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Indonesia's energy expansion: Delayed and uncertain

Indonesia's energy expansion: Delayed and uncertain
Published 13 Sep 2016 

Indonesia’s ambitious 35,000 MW (megawatt) electricity expansion is falling behind schedule. How the project will be expedited in the context of organisational changes within government is unclear, as is the status of remote power delivery and progress on renewables.

A decision in May by state-owned electricity operator PLN to cancel the tender process for the 2000 MW Java 5 power plant as it neared the final stage, as well as delays in construction of a further 10,000 MW worth of new plants, make it impossible to meet the schedule set by the President Joko Widodo. Acting Minister for Energy and Mineral Resources (EMR) Luhut Panjaitan expects only 20,000 to 25,000 MW of new generation plants to be commissioned by the target date of late 2019.

Complicating the Java 5 situation has been a recent decision by PLN to directly appoint a subsidiary company, Indonesia Power, to develop the project. Luhut stepped in to rebuke PLN in early September, insisting that the Java 5 plant be procured through a new tender process. In June, PLN was admonished by then-Minister Sudirman Said for defying government electricity policies.

Luhut has made some bold changes to the ministry, despite only being in the job for the last month after the previous minister Arcandra Tahar was dismissed over citizenship issues. Luhut has disbanded ad hoc units that were established to coordinate the electricity project, facilitate development of renewable generation, oversee development of downstream processing, and coordinate resources policy. These responsibilities have been given to line branches within the ministry. Luhut’s stated rationale is that line agencies must be able to deliver government policy and projects. [fold]

A key function of the ad hoc units was to work with other ministries and with the private sector to ‘de-bottleneck’ delivery of electricity infrastructure. For example, coordination by the project management office overcame lengthy land acquisition delays for the Japanese-funded Central Java Power Plant and contract complications, due to a requirement by the central bank  for transactions to be undertaken in Indonesian rupiah. It is not clear how such cross-government and private sector coordination will be achieved under the new arrangements. A recent budget cut of Rp1.6 trillion (AU$160 million) to the EMR Ministry, out of total ministry and agency budget cuts of Rp65 trillion (AU$6.5 billion), will also limit available resources.

While the 35,000 megawatt project has fallen behind schedule, demand growth fallen is also trailing projections. Demand on the Java-Bali system was forecast to rise 7.5% in 2015, but rose only 1.5% (largely as a result of lower economic growth than what was forecast, but possibly also due to lack of reliable electricity supply dampening commercial investment). Reliable and competitively-priced electricity is key to new investment that will accelerate economic growth in Indonesia.

Despite the immediate reprieve for new supply requirements, demand growth is still putting system reliability under pressure. A priority for PLN is to keep the reserve generating margin above 30%. PLN is understood to be planning to construct rapidly new gas-fired generation, to be fired by on-shore gas reserves from East Java.

Longer term, a Sumatra-Java high-voltage link is needed to reinforce the electricity system and provide markets for now high-efficiency and low-cost coal-fired power stations located on coal fields in Sumatra. PLN’s planning for the Sumatra-Java link is understood to have been delayed, with an uncertain delivery timetable.

President Jokowi has understandably emphasised the need for additional and more reliable electricity supply in the islands of Eastern Indonesia. The government has also set a target of 25% of national supply being derived from renewables by 2025.

The future of a new, separate company to PLN that was planned to procure remote power generation is now uncertain, while the Task Force for Accelerated Development of Renewable Energy has been folded into the Electricity Directorate-General. Any impacts on processes and timetables for remote and renewable electricity supplies remain to be seen. It’s also unclear when Jokowi will appoint a new minister for energy and mineral resources and what skills that person will bring to the portfolio.

What is certain is that the Indonesian government will need to meet the social, economic and political imperatives for enhanced electricity supply not only to Sumatra, Java and Bali but also to the 6000 inhabited islands beyond these heavily populated regions. A key focus of the new minister therefore will be ensuring that the delayed 35,000 MW project does not fall even further behind.

Photo: Getty Images/Bloomberg

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