Plugging electricity to private sector

Plugging electricity to private sector

JAKARTA (JP): The government has recognized the need to
quickly increase electricity capacity systematically to ensure
continued economic growth into the next century.

Minister of Mines and Energy Ida Bagus Sudjana recently
announced the government will continue to invite private
participation in power generation by offering attractive
incentives.

"With the private participation, we expect that the increasing
demand for electricity will soon be met," Sudjana said earlier
this month.

He said the government will establish new power plants with a
total capacity of 9,500 megawatts (MW) under state-owned
electricity firm PT Perusahaan Listrik Negara (PLN). Other power
stations, with a combined capacity of 3,000 MW, will be built by
private sector companies by March 1999.

The government also plans to construct about 10,000 kilometers
of transmission lines and 300,000 kilometers of distribution
lines in the same period.

Hong Kong-based Peregrine Brokerage Ltd. noted in its report
on Indonesia's infrastructure that private sector generation will
increase rapidly given PLN's inability to meet the increased
demand.

PLN, which until 1991 had a monopoly on both electricity
generation and distribution, plans to raise its generating
capacity from 13,129 MW to around 39,000 MW by 2004.

PLN estimates it will cost US$60 billion to bring the
generation capacity up to 39,000 MW.

To generate the funds to finance its expansions, PLN
restructured last year and formed two subsidiaries -- PT PLN
Pembangkitan Tenaga Listrik Jawa Bali I and PT PLN Pembangkitan
Tenaga Listrik Jawa Bali II. Both are expected to float shares on
local and foreign stock markets as early as the first half of
next year.

Peregrine projected that power plants with a total generation
capacity of 27,300 MW will be needed to meet the peak load demand
for electricity in 2003. Plans favor boosting PLN's capacity by
16,751 MW by 2004 and bringing 8,805 MW of private-sector
capacity on stream.

Lagging

Peregrine noted that expansion of transmission and
distribution networks has lagged behind generation capacity,
significantly contributing to frequent blackouts.

"Demand growth will clearly continue to suffer unless adequate
supporting infrastructure is developed. Reports state Indonesia
has more frequent outages than some of its regional neighbors
because of poor transmission and distribution facilities,"
Peregrine said in its report.

According to the Central Bureau of Statistics 1993 report,
average service interruptions were put at 12.3 per customer a
year in Jakarta and 14.3 across Indonesia. Regional peers had
interruption rates near 10.

The statistical report also indicated that 88 percent of urban
households were supplied by PLN, while only 34 percent of rural
households were PLN customers.

Of the total current capacity of 13,129 MW, about two thirds
is contained within the Java and Bali interconnected grid.
Outside this grid, PLN operates 650 small diesel or oil
generators.

Peregrine said the shortcomings of the PLN grid, particularly
its inability to supply the country's expanding industrial base,
has prompted a surge in the captive generating capability.

Captive generating capability, which is installed by users, is
believed to account for 8,800 MW, or 40 percent of the total
installed generating capacity in Indonesia.

The bulk of the captive supply was installed in the 1980s when
demand for electricity surged, particularly in the industrial
sector.

Sudjana noted that to meet the growing electricity demand, the
government prioritizes the use of new and renewable energy
resources, including hydroelectric and geothermal power.

"New and renewable energy resources in Indonesia have not been
able to be developed commercially yet and thus they are still
classified as pilot projects. We hope to develop these resources
on a commercial basis in the near future," Sudjana said.

He said geothermal potency could reach 19,000 MW, but only 310
MW has been developed.

"However, there has been an increase in activities to explore
geothermal resources for electricity," he said.

Peregrine noted that geothermal resources remain the least
tapped source by PLN and the private sector. It further noted
that the pricing of geothermal energy might be a problem in
regards to stimulating private-sector interests.

New incentives

To attract private participation in geothermal energy, Sudjana
said the government will soon offer a new package of incentives
to private investors.

"We are at the final process of deregulating the geothermal
activities," Sudjana said, without elaborating.

He added that the state oil firm Pertamina plans to develop
geothermal power generation in Bali in a joint venture with Bali
Energy. The venture will set up eight plants with a collective
capacity of 400 MW.

In addition to geothermal energy, Sudjana said Indonesia is
also seeking ways to increase utilization of hydroelectric power
resources, which have a total potential capacity of 75,000 MW.

Despite the huge potential capacity of the hydro-power
resources, there was only 2,215 MW on the PLN grid last year,
representing 17 percent of its total capacity.

A consortium, comprised of PLN, state-owned general mining
firm PT Aneka Tambang and PT Iroda, plans to establish a 96 MW
hydro-power plant in Pomala, South Sulawesi, to supply Aneka
Tambang's nickel mine.

Plans favor boosting hydro-power capacity by around 900 MW by
March 1999.

The government is also pursuing coal-fired electricity
generation. Indonesia has an estimated 32 billion tons of
untapped coal reserves.

Annual coal production was estimated at 25 million tons last
year, but is expected to increase to over 70 million tons by
2000.

PLN currently operates coal-fired power plants in Bukit Asam,
South Sumatra, and in Suralaya, West Java. The latter has an
installed capacity of 1,600 MW, which will be increased by
another 1,800 MW.

PLN has also approved three coal-fired power plants in East
and Central Java, controlled by three major independent power
producers. Each will have a capacity of around 1,300 MW.

The Paiton I project in East Java, the first independent power
producer established, is 32.5 percent owned by Mission, 20
percent by General Electric -- both of the United States -- 32.5
percent by Mitsui of Japan and 15 percent by Batu Hitam Perkasa
of Indonesia, which is controlled by Hashim Djojohadikusumo.

The Paiton II project, established last year, is 50 percent by
Siemens AG of Germany, 35 percent by PowerGen Plc. of Britain and
15 percent by businessman Bambang Trihatmodjo.

The third project, in Central Java, is controlled by Hong
Kong-based CEPA, a subsidiary of Hopewell Holdings.

In addition to the three major projects, PLN also awarded a
400 MW coal-fired power project in West Java to the consortium of
Ansaldo of Italy, North Resources Group of the United States and
PT Asiani Tujuh Dua of Indonesia, which is controlled by timber
baron Mohammad (Bob) Hasan.

On Monday, PLN clinched a power-purchase agreement with a
consortium of the Risjadson Group of companies for the
construction of coal-fired power units in Sibolga, North Sumatra,
and Amurang, North Sulawesi. They will have a combined capacity
of 310 MW.

Gas

In addition to the coal surplus, Indonesia also has an
estimated 101 trillion cubic feet of proven and probable natural
gas reserves and another 126 trillion cubit feet of possible
reserves.

PLN's combined-cycle gas generation capacity stood at 2,817 MW
last year, or 21 percent of its total grid. Plans favor the
addition of 3,344 MW by March 1999 and another 400 MW by March
2004.

PLN has approved a 500 MW gas-fired plant in Grati, East Java,
which is controlled by Enron Corp. of the United States and PT
Java Energy Power, a company controlled by Ibrahim Risjad.

PLN, which once depended on oil-fired generation, stopped
concentrating on this source in the early 1980s.

At the end of the first long-term development period in 1994,
oil-fired generation capacity accounted for 49 percent of PLN's
total grid. Plans favor bringing 466 MW of capacity on stream by
March 1999. There will be no additional capacity increases until
March 2004.

This means that PLN's oil-fired share of the total will drop
to 11 percent by 1999 and 9 percent by 2004. If the private-
sector generating capacity is included, which is mostly coal-
fired, this share becomes even smaller.

The government is considering nuclear-power to supplement
growing demand.

The government has established the Atomic Energy Agency to
conduct a feasibility study for the establishment of a nuclear
power plant on Mt. Muria in Central Java. The status of the study
and the likelihood of the project proceeding remain unclear.
(rid)