Foreign investors put off by fears of power crisis

Foreign investors put off by fears of power crisis

JAKARTA (JP): The possibility of a power crisis in Indonesia
has added to the uncertainties in the country's investment
climate, according to a senior official at the Asian Development
Bank (ADB) on Thursday.

ADB senior programs officer Shiladitya Chatterjee said foreign
investors feared that the country could suffer an acute power
shortage within the next three to four years.

"There is a miss-match in power capacity and power demand and
there could be a power crisis," Chatterjee said in an interview
after a presentation on a website run by ADB's Asia Recovery
Information Center.

State-owned electricity company PT PLN has said that the
growth in power demand has reached the pre-crisis level of 12
percent per year.

By 2004, the existing power capacity for the Java and Bali
region would barely meet power demand in that area, the state
company said.

Chatterjee then urged Indonesia to attract foreign investors
to the power sector.

"There is tremendous need which can be seen if you look at the
demand situation," he went on.

Indonesia had already anticipated a power crisis in the mid-
1990s by signing power purchase agreements with 27 independent
power producers (IPPs).

But when the economic crisis struck in 1997, power demand
plunged and PLN could no longer afford to buy the IPPs' power.

The crisis led PLN into financial difficulty which forced it
to renegotiate some of the IPPs' power prices.

PLN attributed its losses partly to higher payments to some of
the operating IPPs, the amount of which had quadrupled with the
depreciation of the rupiah.

Despite concerns of a power shortage, PLN is also negotiating
to terminate several contracts of IPPs which have not begun
construction of their power plants yet.

However, Chatterjee said that investors were still interested
in the country's power sector.

"Provided that - and this is what everyone says - the overall
incentive and policy environment structure is all right for
private investment," he added.

Chatterjee was referring to prevailing political and legal
uncertainties that continue to plague the country's investment
climate.

IPP PT Jawa Power, which operates the 1,230 megawatt power
plant Paiton II, said on Wednesday that it might participate in
future projects in the power sector.

According to ADB's Asia Recovery Information Center (ARIC),
the capital flows -- including direct investment, portfolio
investment and debts -- suffered a net deficit of $1.01 billion
in the first quarter of this year as compared to a surplus of
$129 million.

For the flows of direct investment alone, the deficit widened
to US$1.49 billion in the first quarter of this year from $245
million during the same period last year.

ADB senior economist Juzhong Zhuang said that the decline in
the official capital inflows was due to smaller disbursements of
foreign aid, such as from the ADB and the International Monetary
Funds (IMF), during that period.

He further assured that the sharp rise in capital outflow
would be unlikely to lead Indonesia to a another economic crisis
as it once did in 1997.

The crisis caused a panicked flight of capital amounting to
billions of U.S dollars. Only a small portion of that amount has
returned.

"We still see an active outflow for this year in Indonesia,
but it does not reflect a massive panic like three years ago," he
said. (bkm)