POWER July 2013 - 34

POWER POLICY
Indonesia: Energy Rich and
Electricity Poor
Even though it enjoys sizeable coal and natural gas reserves, Indonesia struggles
to provide electricity to its growing economy. Geography is its most
obvious challenge. Others include evolving international markets and an
energy sector that remains highly politicized.
By Sonal Patel
A
vast Southeast Asian archipelago of
more than 17,500 islands that straddles
the equator, Indonesia has become an
established and crucial player in the world's
energy markets. It is endowed with some of
the world's largest reserves of fossil fuels,
and in 2011, it was the world's largest steam
coal exporter and the eighth-largest natural
gas exporter. Yet, today, energy security has
become Indonesia's paramount challenge.
And it appears it will be the country's preoccupation
until at least 2020.
At the heart of the issue is that the economy
of world's fourth-most-populous country
(after China, India, and the U.S.), with
243 million people, has been booming at
an enviable annual rate of 6% since 2010.
But so has its domestic energy consumption,
which surged by more than 50% over
the past decade on the back of an emerging
consumer class. This consumption growth
has forced the country to halt exports of oil,
temper its natural gas exports, and redirect
nearly a quarter of produced coal for domestic
production of electricity.
On the other hand, compounded by its
geographic complexity, without available
electricity imports, and reluctant to rely on
diminishing domestic oil supplies that fuel
off-grid diesel generators on the nation's
6,000 inhabited islands, the country has
been stricken by a critical undersupply of
power. Though it is one of Southeast Asia's
biggest economies, it has one of the lowest
electrification rates in the region. This dilemma
is underscored by forecasts suggesting
that between 2009 and 2019, national
electricity demand will increase by an average
9% per year and reach 328.3 TWh in
2020-more than double last year's figure
of 162.4 TWh.
The government's solution is to seek
massive power capacity increases, and it
recently embarked on an ambitious plan to
add at least 55.3 GW of new capacity and at
least 49,299 kilometers of new transmission
lines within the next decade. Can Indonesia
34
bypass a number of hurdles and resolve its
energy dilemma?
Addressing an Existing Crisis
It is important to note that the country has
been long-steeped in a festering electricity
crisis characterized by rolling blackouts
lasting, on a national average, about
3.8 hours per day, according to 2009 figures.
As Dr. Mika M. Purra of the Center
on Asia and Globalization at the National
University of Singapore points out, power
shortages have been routine since Indonesia's
independence from the Netherlands in
1949. Moreover, Purra asserts that while
modernization of the power sector has
been a specific goal of the government
since 1998, a " historical narrative reveals
repetitive attributes that have continuously
stalled any serious efforts to reform
the sector, thus causing significant harm
to the state, its economy and the general
public. " ±±One pervading issue is that the
governance structure is based on the dominance
of state-owned enterprises, and until
recently the government functioned on a
constitutional mandate as the sole provider
of electricity for the nation. Under the authoritarian
regimes of former Presidents
Sukarno (1945-1967) and Suharto (1967-
1998), the principles of bureaucratization
were reinforced and did little to change the
structure of state-owned power entity Persero-Perusahaan
Listrik Negara (PLN), which
held an iron-grip monopoly on the country's
generation, transmission, and distribution.
Only after the Asian financial crisis of
1997-98 and the fall of Suharto's regime
did fundamental changes in the power sector
come, Purra says. The new era of democratization
of political process achieved, among
its most notable changes, passage of Energy
Law No. 30 in 2009 (Figure 1). The landmark
law allows independent power produc1.
Major players. In a power market regulatory upheaval, Indonesia's Energy Law No. 30,
passed in 2009, allowed independent power producers (IPPs) to begin generating and selling electricity.
But state-owned power company Perusahaan Listrik Negara (PLN) generated about 75% of
all power in 2012, remains heavily subsidized, holds a monopoly on transmission and distribution
grids, and functions as the system operator. This chart shows the major players in Indonesia's
electricity system and how PLN generates revenues and receives subsidies. Source: Differ Group,
" The Indonesian Electricity System-A Brief Overview, " differgroup.com/analysis, 2012
kWh
Regional government
Supply
Licensing
Ministry of Energy and
Mineral Resources
Planning
Funding
Regulating
Ministry of Finance
Subsidizing PLN, maintaining
social benefits system
Electricity
Payment for electricity
www.powermag.com
POWER | July 2013
IPP
Feed-in tariff
or cooperation
Generation
Distribution
Feed-in
tariff
Funding
Subsidies
Social
benefits
subsidy
kWh
PLN
Electrification
Generation
Transmission
Distribution
Internal price
kWh
Tariff
kWh
Tariff
kWh
Customers
Captive
Customers
Business
Industry
Public
Residential
Social

http://www.differgroup.com/analysis http://www.powermag.com

POWER July 2013

Table of Contents for the Digital Edition of POWER July 2013