JAKARTA - Indonesia, one of Asia’s largest
fuel exporters, now faces dire power shortages,
threatening to hold back an economic recovery
which at 6.3 % reached its fastest pace in a
decade last year. Chronic underinvestment and
fast-rising industrial and consumer power demand
means Indonesia is facing undercapacity
constraints, which the government warns could
reach crisis levels by next year.
The
government is pinning its hopes on a "crash
program" to add 10,000 megawatts (MW) of
coal-fired power, mostly financed and built by
Chinese companies, in a bid to rapidly expand
capacity by over one-third. If the crash program
fails to meet its goals, energy policy could
become a major campaign issue as Indonesia gears
up for general elections next year.
So far
Indonesia’s 26,500MW power grid has not yet
suffered the
drastic
shortages seen throughout the 1990s in China,
India and the Philippines, where frequent
blackouts dragged severely on economic growth. But
Indonesia’s many decrepit power plants are ageing
and the country’s main Java-Bali power grid is
straining to meet demand.
Some analysts
argue that Indonesia already faces a crisis. The
capital, Jakarta, was hit with widespread power
outages in March, as ships carrying coal from
Kalimantan to Java were delayed by stormy weather.
At least two power plants had to reduce
production and power cuts hit several commercial
and residential areas while coal stocks fell to
dangerous levels of only two or three days of
reserves. Critics blamed the mini-crisis on poor
planning. Officials at the state-run power utility
Perusahaan Listrik Negara (PLN) said that power
shortages in March were symptomatic of mounting
strains on the entire grid.
Of 17,500MW of
installed capacity on the Java-Bali grid -
three-quarters of the country’s total - only about
15,500MW is operational at any given time. Many of
the power plants that are up-and-running are old
and inefficient, according to one PLN official who
requested anonymity.
Daily evening demand
peaks at around 15,200MW, leaving a tight 2%
reserve margin, according to PLN. The supply
cushion gets tighter and even falls short of
demand when plants routinely shut for maintenance
or repairs, according to the PLN official.
With abundant natural resources, Indonesia
would seem to be well-placed to meet its domestic
energy needs. The country is Asia’s only member of
the Organization of Petroleum Exporting Countries
(OPEC) and is the world’s largest exporter of
thermal coal and the second-largest exporter of
LNG.
New investment in the power sector
has lagged badly since the Asian financial crisis
of 1997-98, when under financial constraints the
government cancelled billions of dollars worth of
power contracts with some 26 private power
companies or independent power producers (IPPs).
Six years of tortured and lengthy
negotiations over the nullified contracts ended
only in 2003. Meanwhile, Indonesia’s economy began
to emerge from the doldrums of the crisis,
reflected not only in economic growth statistics
but in the rising numbers of electricity consumers
and per capita demand.
A stop-start policy
reform process added to investor confusion.
Indonesia passed a wide-ranging power
liberalization bill in 2002, aimed at breaking up
PLN’s monopoly on sales and distribution. The
bill, modeled on power reform legislation
elsewhere in the world, aimed to instill market
competition through a so-called multi-buyer and
multi-seller model.
That included
provisions allowing for foreign companies to build
power stations and sell directly to the public.
But in late 2004, the powerful new constitutional
court struck down the bill, citing a nationalist
clause declaring ill-defined "strategic"
enterprises should be left in national hands.
Burgeoning power problems later forced the
government to backtrack and devise the crash
investment program in March 2006, which aims to
rapidly add 10,000MW to the national grid. In line
with that policy, PLN last August signed new power
plant deals worth some US$2 billion with China’s
Shanghai Electric Corp and Dongfang Electric Corp.
Some Chinese lenders, according to
Indonesian media reports, had asked for sovereign
guarantees on their power plant agreements - not
all of which have been granted. Those contracts
included a Chinese consortium of Shanghai Electric
Corp and Dalle Energy, which are set to construct
a 945MW coal-fired power plant in Teluk Naga,
Banten, at a cost of $547.4 million in foreign
exchange and 1.89 trillion rupiahs ($207.6
million).
A consortium of Dongfang
Electric Corp and Dalle Energy is also to build a
630MW coal-fired power plant in Pacitan, East
Java, while a consortium of Shanghai Electric Corp
Ltd and Maxima Infrastructure is to establish a
1,050MW coal-fired power plant in Pelabuhan Ratu
West Java at an estimated $566.9 million and 2.2
trillion rupiahs.
Indonesia’s drive to
boost its domestic power output could have supply
effects on the rest of industrializing Asia, where
China’s growing appetite for imported fuels has
intensified regional competition for access to
sources. New power capacity in Indonesia, home to
an estimated 236 million people, will require more
oil fuel, coal, and LNG that previously went to
exports.
Industry analysts estimate that
by 2010, if the crash program goes ahead as
planned, Indonesia will burn over 60 million tons
of coal per year, up from around 30 million tons
at present. Some Energy Ministry officials
speculate privately that Indonesia may follow
China’s lead in imposing export curbs. China
imposed such curbs in January, amidst one of the
harshest winters in decades which badly disrupted
power supplies.
Perhaps no one is more
worried about the power supply issue than
Indonesia’s President Susilo Bambang Yudhoyono,
who is scheduled to run for re-election next year.
One of his central campaign promises in 2004 was
to boost economic growth to 7% per annum, about
the level economists estimate is needed to keep
unemployment down as more young people enter the
work force.
Economists are already warning
that infrastructure constraints, including
inadequate roads and ports, as well as power
stations, risk holding back economic growth. They
note, for instance, that PLN has been imposing
rolling blackouts in outer areas for several years
now. Meanwhile private gas-run generators have
been selling well in Jakarta as households
apparently brace for more power shortages.
Tom
McCawley is a Jakarta-based freelance
journalist.
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