Indonesia's energy expansion: Delayed and uncertain

Indonesia's energy expansion: Delayed and uncertain

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.

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.

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Ref:
http://www.lowyinterpreter.org/post/2016/09/13/Indonesias-energy-expansion-D
elayed-and-uncertain.aspx

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com