The Southeast Asian country has declared its intention to ramp up its electricity generation, and the private sector is expected to be a key part of the process. While the government is striving to cut the red tape, work still remains to be done, finds Ranajit Dam

As Indonesia progresses on its road of economic growth – and towards becoming a key member of the ASEAN Economic Community – one of its biggest stumbling blocks is a shortage of electricity. Some 50 million people in the currently have no mains power at all, and the shortage will grow even more acute over the next decade, when an expanding middle class is expected to increase electricity demand by 9 percent annually.

To counter this shortfall, Indonesian president Joko Widodo, or Jokowi, has announced an ambitious plan of building 100 power stations in five years. “The government of Indonesia’s target as stipulated in its midterm development plan of 2014-2019 is to achieve an electrification rate of 96.6 percent by 2019 by bringing about capacity improvement, and also developing additional capacity of 35,000 megawatts (MW),” says Irawati Hermawan, managing partner of Hermawan Juniarto.

This plan, which aims to nearly double Indonesia’s present power output, will require a massive expansion of the role played by the private sector. Independent power producers (IPPs) currently provide around a fifth of the country’s electricity, with the rest coming from the State-owned utility company PLN. “The government is inviting more participation from private sector through its IPP scheme, while PLN will be in charge of projects with a capacity of 5MW to 10MW only,” says Juniarto.

DE-BOTTLENECKING

Ambitious plans aimed at drastically increasing electricity output are not new to Indonesia. The year 2006 witnessed the announcement of the “First Fast Track” programme of 10,000MW of new power generation; four years later was the “Second Fast Track” programme of 10,000MW more. Scepticism greeted both, primarily due to the tangled mess of Indonesian laws and regulations that awaits companies looking to get into Indonesia’s power sector. But Jokowi has promised that this time will be different.

The Presidential Regulation No. 4 of 2016 on Acceleration of Power Infrastructure Development, or PR 4/2016 for short, covers a gamut of issues, but two in particular stand out. One is the introduction of a government guarantee for development of power projects, covering both projects developed by PLN, and those projects developed by PLN in cooperation with IPPs or their subsidiaries. The second is a shorter time period to obtain necessary permits for development of power generation projects.

Hermawan says that the existing regulatory framework enables private sector participation in the power sector through a public-private partnership (PPP). “Through this scheme PT PLN is entitled to tender out power projects to national and international companies,” she says. “The preferred bidder will later sign a power-purchase agreement PLN as the off-taker. Under the PPP scheme the government offers a guarantee of the payment capability of PLN.” Additionally, private companies can enter into a business-to-business arrangement with PLN, but there are no government guarantees available under this scheme, she adds.

POSITIVE SIGNS

According to Hermawan, land acquisition is the biggest challenge for companies looking to enter into the sector. “The process may take years, and this could result in a great deal of uncertainty,” she notes. To assist with this, the government has issued a land acquisition law and accompanying regulations that expedites the land acquisition process to 583 days.

But that’s not all. The government has also established a team to accelerate power project delivery, issued a “one-door” policy within the Investment Coordinating Agency to expedite licenses, set up a State-owned company called the Indonesia Infrastructure Guarantee Fund (IIGF), and also established a committee to prioritise key projects, says Hermawan..

That said, more needs to be done. “The government needs to expedite the project preparation, which covers identification of projects, preparation of feasibility studies and tender documents,” says Hermawan. “The acceleration of the tender process under the PPP scheme, by empowering PLN on the preparation, transaction and negotiation of power purchase agreements, also needs to be made a priority.”

JBIC ‘UNDECIDED ON $4 BLN BATANG POWER PROJECT’

By Yoshifumi Takemoto and Fergus Jensen of Reuters

The Japan Bank for International Cooperation (JBIC) has not decided whether to fund the $4 billion Batang coal-fired power station project in Indonesia, its chief executive has said, following protests by green groups and landowners.

PT Bhimasena Power Indonesia (BPI), a joint venture set up by Indonesian coal miner PT Adaro Energy Tbk and Japan’s Itochu Corp and Electric Power Development Co (J-Power), plans to build and operate the 2,000 megawatt Batang plant in Central Java with funding from JBIC.

Construction was meant to begin in 2012 but has been repeatedly delayed as dozens of landowners refused to give up their paddy fields for the project.

“We haven’t decided to offer a loan to the project,” JBIC CEO Hiroshi Watanabe said to reporters last month, referring to environmental concerns raised by residents.

Getting Batang off the ground has been a top priority for Indonesian President Joko Widodo, who held a ceremony at the plant in August as proof the government was meeting its promises to kick-start badly needed infrastructure projects.

Widodo had promised Japanese investors in Tokyo five months earlier that the land issues were resolved.

If built, the project would be the biggest coal-fired power station of its kind in Southeast Asia.

Indonesian state power company Perusahaan Listrik Negara (PLN), tasked with buying the land for the project, said in March it had won a landholders’ lawsuit at Indonesia’s Supreme Court, paving the way for construction to begin.

Farmers in Batang, however, accuse the developers and security forces of intimidating them, closing community access to their farmland and destroying their irrigation systems and crops before a Supreme Court ruling was issued.

“As of now we haven’t received an announcement of the Supreme Court verdict,” Judianto Simanjuntak, a lawyer for landowners in Batang, told Reuters, noting that they could not lodge an appeal without this document.

An official at PLN said last month that a financial agreement on Batang would be postponed for two months because of difficulties surrounding funding mechanisms JBIC wanted to use.

Despite the setbacks, Adaro CEO Boy Thohir remains positive about the project. “I believe we will have deal on this. We hope this project can be realised soon.”