Constitution 

The Constitutional Court had just have a session to deliberate the Case No. 39/PUU-XXI/2022 on Monday, 15 January, 2024. The session was led by Judge Suhartoyo for the Judicial Review against Article 38 and 42 of Law No. 11 of 2020 on Job Creation.

In this session, Gekanas, the petitioner, presented several expert witnesses in front of the court. Gekanan is a movement alliance consists of dozens of trade union federations, SOE trade unions and private company unions, academics, public figures, and labour organizations.

The expert witnesses confirmed that unbundling (the breakdown of electricity system) practice is a part of privatization. Under the unbundled electricity system, there is not any state control whatsoever. In the case of Indonesia, the loss of state control over electricity provision means an anomaly in the implementation of Article 33 of Indonesia’s Constitution.

One of the expert witnesses is Dr. Sean Sweeney. He is the director of International Program for Labor, Climate, and Environment, School of Labor and Urban Studies, City University of New York. In his testimony, he emphasized on the importance of Article 33 of the Constitution.

He said that article 33 is like a blessing, not only for Indonesian people, but also for people all over the world, especially in responding the climate change and energy transition. Article 33 of 1945 Constitution is now being corrupted by privatization.

“I will not repeat the points presented by previous speakers in relation to Article 33 of the 1945 Constitution. However, I agree to what the previous speakers said that article 33 of the 1945 Constitution is being corrupted by privatization,” said Sean.

“And I think that article 33 of the 1945 Constituion is a blessing and an impront legacy from Indonesia’s founding people. It is important not only for the Indonesian people but also for the citizen of the world, especially in responding miltiple crises caused by climate change and energy transition to clean energy,” Sean added.

Sean continued by saying that policy failure in implementing the article 33 of the Consitution is caused by high dependency on private investments and companies in order to accelerate the transition. He also said that there is a correlation between policy and resource management, especially in the case of energy system unbundling.

“In many countries, this policy promotes privatization. These countries use development aid as a coercive weapin. In other words, countries around the world accepted the policy that contain conditions (from the World Bank),” added Sean.

Similar to that, Nursyirwan explained that PT PLN (Persero), with its human resources and experience, is capable in providing a reliable and affordable electricity. Therefore, Indonesian people and government must support that, especially with a policy that does not in favour of relying on IPPs for electricity.

As mandated by the Constitution, PLN must have a strong ownership over the electricity genereation business. The ownership must be a comprehensive and integral. The current holding scheme is not comprehensive nor integrated. The holding companies consist of the companies that were already under PLN’s control.

“PLN is a State Owned Company that holds the consitutional mandate to provide electricity for the people. It is just natural if the generators under State-owned companies or regional government-owned companies are under the PLN’s holding and ownership. This will make public or Indonesian people benefits more from the electricity provided by the state-owned companies, explained Nusyirwan.

According to PLN’s statistics, PLN’s total production (by PLN itself, or by buying, renting, and other projects) in 2022 is 308.002,30 GWh. Out of this number, PLN bought electricity from outside as much as 123.665,25 GWh (40,15%). This amount increased by 17.379,27 Gwh or 16.35% from the previous year.

That data shows that there is an increase in State’s dependency on IPPs every year. The pleader suspected that the unbundling practice has been happening.

Furthermore, it must be acknowledged that the government buying electricity from IPP will only put more burden on the state finance. On the other note, it is more efficient to produce themselves.

If this condition is allowed to continue, the greater the dependence on IPPs, the state’s control and control in strategic branches that control the lives of many people, such as electricity, will increasingly be lost.

And the public could be affected by the possibility of increased electricity tariffs due to adjustments to state electricity purchases from the IPP.

“Most of Indonesian people rely on cheap and affordable electricity. It is the duty of the State and the government to guarantee the access and availibility as well as the sustainable provision of electricity for the people,” added Nusyirwan.

The court session also presented Prof. Maruarar Siahaan, 2003 – 2009 Constitutional Court Judge, as an expert witness from the petitioner. He was strongly against the unbundling practice on the ground that unbundling is unconstitutional.

“Unbundling is unconstitutional exactly because it removes state’s control over the provision of electricity as stated by the Constitutional Court No 111/PUU-XIII/2015,” he said.

What Prof. Siahaan said reminds the court about the Judicial Review against Law No. 20 of 2002. The late Prof. Natabaya, one of the Constitutional Court Judges, decided that Law No. 20 of 2002 on electricity was unconstitutional. This decision is stated in the the Constitutional Court Decision No. 001-021-022/PUU-1/2003.

“Article 10 paragraph 2 of that Law, as stated by the Constitutional Court Decision, is nothing but a sham,” he said in his testimony.

The society does not want the Lawmaker and law enforcer to violate the constitutionality of state’s control over the electricity provision. It is the time for the state to be sovereign and reduce the dependency to the IPPs. This dependency on IPPs violates the Constitutional Court’s decision.

Lastly, in its closing, the petiotioner concluded that the plea has a strong base. Indonesian Constitution of 1945, together with Pancasila, the nation’s philosophy, are the guidance and principles for the government in formulating their policies, managing the country and must be obeyed. And constitutional interpretation places limits on the ideals of the Proclamation in the Preamble to the 1945 Constitution.

Meanwhile, the related Party, Adi Pratomo, in his explanation said that electricity is a public utilities. Utilities companies must be in public hands. Otherwise, the essence of the public utilities will be gone.

“In controlling public utilities, the government does not have other options other than has dominant control compared to private companies. The state must manage the provision, the mechanism of the provision, and also the price of electricity so that people have access to affordable electricity,” he said.

“If the public utilities are in the hands of the private, there will be massive profit taking from the electricity provision. The implication is that privates will benefited and will harm the society,” he added.

Adi also explains that the important branches of business that are essential – in this sense, the electricity – must be in the hands of the state. The phrase of “in the hands of the state” must be understood as not just the state to exercise its authority, but also monitoring and surveilance. He then said that electricity has a specific characteristic compared to other products. Electricity production needs time and the process is complex. Let alone, considering Indonesian people mostly are poor, then the state must own a dominant share in the management abd provision of electricity.

“Because if it is not dominantly controlled by the state, the state can not determine or decide what the state’s wishes are for providing electricity to the Indonesian people, so it is not enough for the state to just exercise its authority through regulation and supervision alone. State control is not enough just to regulate the economy, but control by the state must be interpreted as dominant management by the state through state-owned enterprises, in this case PT. PLN (Persero), whose management will then be prioritized for the greatest prosperity of the people,” he added.

Before that, the petitioner explained about the Job Creation Law that regulates the electricity provision for public using unbundling scheme. Before the Job Creation Law changed it, Article 11 paragraph (1) Law No. 30 of 2009 on Electricity is declared as unconstitutional by the Constitutional Court Decision No. MK 111/PUU-XIII-2015. Then, Law No. 20 of 2002 on Electricity is also cancelled by Constitutional Court Decision No. 001-021-022/PUU-I/2003 on 22 December 2004. Both Laws were declared as unconstitutional because they legalized the unbundling in the electricity provision business therefore it is against the 1945 Constitution. The Job Creation Law put this back.

The Petitioner argues that the substance of Article 10 paragraph (2) of the Cooperation Creation Law is the same as the substance of Article 10 paragraph (2) of the Electricity Law which has been declared conditionally unconstitutional by the Constitutional Court through Decision Number 111/PUU-XIII-2015.  Apart from that, the petitioner also explained that electric power is an important branch of production for the country and which controls the livelihood of many people, which has been confirmed by the lawmakers as stated in the preamble considering letter a and the explanation of Article 3 paragraph (1).  Electricity business activities is carried out competitively by treating business actors equally and by separate or unbundled business entities are contrary to the 1945 Constitution as also referred to in the legal considerations of Constitutional Court decision Number 001-021-022/PUU-I/2003

Apart from that, the Petitioners explained several reasons for the plea, such as the Job Creation Law to re-regulate the business of providing electricity for public purposes without being integrated (unbundling).  The unblunding system in question is the separation of the electricity supply business into generation, transmission, distribution and sales businesses.  This clause practically makes electricity a selling item.  The Petitioner emphasized that electricity businesses carried out competitively by treating business actors equally and by separate business entities is contrary to the 1945 Constitution. For this reason, in his petitum, the Petitioner asked that the two articles be declared unconstitutional.