The great power push

By webadmin on 12:16 pm Aug 06, 2012
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Tito Summa Siahaan

Of all the giants among Indonesia’s state enterprises, electricity firm PLN probably has the most daunting task. Under constant pressure from both the government and the public, PLN must find a way to satisfy growing demand for power from the country’s 240 million people. GlobeAsia talks to PLN president director Nur Pamudji.

Producing and distributing a steady supply of power across the many islands of Indonesia, reducing the ‘development gap’ between different parts of the country, and finding ways to deal with the rising cost of electricity subsidies is a recipe for headaches for whoever is in charge at state power utility PLN.

President director Nur Pamudji, who took on the job when his predecessor Dahlan Iskan was promoted to the Ministry of State-Owned Enterprises last year, is fully conscious of the scope of his job.

His top priority is meeting Indonesia’s soaring electricity demand, and Nur acknowledges that he has to look well into the future, well beyond his likely occupancy of PLN’s top post. “We must set the process in motion in earnest. We have a working program for the next 10 years, detailing which power plants will be constructed. The process must start right now or the stages will not be realized in time,” he stresses.

PLN expects electricity demand to reach 328.3 terrawatt hours (TWh) in 2020, more than double last year’s figure of 162.4 TWh. In its working plan, PLN states that at least $60 billion is needed to fulfill the soaring demand.

In the early years of the current administration, it planned two consecutive 10,000 MW generation expansion programs, with both to be ready by 2014 to add to the existing 30,000 MW. The programs are nowhere near completion, with difficulties in acquiring land emerging as the usual suspect for the failure to meet schedules.

“We admit that there’s delay, of all the projects only one was completed on time, the 2X300 MW coal-fired power plant in Banten. But we have learned a lot from the process, like which partners can hold their end in the bargain,” notes Nur.

Despite the slow rate of commissioning of new power plants, Nur is not defeated and instead is working on other targets, not least achieving close to 100% electrification across the country, compared to the current 73%, which leaves many Indonesians in the dark. Nur believes this target can be achieved by 2020 if funds are available. 

Beyond subsidies

The government’s subsidies for fuel and power are among the most contentious issues in Indonesia. Often politicized, PLN has little say on the matter. Last year, it reported net income of Rp7.1 trillion, but the story would be very different without the Rp93 trillion electricity subsidy.

The government set the electricity subsidy at Rp65 trillion in this year’s budget but that figure was expected to swell to Rp89.1 trillion. The government had planned to increase power tariffs but then dropped the plan in the face of widespread rejection from both the public and business.

Nur says that the increase in the electricity subsidy figure is due to upward movement in energy prices, another factor over which PLN has little control. “In non-fuel costs, where PLN has full control, we only saw a 3% increase, below the country’s inflation rate,” Nur points out.

According to PLN’s 2011 financial statement, expenditure for fuel and lubricants was Rp120 trillion, 63% of the firm’s Rp193 trillion total expenditure and 43% more than the figure for expenditure in 2010, Rp84 trillion.

Nur admits that the government needs to formulate a better, more targeted subsidy policy. “The largest beneficiary of Indonesia’s electricity subsidy is Soekarno-Hatta international airport, and others are large malls in Jakarta. Meanwhile for industries, the cost of our electricity subsidy spending for the top 10 largest beneficiaries comes in at trillions of rupiah,” he states.

PLN intends to reduce consumption of fuel as a source of electricity. As a former oil-rich country, Indonesia’s current over-reliance on expensive energy is a known fact. In the old days, a small gasoline-fired power plant would be used to bring electricity to cities. This was convenient, given that it required little infrastructure such as transmission lines.

But as Indonesia became a net oil importer and energy prices rose, the time came to construct a new paradigm for powering the country. Accordingly, PLN has been working to improve its energy mix. Last year, expensive gasoline accounted for 23% of PLN generation. “By the end of this year, the figure will be 13%, while the contribution of cheaper coal will be increased to 50% from last year’s 43%,” says Nur.

In the future, more large power plants will be able to generate enough electricity to power several cities. The key is better transmission and distribution lines. Of the $60 billion investment needed by PLN, around $27 billion will go to this essential infrastructure. It will spend around $2.3 billion just for an undersea cable connecting the Java and Sumatra power grids, with 2016 set as the date of completion.

“We also plan to connect Sumatra with Malaysia by underwater cable, so that we will not only export raw material but also electricity.” He claims that, starting in 2017, Indonesia will export 600 MW of electricity to Malaysia. “The MoU has been signed,” he says.

More independent power producers (IPP) are needed to contribute to supply. “We can not make all this investment by ourselves,” says Nur. His comment echoes a statement by Low Kian Min, president director of Paiton Energy, the largest IPP in the country, who says that PLN will face major problems should it try to undertake the massive expansion program on its own. “In the future, IPPs will contribute 40% of Indonesia’s electricity demand,” Nur predicts.

Nur also speaks of the need for PLN to secure its energy supply directly at source. PLN has applied this measure in securing commitments on coal supply, and intends to do the same for gas, working with state-owned gas distribution firm PGN, which has a near-monopoly status in the business. “Not only will this reduce the price but it will also ensure a steady supply of energy for PLN,” he adds.

He notes that PLN has become more efficient in its efforts to bring electricity to more Indonesians. “According to a World Bank report, the amount of electricity lost along PLN’s transmission and distribution lines has dropped to 9.9% in 2010 after previously reaching as high as 16.5%. This is lower than India’s (loss rate of) 27.2% and Brazil’s 16%,” he states, adding that he is optimistic that the figure can be brought down further as the country invests heavily in transmission lines.

Energy security

Indonesia remains fortunate to have a range of energy sources, with many different options and solid reserves. Resources giant BP’s world energy outlook states that Indonesia’s proven coal reserves stood at 5.529 billion tons as of 2011, while proven natural gas reserves were 3 trillion cubic meters.

The government also intends to develop renewable energy as a main source of electricity, increasing its contribution from a current 5% to 25% by 2025. It has already made a push to develop the sector. In geothermal energy, with 40% of the world’s reserves, additional incentives will be used to encourage development.

Energy and Mineral Resources Minister Jero Wacik announced in July that PLN will increase the purchase price of electricity produced from geothermal sources from 9.7 cents per kilowatt hour to between 10 and 17 cents per kilowatt hour, significantly higher than the price from coal-fired power plants.

Nur admits that, as a commercial entity, PLN prefers cheaper energy sources, but understands that better incentives are needed to help improve Indonesia’s energy security. “Geothermal can only be used for electricity, it is green and durable,” he points out.

Although the current installed capacity of Indonesia’s geothermal power plants is a mere 1,200 MW, it still accounts for 5% of the country’s electricity because plants can run almost uninterrupted. “This durability puts geothermal energy as the top priority,” he notes.
Nur says that he intends to run PLN like a public company. “We must adhere to standards and procedures implemented at listed companies and impose good corporate governance,” he adds. Although there has been no request for improved standards from the owner of the company – the government – he believes the move is appropriate.

And, says Nur, subsidiary PLN Batam is expected to go public late this year, marking a milestone for PLN as it moves to become a more professionally-managed company. GA