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Power Play

Higher Electrical Rates Threaten Local Hotels with Bankruptcy

(9/28/2012) Bisnis Bali reports that a planned 15% hike in electrical power rates will increase overall energy costs by up to 10%. For many companies in the tourism sector, expenditures for energy represent 5% of gross revenues.

“The potential 15% increase in the basic electrical tariff (KDL) will increase the energy costs for hotels by up to 6%,” warned the vice-chairman of the Indonesian Association of Tourism (GIPI), Bagus Sudibya. At the same time, Sudibya warned that a 5% energy cost against total gross revenues represents the upper limit sustainable by local hotels.

Continuing, Sudibya said: “If (energy costs) are 6% of gross revenues, that is equal to an increase of 1% from total revenues. At one time, the cost of energy was 3% of gross revenues. Clearly, the (higher cost) will reduce the profit margins of hotels which are already under pressure.”

Citing an example, he said that if a hotel receives Rp. 2 billion (US$210,000) in sales revenues the cost of electricity will be Rp. 100 million (US$10,525). This, if the basic cost of electricity increases by 15% then the cost of electrical power increases to Rp. 120 million (US$12,630).

Sudibya said the government must begin to take note of supply and demand issues in approving new accommodation permits. “it’s just not healthy to have too many rooms,” Sudibya also said rising energy costs are especially problematic in an uncontrolled competitive situation where rates are under pressure.”

Issuing a final warning, Sudibya said: “Don't allow supply (of rooms) to be out of control while electrical costs are on the increase. Many hotels owned by local businesspeople will go bankrupt.”