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Lights out in
Indonesia
By Bill Guerin
JAKARTA - Countrywide risk factors, legal risk,
a weak banking sector and weak capital markets,
community violence and the like, affect sentiment over
doing business in Indonesia, but there are few factors
more important on would-be investor's score cards than a
regular and reliable supply of electrical power at an
affordable price.
Last week a series of
"rolling-over" blackouts in some areas of East Java
sparked concerns that the looming power crisis, which
has been predicted for years, had arrived. Sector
analysts predict that US$28.5 billion will need to be
invested in new power generation, transmission and
distribution infrastructure up to 2010. Without this
investment, the country will suffer a major power
crisis.
The disruption to supplies followed
damage to four large-capacity power plants caused by
heavy rains and landslides. The plants affected were the
200-megawatt combined-cycle power plant (PLTGU) at
Gresik in East Java, the PLTGU at Muara Tawar in West
Java with a capacity of 200MW, and the PLTGU at Tambak
Lorok in Central Java with a 200MW capacity. The Gunung
Salak geothermal power plant (PLTP) in West Java was
also damaged by landslides, causing a loss of 100MW of
power at the plant.
State-owned electricity
utility PLN confirmed on Monday that the total installed
capacity in Java and Bali is 18,612MW, the load capacity
12,815MW, and peak capacity 13,250MW. This has raised
eyebrows over whether PLN is actually coming clean on
its minimum reserve power level.
The recent
blackouts should not have occurred, in theory, with more
than 40 percent spare capacity to cope with the loss of,
at most, 700MW. PLN said the supply disruption was only
temporary and was due to "technical" problems at the
plants concerned.
Energy and Mineral Minister
Purnomo Yusgiantoro was having none of this and promptly
called on PLN to shift load capacity to its biggest
customers, in industry, and convert peak load into base
load.
The WG-PSR (working group on power sector
restructuring) slammed PLN over the latest blackouts,
which, it said, indicated that PLN's management,
particularly with regard to the maintenance system at
power plants, has been less than adequate.
WG-PSR has called on the government to set up an
independent investigation team into the looming power
crises, on account of the potential for shortages of
power to seriously disrupt any future efforts to boost
the economy.
"The national parliament [DPR]
should summon all related parties and hold a hearing.
The issues have to be resolved transparently and the
public should be made aware of the facts. PLN has to
give compensation to customers who may suffer from
losses due to intentional blackouts," Fabby Tumiwa,
coordinator of the organization, said last week.
Eddie Widiono Suwondo, current PLN president,
was installed in March 2001 some time after an
independent audit of the company mandated by the
International Monetary Fund (IMF) found that
inefficiencies had resulted in annual losses averaging
Rp5.3 trillion during 1995-98.
The Arthur
Anderson report noted that poor investment decisions
accounted for the bulk of the losses, or about Rp4
trillion per annum, while operational inefficiencies
accounted for the balance. The audit concluded that more
than half of the losses were due to factors beyond PLN's
control - ie, government policies or the actions of
suppliers, customers, financial institutions, Pertamina,
etc.
Though Widiono is not blamed for these past
ills, PLN's peak load management, maintenance systems
and the efficiency of its transmission and distribution
lines have come under deep scrutiny during his watch.
In March Widiono survived a purge when State
Minister of State Enterprises Laksamana Sukardi replaced
four of the company's five directors. Only Widiono and
finance director Parno Isworo, who had also survived
previous management shakeups, managed to retain their
posts. The government also restructured PLN's
organization by removing the planning division and
introducing a generation and primary energy division.
This year had been a fairly good one for PLN
prior to last week's blackouts. On the supply side there
was good progress after dispute settlements with 20 of
the 27 independent power producers (IPPs), including a
successful debt-restructuring deal with PT Paiton Energy
in March.
US-ASEAN Business Council president
Ernest Z Bower said that "the importance of the Paiton
settlement cannot be overstated", and it would send a
positive signal to foreign investors in the country.
Indonesia, according to Bower, had taken proactive steps
to address its long-standing energy supply problems,
which gives investors and markets greater confidence as
a result.
Many of these resurrected projects,
though, are not due on stream for another three or four
years.
The Tanjung Jati B power plant in Jepara,
Central Java, which would have raised the capacity of
the Java-Bali power grid by next year, remains bogged
down in a morass of financial difficulties. It has been
postponed until 2006.
At a cabinet meeting last
October, Widiona won approval for his proposal to expand
the capacity of the Muara Tawar power plant in West Java
providing it with combined open-cycle gas turbines and a
capacity of 850MW. This April a Siemens-led consortium
won the bid to build six power units there, each with a
generating capacity of between 100 and 150MW.
Japan, Indonesia's biggest investor, has agreed
to provide a US$616 million loan to raise the capacity
of the Muara Tawar and Muara Karang power plants.
A power plant is also to be built in Bali, which
gets its power from Java through the Java-Bali
transmission grid that connects the two islands via
giant underwater cables. Demands for electricity on the
island will soon outstrip PLN's capacity to supply power
from Java.
PT Indonesia Power, a unit of PLN,
got the green light in March to go ahead with its
controversial $51 million Pemaron plant, which will be
built smack in the middle of one of Bali's nicest and
unspoiled locations, Lovina Beach, a favorite diving and
snorkeling area. Construction was delayed for two years
by protests from various community groups who argued
that the power plant would pollute Lovina Beach, as it
will use about 700 tons of diesel, delivered by tankers
through a pipeline installed at Lovina Beach, every two
weeks.
Gede Wisnaya, chairman of the Bali
Development Study and Empowerment, said he was extremely
disappointed. "We have been protesting since 2001, and
have also written a letter to President Megawati
Sukarnoputri and the minister of environment, but no one
has responded."
Widiono said in response: "We
have calculated the risks and affirm that there will be
no major environmental degradation."
PLN says it
will spend some Rp34 trillion ($3.82 billion), out of a
total Rp65 trillion budgeted for this year, on fuel
costs alone. Historically, PLN has encountered frequent
problems on price and supply when it was forced to buy
from state-owned oil and gas firm Pertamina. However, in
April PLN signed a memorandum of understanding (MoU)
with Singapore-based fuel trader Concord Energy to
supply fuel to the Indonesian utility. After
implementation of the Oil and Gas Law No 22/2001,
Pertamina lost its monopoly on the distribution of fuel
throughout the country (see Pertamina's new paradigm, May
23).
The electricity law, which was based
largely on an August 1998 White Paper on power-sector
restructuring, also has many positive aspects for the
future provided that implementation goes ahead as
planned.
PLN will gradually lose its
decades-long sole rights in power generation,
transmission and distribution to mid-size and large
users.
Power-sector regulation is being
improved, including the issue of a regulatory framework
that will give security and certainty for investors in
the power sector.
The government believes
competition would encourage more investment in the power
sector, and power producers would compete to provide the
best service to customers.
The industry is to be
unbundled, beginning with the Java-Bali grid, which will
have one grid-operating company and five distribution
companies, together with five generating companies. The
government's objective is to create competition in the
power generation and power retail segments.
Parliament decided against an independent
regulatory body and plumped for a government agency that
acts independently, like Bank Indonesia. The
commissioners of the agency will be chosen by the
president with the approval of the DPR.
A
"social electricity development fund" is planned whereby
the government will subsidize electricity for the poor.
Help is also on hand from two Malaysian state
electric utilities, the Serawak Electricity Supply Corp
(Sesco) and Sabah Electricity Board (SESB), which will
build power stations in two Indonesian provinces. PLN
said on Monday that Sesco will build plants in West
Kalimantan starting in 2006-07 and SESB will follow by
building in Sumatra starting in 2008. PLN will buy at
least 50MW of power from Sesco to start with.
The electricity sector is expected to be exempt
from value-added tax in the future, which will also
help.
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.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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