Wednesday, March 30, 2016

Power stations in Indonesia: Shock therapy


A FLOTILLA of floating power stations is supposed soon to traverse the vast waters of eastern Indonesia. The ships, burning marine oil and leased from a Turkish firm, will be a temporary fix for the sprawling archipelago’s rising thirst for power. Indonesia consumes about half as much electricity as Britain, despite being four times as populous; about 50m Indonesians have no mains power at all. Shortages will grow more pressing as the country’s middle class expands: over the next decade or so, electricity demand is expected to rise by nearly 9% a year. 
Putting a stop to blackouts is a priority for the government. Last May President Joko Widodo announced an ambition to build more than 100 new power stations in five years (as part of an even bigger scheme to revamp the country’s creaking infrastructure). That plan, combined with work still hanging around from an earlier electrification drive, calls for about 43GW of new generating capacity to be added to the grid. This increase is comparable to the total installed capacity of countries such as Sweden and South Africa, and would mean almost doubling Indonesia’s power output. 
Such a scheme will require a huge expansion in the role of private-sector power firms. Independent power producers (IPPs) presently generate around 20% of Indonesia’s electricity; the rest is churned out by PLN, the state utility. Indonesia hopes they will build and operate most of the new power stations and that their home countries’ banks may finance them. Independents could eventually provide around half of the country’s juice.
Foreign power firms were once keen on Indonesia. Many fled during the Asian financial crisis in the late 1990s, and those that remained were forced to sell their power far cheaper than they had planned to. Lately, confidence has returned, encouraged by liberalising legislation and the new government’s ambitions. India and China also have gargantuan electrification drives, but in Indonesia a paucity of local expertise means it offers a greater opportunity for foreign builders and operators of power stations.
So far, firms from elsewhere in Asia have been keenest. One of the first big projects, a $2 billion power station in West Java, will be built by a consortium including Chubu Electric and Marubeni of Japan, and Komipo and Samtan of South Korea. Chinese companies are taking a leading role, despite a perception that some of the power stations China previously built in Indonesia were not entirely up to snuff. American and European utilities, for their part, are hanging back. Engie, formerly known as GDF Suez, a French firm with a long history in South-East Asia, has just sold its stake in one of Indonesia’s biggest power projects to Nebras of Qatar, as part of a global withdrawal from coal (though it remains keen on Indonesia’s promising but poorly-developed geothermal sector).
Traps abound. Acquiring land—a headache for infrastructure-builders anywhere—is particularly tricky in Indonesia, says Lenita Tobing of PwC, a consulting firm. The construction of what is supposed to be South-East Asia’s largest power station, a 2GW coal plant in Java backed by an Indonesian firm and two Japanese ones, J-Power and Itochu, is running four years late after scores of locals refused to sell their farms. Meanwhile, Indonesia’s transmission and distribution network, run by PLN (which remains the monopoly buyer of electric power), will need beefing up enormously, with financing from multilaterals like the Asian Development Bank (ADB), if it is to transport all the energy the proposed power stations will produce.
Mr Widodo’s administration is eager to help. It has created a “one-stop shop” to help foreign investors short-circuit Indonesia’s tortuous bureaucracy. Officials say they have cut the time it takes power firms to obtain permits from two-and-a-half years to about eight months. A new land-acquisition law, which came into force last year, may speed up negotiations; so will a recent presidential decree, says Agung Wicaksono, an energy-ministry official. Yet strong backing from Jakarta does not guarantee deference from provincial authorities, which under Indonesia’s political system enjoy great autonomy.
Some people fret that the scheme could fall victim to its own ambition. Indonesia’s power demands could probably still be met if the new power stations were added over ten years rather than hurried through in five, reckons Pradeep Tharakan of the ADB. The presidency may be imposing a tight deadline in the belief that unless it creates a sense of urgency, nothing will get done. Most in the business doubt that the electrification drive will be completed on schedule. Nevertheless, all the whip-cracking has some observers worrying that quality will be sacrificed for speed—and has some IPPs wondering if bits of the country might even end up temporarily with an excess of capacity. Indonesians should be so lucky. 

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