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Dim prospects for Indonesia's power
sector
By Bill Guerin
JAKARTA
- Eddie Widiono Suwondo, president of state power
utility Perusahaan Listrik Negara (PLN), is struggling
to bring the virtually bankrupt monopoly back into the
black. Ironically, he has had help from the onetime
arch-enemies of PLN - the independent power producers
(IPPs) who in effect own and run PLN's monopoly
power-supply network.
In the early and
mid-1990s, the Suharto government signed contracts with
27 IPPs. The government suspended most power projects in
1997 and urged PLN to renegotiate the contracts. This
led to long disputes between the company and the IPPs.
PLN has now completed contract renegotiations
with 20 of them in deals, which will all attenuate the
company's severe financial burden.
The virtual
force majeure caused by the plunge of the rupiah
against the US dollar in late 1997 set PLN on a fast
track to its current perilous state. While its revenue
is in rupiah, it pays for its oil and gas and private
power in dollars, as well as most of its borrowings.
Twenty IPPs have finally agreed to cut their
power price to below 5 US cents per kilowatt-hour, which
is lower than PLN's current selling price of Rp488 (5.42
cents) per kilowatt-hour.
Six out of the seven
remaining contracts, all geothermal power projects.
Wayang Windu, Sarulla, Kamojang, Bedugul, Dieng and
Patuha power plants, are expected to be resolved by the
middle of this year. The Karaha Bodas project remains in
jeopardy after years of legal wrangling between its
contractor and the state-owned oil and gas company
Pertamina.
The Asahan hydropower plant, the
Sibayak geothermal power plant and the Cibuni geothermal
power plant were all renegotiated last December.
Power from Asahan will now cost PLN 4.6 cents
per kilowatt-hour, from 7 cents under the old contract,
and from Sibayak and Cibuni there has been a reduction
from 7 cents to 4.7 cents and 4.45 cents respectively.
Widiono said last week that he would adopt tough
policies in facing the critical years ahead and his
first priority was to turn the company's poor financial
performance around so to allow it to finance new
investments in power generation and transmission.
PLN has made no new investments since 1998 due
to a total lack of funds exacerbated by an almost total
lack of commitment from the three administrations since
former president Suharto stepped down in May 1998.
Since then PLN has been operating at a loss
partly because the government has been progressively
cutting electricity subsidies - a policy forced on it by
the International Monetary Fund (IMF).
Badly
shaken by last September's fiasco when most of greater
Jakarta was plunged into darkness for hours, the
government is at last addressing major issues holding
back PLN.
Rotating power cuts have been in place
since the blackout resulting from a break in the
transmission line feeding power from the giant
3,400-megawatt coal-fired Suralaya complex, west of
Jakarta.
The country will suffer a serious power
supply problem in 2004 and 2005 unless there is
sufficient new investment in the power sector to
generate more electricity amid fast-rising demands.
PLN's own master plan shows that electricity
demand will grow by 8 percent annually. In order to cope
with this $28.5 billion will need to be invested in new
power generation, transmission and distribution
investment up to 2010. Without this investment, the
country will suffer a major power crisis.
Additional power demand until 2005 in Java alone
is projected to be between 11,000 and 12,000 megawatts,
and about 5,000-6,000MW outside Java.
The peak
load in the Java-Bali grid can reach 16,000MW against an
installed generating capacity of less than 18,800MW. PLN
calculates a minimum power reserve margin of 30 percent
to avoid extended blackouts in parts of Java during peak
demand periods.
The decades of successful
industrialization and development during Suharto's New
Order has left the community almost wholly dependent on
power.
Unfortunately the national power
distribution structure has a large gap between Java-Bali
and other areas. The so-called electrification ratio - a
measure of the percentage of the population with access
to power - has reached 59.4 percent in Java and Bali
this year. Sumatra, Kalimantan, Sulawesi and the eastern
regions, including Papua, come in at 53.1 percent, 46.6
percent, 47.2 percent and 33 percent, respectively.
As the lights fade on new foreign investment
prospects in Indonesia salvation for the beleaguered PLN
is also at hand from the country's oldest ally - Japan.
Japan is one of Indonesia's largest foreign investors
and trading partners. The Jakarta Japan Club (JJC) said
last month it would try to assist PLN by improving its
financial soundness and increasing the capacity of
existing power plants.
JJC members are all
Japanese businesses operating in Indonesia and are
concerned about a secure power supply for the large
number of manufacturing projects in Indonesia.
At the end of the month both countries inked a
yen loan deal worth US$616 million to be used to expand
the generating capacity of both the Muara Tawar and
Muara Karang gas-fired power plants, just outside
metropolitan Jakarta.
The 30-year loan, $465
million for the Muara Karang plant and $152 million for
Muara Tawar, has a 10-year grace period and carries a
1.8 percent interest rate.
The agreement will
enable PLN to raise the power generating capacity of the
plants. When finished the capacity of the Muara Tawar
power plant will be 1,225MW and Muara Karang will
generate 720MW, more than double its existing 300MW
capacity.
Construction of the rusting shell of
the 1,200MW Tanjung Jati B power plant in Jepara in
Central Java is also set to resume this month, after a
tough two-year round of negotiations.
Hong
Kong-based Hopewell Holdings Ltd's chairman Gordon Wu
has been trying to get rid of his white elephant for
almost two years. The Hong Kong-based infrastructure
company owned 80 percent of the Tanjung Jati B project
in Java.
Recently Wu announced he had sold.
Hopewell will get US$215 million and the obligatory
Indonesian "partner" in the project, 20 percent
stakeholder PT Impa Energi will get about US$53 million.
The remaining US$38 million will be used to pay
outstanding contractors' bills.
The Tanjung Jati
project began in 1997 with Hopewell as developer and
Japanese trading giant Sumitomo Corp as the constructor.
Sumitomo decided later to take over the leadership of
the project and will now lead the construction due for
completion by 2005.
Funding will come from the
Japan Bank for International Cooperation (JBIC) and a
syndicate of other Japanese-based financial
institutions. The government will provide some modest
financial support to guarantee the state retains part
ownership with Sumitomo.
Once construction is
completed, the power plant will be leased to PLN for 20
years, and after that the utility will fully own the
power plant.
Financing for yet another plant has
been restructured recently. The US Export Import Bank
(USEXIM) will lend US$381 million direct to the Paiton
power project that was first commissioned in 1999 but
delayed because the government needed time to approve
the funding for it.
USEXIM, along with the
Japanese Bank for International Cooperation, Nippon
Export and Investment Insurance of Japan and the US
Overseas Private Investment Corp are the major lenders
to the project.
In addition, commercial banks
from the United States, Europe, Japan, Australia and
other Asian countries and bondholders will play a minor
role.
Industry analysts say this particular deal
will act as a catalyst for US-Indonesia bilateral energy
talks, which have been stalled for several years.
Paiton, mainly owned by Edison Mission Energy,
GE Capital and Mitsui & Co, owns and operates a
1,230MW coal-fired power plant in East Java, the largest
independent power project in Indonesia.
PLN also
claims it is trying hard to improve its efficiency. Part
of this strategy is to use more gas than oil as a source
of energy to generate power. Poor planning and judgment
by bureaucrats and international agencies over the years
have allowed Pertamina, the state oil and gas giant, to
call the shots throughout the energy sector.
PLN's production costs are high and their rate
of 7 cents per kilowatt-hour is higher than in some
other Southeast Asian countries, where the rate is
between 5 and 6 cents per kilowatt-hour but fuel
components are considerably cheaper than in Indonesia.
In Malaysia, for example, the state electricity utility
buys gas for $1.60 per million British thermal units
(MMBTU), while PLN has to pay state oil and gas company
Pertamina $2.50 per MMBTU.
Last year PLN lost
some Rp4.47 trillion (US$502 million). Accumulated
losses since 1997 amount to Rp45 trillion ($5.05
billion). The government decision in 2001 permitting
quarterly 6 percent increases in electricity prices was
yet another an integral component of the recovery plans.
PLN has raised electricity rates by an average
of 6 percent every three months since then so that by
2005 it can reach the commercial rate level of 7 cents
per kilowatt-hour. The current rate is about 5.24 cents
per kilowatt-hour after PLN raised its rates this year.
The subsidy has been reduced from about Rp800
billion a year pre-crisis to about Rp200 billion this
year.
The current price level of Rp488 per
kilowatt-hour is equal to about 5.42 cents, still lower
than production costs. Tariffs do not properly reflect
the regional costs of production. Logically the
additional subsidies required for such a policy should
be borne by the government, not PLN, but there is no
sign of the government moving towards any sort of
composite energy plan that would address such needs.
Also, this year's first hike in electricity
prices coincided with the government's decision to raise
fuel prices by up to 22 percent, and telephone charges
by an average of 15 percent, prompting strong criticism
from various quarters, including street protests by
students and workers (see Mega price hikes fuel Indonesia's
discontent, January 15).
For the first
time ever industrial users are being wooed, with Energy
and Mineral Resources Minister Purnomo Yusgiantoro
promising last week that they would get a 2.5 percent
discount on the next 6 percent rise in tariffs due out
soon.
The idea is to prompt such users to
analyze their consumption patterns and shift operations
from peak time to other times.
This assumes that
the PLN infrastructure and transmission system is
capable of responding to changed demand cycles. This is
far from the case at the moment. Insufficient capacity
and problem of increasing demand has been exacerbated by
transmissions bottlenecks.
Though PLN has enough
installed capacity to just about meet demand for the
time being, transmission bottlenecks mean that it is
unable to transmit excess supply from East Java, where
it is available, to West Java, where it is needed. For
example, the Paiton complex, a mix of state and private
coal-fired units on the East Java coast, is capable of
producing up to 3,200MW of electricity. Of this amount,
however, only up to 2,000MW has ever been utilized (even
during periods of peak demand), with 1,400MW dispatched
to West Java through the North Route 500-kilovolt
transmission line and 600MW consumed locally in East
Java.
The lack of a meaningful energy policy in
resource rich Indonesia, with its abundant reserves of
natural gas, and the government's failure to develop the
potential of natural gas has cost PLN dearly.
One example alone highlights the folly. A
1,300MW plant in Central Java, Tambak Lorok, runs on oil
and because of this costs PLN an estimated Rp600 billion
($58 million) a year more to run than the entire 3,200MW
Paiton complex.
There are still palpable dangers
of major power blackouts across the board, leading to
social unrest or worse and a disruption of the economy.
Three decades of growth under Suharto means that
electricity is even more vital now than ever to the
community. Not just the industrial sector, but home
industries and small factories, even in the most rural
areas, depend on power. Blackouts and rising costs hit
them where it hurts most.
The stakes could
hardly be higher. No power means no growth and high
costs of electricity impact negatively on the efficiency
of the whole economy. Major industrial users are already
being asked to either halt production during the peak
hours of 5-8pm, or to run their generators during that
period - or even to feed some of their surplus into the
PLN grid. This is meant to reduce peak loads by 300MW
this year and up to 400MW in 2004.
The light at
the end of this particular tunnel is far from visible at
the moment.
(©2003 Asia Times Online Co, Ltd.
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