Restructuring power sector for the better<\/p>\n
By Meirios Moechtar<\/p>\n
This is the second of a two-part article on restructuring in
\nthe energy sector.<\/p>\n
JAKARTA (JP): To solve problems of surplus generation capacity
\nand to secure electricity demand in the Java-Bali system, there
\nshould be rationalization of old and inefficient generation
\nfacilities of PLN, the state-owned electricity firm, and captive
\npower producers (CPPs) or self-generators burning coal and
\npetroleum.<\/p>\n
If the diesel fuel subsidy which supported the independent
\npower producers (IPPs) is abolished, the energy source for power
\ngeneration will shift to natural gas, as the demand for natural
\ngas is potentially high. There are also the economic advantages.<\/p>\n
Coal captive power producers will use natural gas for their
\nown power generation or will buy electricity from PLN. However,
\neven though electricity may be supplied by PLN, they will not
\nrely on PLN as the constant electricity supplier, and
\nconsequently they will adopt a more economically efficient co-
\ngeneration system.<\/p>\n
However, a more thoughtful measure must be initiated on the
\ndelicate issue of the unfortunate but inevitable fuel and
\nelectricity rate hikes. Both its time frame and mechanism must be
\ncarefully devised; one way could be modeled on the establishment
\nof the above proposed funds for electricity.<\/p>\n
The \"hard\" approach of rationalization of diesel or marine
\nfuel oil (MFO)-fired generations, measures for captive power
\nproducers which have more generations than PLN and are
\nindependent in a smaller\/medium size, are crucially important.<\/p>\n
Phasing out the fuel subsidy should involve reevaluation of
\nboth PLN and captive power producers with generation capacity of
\n2,890 MW and 6,300 MW respectively, in diesel\/MFO fired
\ngeneration. In the transitional period, it is important to think
\nhow diesel\/MFO fired generations operated by PLN and captive
\npower producers should be rationalized.<\/p>\n
Among coal-fired power generations in the Java-Bali system,
\nthere are a lot of timeworn dust collection controllers, and many
\ninefficient generation plants due to perpetual troubles of coal
\nconveyers and ash disposal facilities. Furthermore, those
\ngenerations are operated under conditions that are far below the
\nenvironmental standards on the emission of sulfuric oxides,
\nnitrogen oxides and soot.<\/p>\n
The fundamental solution is a conversion of power fuel.
\nHowever, as the coal price is very low, there is less incentive
\nas fuel conversion is anticipated and no such conversion schedule
\nis put into practice. This conversion program should be applied
\nto diesel\/MFO fired generations as well. Those generations would
\nbe reborn as a clean generation.<\/p>\n
Despite the electricity supply surplus due to the economic
\ncrisis affecting the Java-Bali system, imbalance of generation
\ncapacity with transmission and distribution capacity has
\ndisrupted the electricity supply. Therefore, it is critical for
\nthe Java-Bali system to strengthen the network of transmissions
\nand substations immediately in the main transmission trunk line.<\/p>\n
In addition, electricity demand in Bali has been met
\nadequately by its supply of gas turbine\/diesel generation with
\ncapacity of 360 MW, and also by submarine transmission lines,
\nwhich have been disabled many times by accidents. It is essential
\nto ensure a stable supply of electricity for Bali through the
\nconstruction of an overhead transmission line from Java with
\ncapacity of 500 MVA. A similar solution may be needed for
\nsubmarine transmission lines between Madura and Java, which also
\nwere frequently affected by accidents.<\/p>\n
Regarding financial support, the Export-Import Bank of Japan
\n(JEXIM) and Asian Development Bank (ADB) each pledged to provide
\nUS$400 million for the power sector program loan in 1998.
\nHowever, $780 million of $800 million was provided as adjustment
\nfinancing for social safety net expenditures in Indonesia. The
\nremaining $20 million was allocated for technical assistance,
\nwhich includes a power regulatory regime, information technology
\nand software, an electricity rate mechanism to reflect costs and
\na competitive power market.<\/p>\n
In exchange for a loan, ADB claims a condition that power
\nsector reform should be implemented no sooner than 2003, so that
\nearly wins privatization could be realized. However, it seems
\nthat not enough time is available as a transitional period of
\nthree years to five years would be needed.<\/p>\n
Regarding a natural gas pipeline project in the government's
\nproposal, the Overseas Economic Cooperation Fund (OECF) special
\nloan would promote its pipeline construction between South
\nSumatra and West Java, and its feasibility study is now under way
\nat OECF. This pipeline project is a key for power sector reform,
\nand an early loan agreement with OECF is expected.<\/p>\n
The government has requested financial bailouts of the three
\ntroubled ongoing projects from Japan, including a coal-fired
\npower generation project of Paiton One, a coal-fired power
\ngenerator of Tanjung Jati B, and an ethylene plant of Chandra
\nAsri with total sums of about $3 billion. The government will
\nlikely request a loan condition similar to a special yen loan.<\/p>\n
The writer is a researcher on energy affairs at the Agency for
\nthe Assessment and Application of Technology. He is also a member
\nof the Tokyo-based Asia Pacific Energy Forum.<\/p>",
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