Indonesia needs $28.45 billion to avoid power crisis

JAKARTA (JP): Indonesia needs around US$28.45 billion in new investment over the next 10 years in a bid to stave off a power crisis which has started to hit some parts of the country.

Director general for electricity Luluk Sumiarso said the new investments were needed to add to power supply by 24,549 megawatts (MW), and new transmission networks of 11,648 kilometers in the next 10 years.

"Concern about a potential electricity crisis in the near future is reasonable, since the sector has not been able to make adequate new investment in supply capacity to meet growing demand," Luluk said in his presentation during a seminar on the power industry which was organized by, among others, the mines and energy society, Bimasena.

Based on the national electricity general plan (RUKN), the country's power sector is already at a critical stage. Installed capacity for the Java-Bali system generates only 15,297 MW, while the region requires 16,828 MW to operate within a safe margin.

Power demand in that region could outstrip supply by the year 2003. By that year, the peak load is expected to hit 15,441 MW compared to the installed capacity of 15,285 MW.

To prevent this crisis in the Java-Bali system as well as in other regions, the government hopes to have invested around $3.73 billion in new power plants and transmission networks by 2003.

For this year alone, the government expects investment of $2.34 billion, of which $2 billion is for new power plants, and $340 million for power transmission networks.

But Luluk said due to the lack of funding, the government relied heavily on the private sector to secure the country's power supply.

The country is at risk of descending into a power crisis, after the government decided to delay the construction of power plants by independent power producers (IPP).

The decision followed the 1997 economic crisis, which had crippled energy demand and made the power projects unfeasible.

Coupled with the rupiah's steep fall, IPPs dollar denominated power prices have become too expensive for state electricity company PLN.

PLN bills its power in rupiah rates, which haven't been raised to reflect the rupiah's depreciation to the greenback.

The state company is in renegotiation with most of the 27 IPPs, with which it had signed power purchase contracts.

World Bank's energy sector coordinator, David M. Hawes said the unresolved IPP issue discouraged foreign investors from entering Indonesia's power sector.

Also deterring investors were Indonesia's high country risk, weak legal certainties, and rampant corruption practices, he said during the seminar.

Given the many disincentives, he continued, investors entering the Indonesian power sector would ask for a high rate of return.

Hawes suggested the government restructure the power sector and make it more attractive to private participation.

Luluk went on to say that restructuring the power sector would lay the foundations of an efficient and competitive sector.

Thus the restructuring, he said, would encourage fair and sustainable corporate participation in the power sector.

He added that greater interaction between market players and consumers would ensure fairer spread of the market risks.

"The sector restructuring can be summarized very generally as the reduction in the role of the government particularly in the area of financing the sector," Luluk said.

Among the key issues in restructuring the sector, was to create a pricing policy based on the market.

At present, the government decides the country's power rates, which are still below PLN's production costs.

"The government expects an increase in electricity rates will recuperate costs and will ultimately reach commercially viable levels," he explained.

Luluk expected power rates to reach a commercially viable level at 7 U.S. cents a kilowatt per hour (kWh) sometime in the year 2005. (bkm)