Power crisis getting worse, darker than ever

Power crisis getting worse, darker than ever

Fitri Wulandari, The Jakarta Post, Jakarta

The power crisis, which started several years ago, became
worse this year and the problem is likely to continue haunting
the nation in upcoming years.

If, in recent years, rotating blackouts mostly occurred on the
remote islands outside of the Java-Bali grid, where electricity
has always been scarce, this year the blackouts became a reality
for those living on Java and Bali as well, the country's most
densely populated islands and the centers of business, tourism
and government.

In May, power shortages hit the Java-Bali grid when four large
power plants had to stop operations for overdue maintenance.
State-owned power firm PT Perusahaan Listrik Negara (PLN) had to
start doing rotating blackouts on the two islands as the
maintenance work reduced the capacity of the system by 700
megawatts (MW).

A particularly long dry season and drought exacerbated the
problem as hydropower plants on the islands could only work at
around half of their capacity for several months as reservoirs
and rivers dropped to unprecedented levels. At the peak of the
drought, power supply was reduced by between 900 to 1,000 MW.

Power problems started to hit the capital city of Jakarta as
well. Many fear that a major power outage such as the one that
occurred on the North American east coast in August this year
could hit the capital at any time.

The crisis forced the government to put on hold overhauls of
power plants, buy captive power from private companies and launch
an energy-saving campaign.

The World Bank warned that if the power crisis continued, it
would undermine the country's modest economic growth rate.

"If Indonesia's growth were to take off in earnest again, it
would quickly run into major bottlenecks in infrastructure,
notably power," the bank said in its report released 11 months
ago.

It would affect all parts of the economy, particularly small
businesses, as, unlike the large ones, they would not be able to
afford to build their own power reserves, the Bank said.

The power crisis did not come without a warning. Following the
government's decision to cancel and/or postpone most major power
projects in the wake of the financial crisis in 1997, many warned
that the nation would have to deal with a major power crisis once
it started to recover from the economic crisis and power demand
increased.

The prediction came true as several areas started experiencing
power shortages as early as 2001.

PLN data shows that in the first quarter of 2003, power demand
grew by 6.3 percent or nearly double the country's growth of
gross domestic product (GDP) and higher than PLN's own projection
of 4.17 percent.

While the demand is increasing rapidly, supply remains
stagnant.

The nation's total installed capacity at present stands at
22,000 MW. The Java-Bali grid takes the largest bite of that with
installed capacity of 18,661 MW or around 80 percent of the total
installed capacity for some 60 percent of the country's
population. The remaining 3,339 MW capacity is distributed across
the thousands of other islands across the archipelago.

Of the 18,661 MW installed capacity in Java-Bali system, PLN
can only supply between 13,305 to 15,254 MW as the remaining
capacity is used for PLN's own operations or must undergo
routine, rotating maintenance. As the peak load ranges between
12,000 MW an 13,250 MW, it leaves a minimum operational reserve
of between 143 to 1,427 MW.

Ideally, the system needs a minimum reserve of over 615 MW or
as high as one large power plant to be adequately prepared for
any disruption at one power plant.

PLN acknowledged that the Java-Bali power grid now operates
with an overly thin reserve.

"Our reserve has been depleted. Consequently, if we can't meet
the minimum standby reserve, we will go into alert mode," PLN's
President Eddie Widiono said.

Making up for the shortfall is unlikely to happen in the near
future.

The newest power plant project that will go on stream is the
Muara Tawar power plant in Bekasi, West Java which is expected to
generate an additional 700 MW. The project is due to be completed
in June 2004.

However, in 2003, the government managed to renegotiate power
purchase agreements with 26 independent power producers (IPP) who
own a combined 10,000 MW power projects worth US$15.1 billion.
The projects were suspended after the economic crisis in 1997 and
caused lengthy disputes between PLN and the power producers.

Most of the projects have been relaunched but none of them is
expected to become operation any time soon. Among the projects
which immediately started construction after being relaunched by
the government is the 1,329-MW Tanjung Jati B power plant in
Central Java. The power plant's first unit is set be operational
some time in 2006.

PLN has repeatedly said that in order to provide enough power
supply to support GDP growth, PLN needs some $5 billion of new
investment for the period between 2002 to 2006 and another $28.5
for the 10 years after that.

PLN can only expect funds from external sources to cover the
investment as it is still struggling to recover from financial
problems caused by the financial crisis. The sharp rise in the
dollar dealt a heavy blow to the firm as it sells its electricity
in rupiah, while it pays 70 percent of its expenses in U.S.
dollars.

Since 1998, the company has remained in the red except in 2001
when it made a relatively small net profit of Rp 180 billion. But
in 2002, the company was in the red again, posting a net loss of
Rp 6.06 trillion.

The lack of financing is cited as the reason for PLN's
increase power rates that it passes on to customers. The
government permitted the firm to increase prices on quarterly
basis starting in early 2002 until 2005 when the average rate is
expected to reach 7 U.S. cents (about Rp 600) per kilowatt-hour
(KwH) and allowed the power firm to reap a profit. However, in
October of this year, the government nixed its regular power rate
increase in order to prevent massive social unrest ahead of next
year's general election.

Power rates, at present, are Rp 574 per KwH or 6.79 U.S. cents
based on the exchanging rate of Rp 8,500 per the U.S. dollar.

The company said the current rate was still too low to attract
foreign investors, who might otherwise be interested in building
power plants in the country. Especially, since pre-1997 rates
were already at 7 cents per kWh.

However, the increase in the power rates sparked protests from
the public. Most people have blamed PLN's losses on the firm's
inefficiency and corruption.

Non-government organizations (NGOs) that deal with corruption
issues said that the power crisis could have been completely
averted if the company ran their facilities and managed the peak
in an efficient, honest manner.

They also blamed PLN's high costs on its failed fuel
management. The firm uses fuel oil instead of natural gas in many
of its power plants. Not only is fuel oil more expensive than
natural gas, it also cuts a power plants' lifespan.

PLN spends Rp 15 trillion annually to buy fuel oil and Rp 5
trillion for natural gas.

PLN has acknowledged that by using natural gas, the company
could save between Rp 8 trillion to Rp 10 trillion (nearly $1.2
billion) in overall expenses each year.

While there is no immediate plan to prevent a major nationwide
power calamity, the government has gone ahead with the
liberalization of the power sector in accordance with the
Electricity Law No. 20/2002. The spin-off of various business
units of PLN in late November was an initial step to start that
process.

If the liberalization goes as planned, the Java-Bali power
grid will be open for competition for any company, foreign or
domestic, to invest in various power projects from power
transmission and generation to sales.

While supporters of liberalization say the natural economic
competition will promote transparency and lead to lower power
rates, opponents warn that the end-user prices will soar after
liberalization.