Indonesia power plant initiative hits snag

Indonesia power plant initiative hits snag

Dark clouds are already looming over the centerpiece of a gigantic
infrastructure improvement initiative announced by the Indonesian government
a year and a half ago.

Plans to build power generation plants with a combined output of 35,000
megawatts, positioned at the core of the initiative to spend 5,400 trillion
rupiah ($413 billion) on infrastructure by 2019, have hit a snag due to
successive cancellations and postponements of bids and delays in the
procurement of land.

Although the government is stepping up efforts to lure investment, such as
upgrading its repayment guarantee, skepticism about its ability to meet the
power generation target is growing stronger.

In April, the state-owned power company Perusahaan Listrik Negara, or PLN,
suddenly canceled a tender for a 2,000MW power plant in Java, one of the
largest power generation facilities in Indonesia. A Chinese-Indonesian
consortium, including an Indonesian state-owned construction company, and a
major Japanese trading house were reported to be preparing bids.

PLN attributed the cancellation to a bungled bidding procedure, without
offering details. It remains unknown when bidding will be reopened.

The bidding procedure was characterized by an extreme lack of transparency,
and investors will shun Indonesia if the situation continues, said Supangkat
Iwan Santoso, former head of the Independent Power Producers Association of
Indonesia.

New power plants that began operating in or after 2015 had a total capacity
of about 170MW, as of the end of June, less than 1% of the target for 2019.
In addition, more than 80% of the land needed to lay electric power cables
has yet to be purchased. Under the circumstances, it is impossible to meet
the target for power generation, Santoso said.

For Indonesian President Joko Widodo, who is seeking to stimulate regional
economies, improving power generation systems is a priority that cannot
wait. His administration plans to meet rising demand for power consumption
in Indonesia, which is forecast to double per person by 2025, while raising
the domestic electrification rate -- or the rate of access to electricity --
to almost 100% from the current 88%.

Funding requirements for the target are estimated at 1,100 trillion rupiah,
roughly equal to Indonesia's annual tax revenue. The government plans to
finance 70% of the sum with investments from the private sector such as
independent power producers, such as independent power producers. At an
international conference in Jakarta in April 2015, Widodo called for
investments from participants, promising them "incredible profits."

The power generation project got off to a strong start. PLN CEO Sofyan
Basir, who was given the post because of the management skills he
demonstrated at a state-owned bank, picked participants in the project one
after another. He signed contracts with independent power producers and
others to buy 17,300MW, half the targeted power output, in 2015 alone. He
intended to conclude contracts by the middle of this year to cover the rest,
according to a person involved in the project.

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Ref:
http://asia.nikkei.com/Politics-Economy/Economy/Indonesia-power-plant-initia
tive-hits-snag

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com