Private Sector Electricity Exec Makes Case for PLN Partnership
Tito Summa Siahaan
State-owned electricity firm Perusahaan Listrik Negara will face major problems if it tries to undertake the task of supplying Indonesia’s 240 million people with electricity on its own, according to the president director of independent power producer Paiton Energy, Low Kian Min.
Paiton is the largest independent power producer in the country. It has plants in Paiton, East Java, with three coal-fired power plants in the province’s Probolinggo district with a total capacity of 2,035 megawatts.
Paiton Energy is a joint consortium between International Power, which was recently purchased by French-based GDF Suez; Mitsui; Tokyo Electric Power; and Batu Hitam Perkasa. It has invested in excess of $4 billion for the construction of its three plants in East Java.
“Indonesia’s needs for electricity infrastructure are huge and PLN cannot do it all on its own. The only way that such a massive task can be undertaken is for private investors to come in and help that trajectory of growth,” Low told the Jakarta Globe in an interview on Friday.
He said investment in electricity should go beyond building power plants. “Electricity also needs investment in the infrastructure of transmission and distribution lines. That is the natural monopoly of a state-owned firm like PLN, and the firm should spend a huge amount of money for that,” he added.
Shoring up the electricity sector will take large quantities of money and time, he said. PLN needs to focus its infrastructure efforts on transmission and distribution lines to spread benefits across the country.
“That is the natural monopoly for state-owned firm, and PLN should spent a large amount of money on that,” he added.
Low said private firms investing in transmission and distribution lines was a waste of money. “You only need one power line,” he added. “Without a doubt, independent power producers will play a much larger role in Indonesia’s electricity supply and the government has regulation to encourage that.”
He said the electricity subsidy is a major constraint for private companies like Paiton to invest in the country.
“Subsidy means that PLN relies on government funds to pay its bill,” the president director added.
Without subsidies, according to Low, PLN will become a self-sustaining company, which will create more confidence for private companies in partnering with the state-owned enterprise.
He said the government needed to allow electricity prices to rise or it should formulate other mechanisms to provide PLN some security in terms of generating revenue.
The government first allowed independent power producers to contribute to the country’s electricity sector in 1992, before it was made official with the law on electricity issued in 2009. There are now 34 independent power producers operating in the country.
The government has ordered PLN to improve the electrification rate, which measures how many households have access to power, to 90 percent in 2015 from 70 percent now. Electricity consumption in Southeast Asia’s largest economy grew 44 percent from 2004 to 2011, according to data from the Energy Ministry.
Private companies contributed 22 percent of electricity production last year.