Impossible Dream? Jokowi’s 35,000-MW Power Target i

President Joko Widodo with Minister Sudirman Said and North Maluku Governor Abdul Ghani at Solar Power Plant in Daruba, District Morotai Islands. Yudhi Mahatma/Antara Photo

By : rudi_pandjaitan | on 2:15 PM July 01, 2016
Category : Special Reports, NEED TO KNOW

By Concord Consulting

President Joko Widodo on June 9 witnessed the signing of the financial agreement to support the 2,000-MW Batang power station in Central Java, an essential part of his drive to add an additional 35,000 MW of capacity by the end of his first term.

The signing ceremony followed the long-awaited decision by the Japan Bank for International Cooperation (JBIC) that it would, despite earlier doubts, fund the project.

Before JBIC’s announcement, the president had been busy flying around the country, inaugurating or attending the groundbreaking of new power plants. Everyone needed to do their part in getting the 35,000-MW power plant program up and running, he told a crowd in Gorontalo.

“Every time I visit any regions, I have always asked about complaints. They gave the same answer: electricity, frequent blackouts,” he was reported to have said. “We will chase this issue, but we have to share work loads. Central government should assist in land procurement, for the construction to continue in the regions.”

Only a month earlier, Minister for Energy and Natural Resources Sudirman Said admitted that progress on the power program had been less than spectacular. The president had ordered a review of the program, he said. “(Widodo) emphasized that there should be a thorough review while the deadline is still a long way off, so that we don’t encounter obstacles when we’re already halfway,” he told reporters.

“Investors and business people have started to question if we can finish this or not,” the minister admitted. While power purchase deals have been signed for around 30% of the projects, only 10% was under construction.

Bitter reality

Few believe the target is achievable. Scott Younger, a partner at infrastructure consultants Glendale Partners and a GlobeAsia columnist, is blunt. “PLN hasn’t a snowball’s chance in hell of achieving 35,000 MW. They know it and so do thinking ministers.”

He adds that the figure of 35,000 MW of new power capacity is simply a statement of what needs to be done. “During the last government, it should have been doing 2,000 MW per year but only managed 720 MW in total over the whole period. There was no drive from the top and bureaucrats were not challenged.”

Soon after he was appointed Coordinating Minister for Maritime Affairs and Resources, Rizal Ramli created a stir when he questioned the wisdom of the target. He went so far as to announce that the program was being scaled back by half.

“We have to look at everything factually and logically,” Ramli said at the time. “There is no way that 35,000 MW will be achieved within five years.” A target of an additional 16,000 MW by 2019 was more realistic, he said, adding that the initial plan was not viable because state-owned utility PLN did not have the ability to use all of the added capacity but would still need to pay for it.

 

“Investors and business people have started to question if we can finish this or not,” the minister admitted.

 

Ramli immediately came under attack for changing the policy that the president himself had set in place. Within weeks, Widodo had demanded that the program be accelerated, not cut back. Nine months on, the 35,000 MW target still seems unrealistic.

The country continues to wallow in red tape, with critics stating that the lack of separation between the agencies that create regulations and those that implement projects is part of the problem. There is too little coordination between bodies responsible for power creation and its distribution.

Rizal Djalil, a senior official at the State Audit Board (BPK), told a recent seminar that an audit of the government’s former “crash program” had found that the failure to construct 3,800 power pylons and 22 sub-stations meant that additional capacity could not be used. “PLN is still paying for the additional capacity but can’t use the power,” he said.

Mockups of Lontar Electric Steam Power Plant on display with a background is the construction of the power plant at Lontar Village, Tangerang, Banten. Yudhi Mahatma/Antara Photo Mockups of Lontar Electric Steam Power Plant on display with a background is the construction of the power plant at Lontar Village, Tangerang, Banten. Yudhi Mahatma/Antara Photo

 

The crash program that crashed

The crash program’s dismal record suggests that it will be virtually impossible for Widodo to deliver on his promise of an additional 35,000 MW of power by 2019.  Initiated in 2006, the so-called crash program aimed to build an additional 10,000 MW of capacity and was closely followed by another program of the same size to develop a similar amount of electricity, with more emphasis on renewables.

At the end of the second term of President Susilo Bambang Yudhoyono, the government announced that the first of these programs would miss its end-2014 deadline, which had already been extended from the end of 2009. A ‘crash program’ that is more than five years late is certainly a misnomer.

In some respects, the crash program was counter-productive. Many of the coal-fired projects that were built went to Chinese firms which paid little attention to pollution. At one Chinese-built plant at Labuan in Banten province, the turbine cracked soon after start-up, necessitating a complete rebuild. Other plants such as that at Cirebon in West Java were so dirty that local communities were alienated. Word spread that power plants meant trouble, hardening resistance.

Bureaucratic obstacles

PLN is part of the problem. Komaidi Notonegoro, the executive director of Jakarta-based energy research group ReforMiner Institute, said in May that PLN had only recently submitted an electricity procurement business plan (RUPTL) to the government, six months behind schedule.

“Since the beginning, ReforMiner has warned that the program cannot be completed by using a business-as-usual approach. It needs a breakthrough in land acquisition and coordination with local governments to succeed,” Notonegoro told reporters.

Based on ReforMiner data, 113 power plant projects were constrained by land clearance issues. Many new planned plants had not been included in provincial spatial plans (RTRW). According to Notonegoro, only 51% of the projects were included in the RTRW in their respective areas.

One problem solved, another appears

Scott Younger, along with others, believes the land acquisition process is yet to be cleared up. That was the major stumbling block for the Batang project.  Construction was meant to begin in 2012 but it was repeatedly delayed as residents objected to the project because of fears it would pollute the atmosphere and destroy their livelihoods. Backed by local and international environmental activists and even the local branch of the Nahdlatul Ulama religious organization, they refused to sell their land.

President Joko Widodo rather optimistically broke ground for the plant last August, despite some 20 hectares of land still being withheld. The government then exercised the 2012 Law on Land Acquisition for public infrastructure projects to seize the remaining land and assign compensation for residents in a district court. A last-ditch effort by residents to overturn the decision was rejected by the Supreme Court in February. The ruling proved that the land acquisition regulations can be effective but applying them appears to be a case-by-case process that can get tied up in the courts.

Given all the bad news about Batang, JBIC got cold feet. The Japanese parliament had been lobbied by conservationists, creating a tide of negative opinion in Japan itself.

JBIC CEO Hiroshi Watanabe said at the end of April that the bank had not decided whether to fund the $4 billion project. He said on April 22 that “we haven’t decided to offer a loan to the project,” adding that “we understand we need to watch the local project construction contractor to ensure they do not harm the environment.”

On June 3, JBIC finally made up its mind. It said in a statement that it had agreed on a $3.4 billion loan for the controversial project. JBIC will contribute just over $2 billion with other Japanese banks making up the total. That should allow a start to begin on construction, assuming environmentalists do not have any more plans to disrupt the project.

Concerns over environmental impact are also dogging plans to construct a second unit at the Cirebon PLTU with a capacity to generate 1,000 MW of electricity. That project, estimated to cost $2.1 billion, was also to be funded by JBIC. The first unit at the 660-MW Cirebon PLTU began operations in July 2012, and experienced an explosion in September 2014, causing injuries to several workers. High pollution levels upset the local population.

Dhana_Kencana_Jaringan_Listrik-3Investment interest

There is no doubt that there is interest to build new generating capacity, particularly from the coal industry, but it is the ability to get projects off the ground that remains the problem.

Power development is the single critical element in Indonesia’s attempts to get its economy moving at a faster rate. Without guarantees of reliable power supplies, Indonesia’s increasingly attractive conditions for investment are likely to be heavily discounted.

Some provinces, such as North Sumatra, are unable to attract new investment because of a shortage of power. The province is seeing its industrial base shrink as factories are forced to close because of the regional power crisis.

One attempt to boost power capacity went badly wrong. The Sorik Marapi geothermal project would have gone a long way to alleviate the province’s power deficit of 300 MW but rejection by elements of the local community made it impossible to proceed. Rumors were spread that geothermal projects raise the risk of earthquakes and suck groundwater up, to the detriment of farmers.

Those fears are based on long-outdated problems with the industry, which now uses closed cooling systems that don’t use large amounts of water. The fear of earthquakes is not based on anything more than irrational fears, with the industry operating for decades without problems.

But rationality does not always bring success. Arguments that the project was necessary to alleviate the province’s electricity deficit, or that it would assist national development, were useless in the face of intense propaganda that the way of life of local people in Mandailing Natal would be dramatically altered.

 

Power development is the single critical element in Indonesia’s attempts to get its economy moving at a faster rate. Without guarantees of reliable power supplies, Indonesia’s increasingly attractive conditions for investment are likely to be heavily discounted.

 

In March that year the central government said it fully supported the continuation of the project, but was seen to do very little to resolve the problems.

Indonesia is estimated to have up to 29 GW of geothermal potential, of which only a small proportion has been tapped. The problem is how to achieve that in the face of poor coordination between central and local governments and extremely active interest groups opposing geothermal projects.

Distribution systems must be improved

New power plants also require improved distribution systems. PLN’s requirement to build 10,000 MW of new capacity has been cut to 5,000 MW so that it can concentrate more on distribution systems. But in South Sumatra, land acquisition is proving problematic, with plantation companies refusing to hand over land.

Global power company ABB Group, which is throwing its weight behind the attempt to improve transmission systems, has warned that Indonesia is likely to see more power shortages in the future, with the country’s middle class boosting demand. The government has forecast that demand is likely to rise by 9% per year.

In the face of such calculations, a failure to get even half of the 35,000 MW program completed by 2019 will mean that supply will continue to chase demand. Many are pessimistic that even that goal can be achieved.

Concord Consulting is a Jakarta-based risk advisory firm. It can be contacted at info@concord-consulting.com

 
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