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Stalled Suharto-era power
plant to be restarted
By Bill Guerin
JAKARTA - With Indonesia's power needs hovering
on the critical, a mothballed specter from the
unlamented Suharto past - a 1,320-megawatt coal-fired
plant in central Java - is being resurrected along with
more than two-score other Suharto-era plants that were
halted when the aging dictator fell from power in 1998.
This time, however, they are to be run more rationally.
The cash register in front of the ill-starred
Tanjung Jati B plant, as it was known, was operated by
Suharto's daughter, Siti Hardiyanti Rukmana. Toward the
end of the Suharto era, it was hopeless to start a major
project of any kind in Indonesia without taking as a
partner one of Suharto's rapacious children. Siti's PT
Impa Energy Co simply took a 20 percent stake in Tanjung
Jati B, begun in 1997 by Hong Kong-based Hopewell
Holdings, as a cost of doing business.
Tanjung
Jati B was emblematic of the entire Suharto kleptocracy.
From rice to cars to beer to hotels to highways to
buses, there was little that escaped the eye of Siti and
her siblings. PT Impa Energy's stake was to be covered
by a purchase price of US$0.0645 per kilowatt-hour -
more than 50 percent higher than contracts are being
negotiated today - that Hopewell had "negotiated" with
Indonesia's state electricity utility, PT Perusahaan
Listrik Negara (PLN).
Japan's giant trading
house, Sumitomo, was the designated engineering and
equipment contractor. The plant was originally planned
to be finished in 2004 but was shelved when it was 70
percent completed after critics, including the World
Bank, said power purchase prices were much too high.
Today, however, after decades of successful
industrialization and development, Indonesia is
power-starved. Home industries and small factories, even
in the most isolated rural areas, depend on power as
much as industry does. PLN's installed capacity is about
21,000MW nationwide, with some 18,000MW for the densely
populated islands of Java and Bali. In practice,
however, PLN can only provide 12,000-14,000MW in Bali
and Java, where the peak load can reach 16,000MW.
Additional power demand until 2005 in Java alone
is projected to be about 12,000MW. PLN calculates its
minimum power reserve margin at 30 percent to avoid
extended blackouts during peak demand periods, but
transmission bottlenecks prevent it transmitting excess
supply from East Java, where spare capacity is
available, to West Java, where it is needed. Hence the
resurrection not only of Tanjung Jati B, but a whole
panoply of energy plants.
The decades of
Indonesia's transition to a power-fed economy - and the
seeds of its current power shortage - flowered in the
early 1990s, when the Suharto regime had grown so
corrupt that the national power monopoly was forced to
sign power purchase agreements with independent power
producers (IPPs) for 27 power plants, all with consortia
of international energy companies whose enforced local
partners were Suharto's family members and
cronies.
PLN was virtually stony-broke after the
financial meltdown in late 1997 and the ensuing
nose-dive of the rupiah against the US dollar. Most of
Indonesia's borrowing and its oil and gas and private
power costs are in dollars, while its revenues are in
rupiah. IPPs in effect owned and ran PLN's monopoly
power-supply network. Today, many of the other
resurrected projects are not due on-stream for another
three or four years, although some are running and
selling power to PLN. Most have chosen to sign new
agreements rather than expose their previous contracts
to public scrutiny.
PLN had little support from
the three administrations that followed Suharto's 1998
downfall until finally President Megawati Sukarnoputri's
coordinating minister for the economy, Dorodjatun
Kuntjoro-Jakti, took up the torch. (The power crisis
forced itself into the public mind when a major blackout
last September plunged most of Greater Jakarta into
darkness for several hours after a rupture of
transmission lines from a giant 3,400MW coal-fired
complex in Suralaya, west of Jakarta; see Indonesia's power sector gropes in the
dark, September 20, 2002.)
A ministerial
team was set up, headed by Kuntjoro-Jakti, tasked with
restructuring the power sector and renegotiating the
private power contracts. The minister pushed for the
resumption of work on 26 power plants, which need a
total investment of some $12.5 billion. In July 1999
Jakarta approached Japan asking it to bail out the
project and eventually, in December 2000, Sumitomo
announced it was interested in more than just
constructing Tanjung Jati B.
In June 2001
Hopewell's chairman, Gordon Wu, who himself was nearly
driven bankrupt by the Asian financial meltdown, said he
had reached a provisional agreement with Jakarta to sell
his interest in Tanjung Jati B, and that Indonesia would
seek a soft loan to finance the acquisition. Wu
eventually declared force majeure, a legal
stratagem intended to excuse him from liability on the
ground that failure to perform could not be avoided by
the exercise of due care. He abandoned what had become a
white elephant that had cost him HK$4.8 billion (US$640
million). He sold out to Sumitomo early last year and
pocketed a mere US$215 million after settling
outstanding contractors' bills of $38 million. Suharto's
daughter's company walked off with $53 million.
Sumitomo announced last week that it was about
to resume building the $1.65 billion project. It will
provide $550 million, with the rest funded by the Japan
Bank for International Cooperation (JBIC) and a
consortium of Japanese financial institutions.
At the end of March Tokyo committed to a yen
loan deal worth $616 million to be used to expand the
capacity of the Muara Tawar and Muara Karang gas-fired
power plants, just outside Jakarta. Indonesia's oldest
ally and investor, Japan, will be the country's biggest
creditor by far when Jakarta severs its link with the
International Monetary Fund, which came in to attempt to
rescue the economy in 1997 after the Asian financial
meltdown. The many Japanese businesses operating in
Indonesia, particularly in the manufacturing sector, are
keen to see a secure and developed power infrastructure,
especially in industrialized West Java.
Possibly
out of fear of PLN default, JBIC asked the government to
provide a guarantee. Jakarta will provide modest
financial support - $540 million by way of a liquidity
facility covered by a sovereign guarantee. In the event
of PLN's default the guarantee would kick in and it
would take over the loan repayments, though PLN would be
expected to repay the government.
PT Central
Java Power (CJP) will manage the project along with PLN.
The latter will rent the plant from CJP for power
distribution to the public when it is finished in 2006.
PLN will buy the power at a negotiated price of $0.04
per kilowatt-hour.
The project was also delayed
when Kuntjoro-Jakti and his fellow ministers encountered
major problems with Minister of Trade and Industry Rini
Soewandi, who argued for months that a sovereign
guarantee mandated counter-trade obligations.
Kuntjoro-Jakti, Energy Minister Purnomo Yusgiantoro and
PLN president director Eddie Widiono all disagreed, as
did Sumitomo and CJP. In mid-April Soewandi suddenly
threw in the towel and dropped her insistence on the
need for counter-trade in that deal.
Two weeks
later, however, while accompanying Megawati to Moscow on
an official visit, Soewandi pulled off a major
counter-trade deal for the purchase of Russian Sukhoi
fighters and other hardware (see Arms deals buoy Russian-ASEAN trade,
April 23). She is now being blamed by many legislators
for neatly bypassing government procedures, though
military chief General Endriartono Sutarto has told
parliament it was his idea and not the minister's.
Kuntjoro-Jakti and his team have also helped PLN
successfully negotiate new contracts with other private
electricity suppliers covering periods of between 20 and
30 years and a total available capacity of 10,430MW.
Widiono said last week that of the 26 independent power
producers, 14, with combined generating capacity of
10,615MW, had agreed to continue their projects under a
new tariff rate averaging $0.046 per kilowatt-hour. This
compared with up to $0.084 previously and will save the
utility at least $5.9 billion over the next 20-30 years.
Pertamina, the state-owned oil and gas giant,
took over one project and the government and PLN each
agreed to take over two others. Seven others agreed to
terminate their purchase agreements and the government
is offering them to new investors.
Though some
$65 billion has been spent on bailing out the banking
industry, the power sector had been all but neglected
and left to fend for itself. This has now changed and
the government is inking in a brand-new energy policy as
a national priority.
The policy will redress
earlier government failures to develop the potential of
Indonesia's abundant reserves of natural gas. Last month
PLN signed two deals that signal a move toward gas as
the fuel of choice for firing power plants. It agreed to
buy about 100 million cubic feet of gas per day from
Amerada Hess for 21 years, starting in 2005, for $1.2
billion and 40 million to 60 million cubic feet of
natural gas per day from Australian-based Santos Ltd for
$250 million.
The gas in both deals comes from
offshore blocks in East Java and will be used as an
alternative source of energy to keep the lights burning
at home.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
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