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.