Tue, 18 Mar 2008
From: Asia Times
By Tom McCawley
JAKARTA - Indonesia, one of Asia’s largest fuel exporters, now faces dire power shortages, threatening to hold back an economic recovery which at 6.3 % reached its fastest pace in a decade last year. Chronic underinvestment and fast-rising industrial and consumer power demand means Indonesia is facing undercapacity constraints, which the government warns could reach crisis levels by next year.

The government is pinning its hopes on a "crash program" to add 10,000 megawatts (MW) of coal-fired power, mostly financed and built by Chinese companies, in a bid to rapidly expand capacity by over one-third. If the crash program fails to meet its goals, energy policy could become a major campaign issue as Indonesia gears up for general elections next year.

So far Indonesia’s 26,500MW power grid has not yet suffered the drastic shortages seen throughout the 1990s in China, India and the Philippines, where frequent blackouts dragged severely on economic growth. But Indonesia’s many decrepit power plants are ageing and the country’s main Java-Bali power grid is straining to meet demand.

Some analysts argue that Indonesia already faces a crisis. The capital, Jakarta, was hit with widespread power outages in March, as ships carrying coal from Kalimantan to Java were delayed by stormy weather.

At least two power plants had to reduce production and power cuts hit several commercial and residential areas while coal stocks fell to dangerous levels of only two or three days of reserves. Critics blamed the mini-crisis on poor planning. Officials at the state-run power utility Perusahaan Listrik Negara (PLN) said that power shortages in March were symptomatic of mounting strains on the entire grid.

Of 17,500MW of installed capacity on the Java-Bali grid - three-quarters of the country’s total - only about 15,500MW is operational at any given time. Many of the power plants that are up-and-running are old and inefficient, according to one PLN official who requested anonymity.

Daily evening demand peaks at around 15,200MW, leaving a tight 2% reserve margin, according to PLN. The supply cushion gets tighter and even falls short of demand when plants routinely shut for maintenance or repairs, according to the PLN official.

With abundant natural resources, Indonesia would seem to be well-placed to meet its domestic energy needs. The country is Asia’s only member of the Organization of Petroleum Exporting Countries (OPEC) and is the world’s largest exporter of thermal coal and the second-largest exporter of LNG.

New investment in the power sector has lagged badly since the Asian financial crisis of 1997-98, when under financial constraints the government cancelled billions of dollars worth of power contracts with some 26 private power companies or independent power producers (IPPs).

Six years of tortured and lengthy negotiations over the nullified contracts ended only in 2003. Meanwhile, Indonesia’s economy began to emerge from the doldrums of the crisis, reflected not only in economic growth statistics but in the rising numbers of electricity consumers and per capita demand.

A stop-start policy reform process added to investor confusion. Indonesia passed a wide-ranging power liberalization bill in 2002, aimed at breaking up PLN’s monopoly on sales and distribution. The bill, modeled on power reform legislation elsewhere in the world, aimed to instill market competition through a so-called multi-buyer and multi-seller model.

That included provisions allowing for foreign companies to build power stations and sell directly to the public. But in late 2004, the powerful new constitutional court struck down the bill, citing a nationalist clause declaring ill-defined "strategic" enterprises should be left in national hands.

Burgeoning power problems later forced the government to backtrack and devise the crash investment program in March 2006, which aims to rapidly add 10,000MW to the national grid. In line with that policy, PLN last August signed new power plant deals worth some US$2 billion with China’s Shanghai Electric Corp and Dongfang Electric Corp.

Some Chinese lenders, according to Indonesian media reports, had asked for sovereign guarantees on their power plant agreements - not all of which have been granted. Those contracts included a Chinese consortium of Shanghai Electric Corp and Dalle Energy, which are set to construct a 945MW coal-fired power plant in Teluk Naga, Banten, at a cost of $547.4 million in foreign exchange and 1.89 trillion rupiahs ($207.6 million).

A consortium of Dongfang Electric Corp and Dalle Energy is also to build a 630MW coal-fired power plant in Pacitan, East Java, while a consortium of Shanghai Electric Corp Ltd and Maxima Infrastructure is to establish a 1,050MW coal-fired power plant in Pelabuhan Ratu West Java at an estimated $566.9 million and 2.2 trillion rupiahs.

Indonesia’s drive to boost its domestic power output could have supply effects on the rest of industrializing Asia, where China’s growing appetite for imported fuels has intensified regional competition for access to sources. New power capacity in Indonesia, home to an estimated 236 million people, will require more oil fuel, coal, and LNG that previously went to exports.

Industry analysts estimate that by 2010, if the crash program goes ahead as planned, Indonesia will burn over 60 million tons of coal per year, up from around 30 million tons at present. Some Energy Ministry officials speculate privately that Indonesia may follow China’s lead in imposing export curbs. China imposed such curbs in January, amidst one of the harshest winters in decades which badly disrupted power supplies.

Perhaps no one is more worried about the power supply issue than Indonesia’s President Susilo Bambang Yudhoyono, who is scheduled to run for re-election next year. One of his central campaign promises in 2004 was to boost economic growth to 7% per annum, about the level economists estimate is needed to keep unemployment down as more young people enter the work force.

Economists are already warning that infrastructure constraints, including inadequate roads and ports, as well as power stations, risk holding back economic growth. They note, for instance, that PLN has been imposing rolling blackouts in outer areas for several years now. Meanwhile private gas-run generators have been selling well in Jakarta as households apparently brace for more power shortages.

Tom McCawley is a Jakarta-based freelance journalist.



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