Indonesia to face power shortage in two years

JAKARTA (JP): Power blackouts may strike many parts of the country in the next one to two years due to power shortages caused by the absence of investment, power firm executives warned on Tuesday.

David Newell of Unocal Indonesia said "all indicators" showed that Indonesia was on the verge of experiencing a power shortage late next year or by 2003.

"Action needs to be taken now, and even then, time may be too short to avoid a significant chance of 'lights out'," David Newell of Unocal Indonesia said in his presentation during a seminar titled Lights On/Lights Out -- Indonesia's Energy Future, held by business consultancy firm CastleAsia.

Yet, he said, new investment would be unlikely, given the lack of funding to finance new power projects.

Neither the government nor local banks have the capacity to take up the task, while foreign investors have long abandoned the country's power sector since the economic crisis hit the country in 1997, Newell said.

Foreign investors are still holding out on investment due to doubts over the country's legal certainty and the slow pace at which the country's power industry is being restructured.

Government data revealed that this year alone, Indonesia needs US$2.34 billion to build new power plants and power transmission networks in order to keep up with demand.

State electricity company PT PLN has warned that by the year 2003, power demand will outstrip supply, when peak demand is likely to hit 15,441 Megawatt (MW), compared to the installed capacity of 15,285 MW.

Newell said Indonesia was one of the most robust power markets in Southeast Asia with an annual 10 percent growth in demand.

Prior to the economic crisis, PLN had signed agreements with 27 IPPs to buy their power in dollars.

But, the rupiah's steep fall against the U.S dollar during the crisis crippled PLN's ability to pay for the power as the state company sells its power in rupiah.

To ease the state company's financial burdens, the government allowed PLN to renegotiate all its 27 contracts with the IPPs.

The move threw many contracts into legal limbo, sending jitters among the international financial market that have provided financing for the IPPs.

"Unocal is unwilling to commit additional capital to the power sector, before a fair and reasonable resolution is reached for the Salak and Sarulla contracts," Newell said of Unocal's efforts to renegotiate its two power contracts with PLN.

The company has invested some US$700 million for its Salak geothermal power plant in West Java, and the Sarulla geothermal power project in North Sumatra.

PT Paiton Energy president Ronald P. Landry warned that a power shortage could hamper Indonesia's economic growth.

He cited data from the Asia Development Bank which said the Philippines's power shortage in the late eighties had led to a 6 percent decrease in its gross domestic product (GDP) growth.

The government's data say a total investment of $28.45 billion was needed to restructure the country's battered power sector over the next 10 years.

Citibank country corporate officer for Indonesia, Michael Zink said during the seminar that Indonesia had to compete with its neighbors to attract capital from the global financial market, citing data from the ASEAN Energy Center that Southeast Asian countries will need a total of at least $69.5 billion until 2010 to meet growing demand for power.

Foreign investors would be looking for power projects across the regions that offer the best yields, he said.

But even if foreign banks agreed to lend their capital to Indonesia, he warned, the cost of such loans would be forbiddingly expensive.

Indonesia's high country risk, and PLN's weak credibility would demand high premium rates on loans from foreign creditors, he explained.

According to him, foreign creditors are put off by Indonesia's poor track record in treating existing IPPs: "Our experience says, you're going to lose the money."

However, Zink continued, creditors recognized the government's efforts to restructure the power sector, but pointed out that progress was too slow.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said during the seminar the government hopes to raise the private sector's role in the power industry.

For that purpose, he said, the government sought to restore PLN's financial capability, to bring its electricity rates to a level which allowed it to fully recover its operational costs, and help it reach long term settlement with the IPPs. (bkm)