2005: Yet another year of ad hoc measures

2005: Yet another year of ad hoc measures

Leony Aurora, The Jakarta Post, Jakarta

From elementary school on, students have the postulate drummed
into them that Indonesia is rich in natural resources, including
abundant oil and gas, to be used for the greater good of all.

While this assumption, presumably encouraged to build one's
pride in being an Indonesian, is true in theory, the challenges
in extracting and making use of these resources efficiently are
often not addressed.

Therefore, it came as a big surprise when fuel scarcity began
to creep up on the nation in March and swept across the
archipelago in June. Gas stations posted "no gasoline" signs and
motorists became accustomed to queuing.

Domestic stockpiles for premium gasoline and diesel fuel
dropped to 12.7 days and 14.5 days respectively, far lower than
the ideal buffer of at least 22 days of supply.

State oil and gas firm PT Pertamina blamed the shortage on
cash-flow snags, which it had experienced from March onward due
to late fuel subsidy delivery by the government amid the soaring
global oil prices.

Pertamina also admitted that it had reduced daily offtake as
fuel consumption had increased and exceeded the pro rata quota --
calculated from the 2005 total allocation of subsidized fuel of
59.6 million kiloliters (kl) approved by the House of
Representatives -- by 10 percent, in spite of fuel price
increases of 29 percent on average in March.

For the man on the street, it became a baffling question:
"Shouldn't high oil prices be a good thing for us? Don't we
produce oil in abundance?"

Many did not realize that Indonesia has effectively become a
net oil importer. Production of the aging oil fields has declined
by 5 percent per year, standing at 1.075 million barrels per day
(bpd) on average in 2005, while fuel consumption rose by 6
percent. To secure domestic demand, Indonesia, through Pertamina,
has to import 400,000 bpd and 300,000 bpd of refined products.

Global oil prices have continually climbed since the beginning
of the year, hovering at around $60 per barrel from June onward
in New York with a record-high of $70.85 per barrel on Aug. 30
after Hurricane Katrina hit the United States.

The government was forced mid-year to revise the 2005 budget
and drastically raise the fuel subsidy to Rp 76.5 trillion
(US$7.8 billion), assuming oil prices of $45 per barrel, from Rp
19 trillion and $24 per barrel, respectively, in the previous
draft.

The fuel crisis subsided after the ever-populist President
Susilo Bambang Yudhoyono ordered Pertamina to pour fuel first and
worry about the subsidy later.

On another front, the year also saw numerous threats of power
cuts due to limited capacity and dependence on fuel-fired plants.

The usable capacity in the Java-Bali grid stands at around
15,500 megawatts (MW) from an installed capacity of 19,615 MW,
leaving reserves of about 600 MW during the peak hours of between
5 p.m. and 10 p.m.

Lack of investment has stalled the development of new power
plants since the monetary crisis hit the country in 1997, even as
power demand rises by some 6 percent annually.

State power firm PLN called early in June on customers in Java
and Bali to turn off two lights per house to save 500 MW in the
grid as natural gas supply to several plants was cut for two
weeks. Public participation managed to prevent the expected
blackouts.

PLN announced more possible power shortages in the network
serving the two most-populated islands in late June and August,
as a 750-megawatt (MW) plant had to stop operating due to late
delivery of petroleum fuel and a 600-MW unit suffered from
technical problems.

The incidents, however, paled in comparison to a massive
blackout that turned light into night throughout Java on the
morning of Aug. 18, only to be fully resolved some 11 hours
later.

Preliminary findings suggested that a glitch in the
interconnection system between major power plants Saguling and
Cilegon in West Java caused five other plants to disengage from
the network, reducing supply by 4,000 MW.

The industrial sector was the first to shoulder the burden of
the apparent energy crisis as the government allowed state firms
to take drastic measures to reduce demand.

To reduce the strain on the power grids, PLN has since
September raised the multiplying quotient from 1.4 to 2 for
electricity used by industries in peak hours, meaning that power
will be twice as expensive as that utilized at other times. The
state firm also applies penalties for industries using more than
half of their average usage during peak hours.

The new policy managed only to push down demand on the Java-
Bali grid by 200 MW the following month.

Pertamina kept the subsidized fuel quota by requiring
industries since July to pay market prices -- more than double
the subsidized prices at the time.

As for the rest of the country, the government's response to
the crisis was the issuance of Presidential Instruction No.
10/2005 on energy conservation on July 10, requiring government
offices to reduce power consumption by air conditioners, lighting
and office appliances, and the use of official vehicles.

Each department will be allowed to issue their own directives
on the matter; local governments are encouraged to establish a
progressive vehicle taxation system and require big-engine cars
to guzzle only non-subsidized high-octane fuel; television
stations are not permitted to broadcast after 1 a.m.

In the months that followed, government officials
forwent their power suits for batik, and lights dimmed across the
city.

The effect of the energy-saving drive was not evident,
however, as power consumption stayed pretty much at the same
level. As the days passed, the campaign lost steam.

As of early December, no regulation had been issued to reduce
fuel usage in the transportation sector as suggested before.
Shopping centers and offices are as air-conditioned
and harshly lit as before.

In fact, the only policy that significantly reduced fuel usage
was the government's decision to raise fuel prices by 126.6
percent on average on Oct. 1 in an attempt to save the stretched
state budget.

According to Pertamina's data, monthly sales of premium
gasoline declined by 19 percent to 1.3 million kl in October from
1.59 million kl in August. Diesel fuel sales in the
transportation sector dropped by 22 percent to 896,000 kl
throughout October from 1.15 million kl in August.

It remains to be seen whether the government will also apply a
pricing policy on the power front. PLN has proposed an increase
in power charges by between 23 percent and 39 percent next year,
depending on the amount of subsidy it would receive of between Rp
25.5 trillion and Rp 12.98 trillion, respectively, to be able to
cover costs. The House has allocated Rp 17 trillion in the 2006
state budget for the company.

Despite all the signs and data available to anticipate an
energy crisis, 2005 remained a year when, once again, reactive
measures were favored over preventive actions.

It is everybody's hope that, next year, the government will
see it fit to take significant steps to start saving energy,
keeping the people informed rather than relying merely on
campaign rhetoric. The public has no desire to be left in the
dark.