Huge power expansion

Huge power expansion

The massive development of new power generation stations recently, as explained by Zuhal, the president of the State Electricity Company (PLN), augurs several encouraging trends. One significant advance is the doubling of PLN's generation capacity to more than 26,000 megawatts within the next five years, which will hopefully solve the severe electricity shortage which has been hindering industrial development since 1990.

The additional capacity inspires confidence that the dreaded nuclear power project planned for the northern part of Central Java will be shelved or will at least be postponed indefinitely.

More encouraging is the fact the new projects will not use oil but coal, natural gas, geothermal and hydropower. That energy diversification will result in significant oil conservation and, consequently, further postpone the day when Indonesia will have to become a net oil importer. Non-oil power generation, with the exception of coal power, is also much cheaper and cleaner.

Another positive trend is the increasing role of private investors in power generation. More than 4,960 MW of the 13,000 MW of additional power to be created within the next five years will be developed by private investors under various types of contracts with PLN. In fact, the first private power generation project with a capacity of 1,230 MW was launched at Paiton, East Java, over the weekend.

This development not only shows remarkable progress in the privatization of the power sector but also makes the planned increase more viable in terms of financing and technical capability. The performance of the private power projects will influence future private investor participation in the electricity generation.

But the doubling of the generation capacity within just five years also poses some major challenges to PLN. This ambitious program makes it more important than ever for the state monopoly to restructure its organization and management to cope with such a sudden increase in its work load.

The reorganization of PLN in Java into three subsidiaries in charge of managing West, Central and East Java units needs to be sped up. This is because such decentralization will improve the span of control and facilitate the development of more autonomous and more commercially viable power companies. This development will, in turn, enable PLN to rely more on the capital market for investment funds.

Another challenge is the need for the expansion of the transmission and distribution systems and the replacement of old, inefficient ones. Inadequate investments in the transmission and distribution end of the electricity business could be a disaster because power losses could increase due to overloaded networks, pilferage, fluctuations in voltage levels or distortions in metering.

We have learned that PLN has made impressive gains in its efforts to cut down power losses in transmission and distribution networks which in the 1980s exceeded 20 percent of its total power output. The big losses had often become a thorny issue in PLN's loan negotiations with the Asian Development and World Banks. But given the huge additional capacity to be developed within the next five years, a further cut in losses is imperative.