Indonesia and China Development Bank continue financial co-operation

If Indonesia wants to sustain its economic expansion in the years ahead, it must generate more power to meet the rising demands of a growing economy.

Djoko Prasetijo, deputy director for system planning of Indonesia’s state utility Perusahaan Listrik Negara’s (PLN), said for Indonesia, every 1 percent growth of the country’s gross domestic product (GDP) would require electricity input to grow by 1.2 percent to 1.5 percent.

According to Prasetijo, Indonesia had a total installed capacity of about 38 gigawatts (GW) as of March 2012, therefore the country needs an additional 2.7 GW to 3.4 GW to support a 6 percent economic growth. However, Indonesia’s Coordinating Minister for Economy Hatta Radjasa said on Tuesday Indonesian government is not capable of generating additional power and called on the private sector to fill the electricity gap.

Radjasa made the call at the sidelines of the signing ceremony of a loan agreement between an Indonesia private power enterprise and China Development Bank (CDB).

According to the agreement, CDB will finance $318 million to help build a 2X150 MW coal-fired power plant project in West Indonesia’s South Sumatra province in a bid to ease the badly needed electricity shortage for local communities.

Pande Radja Silalahi, head of the Department of Economics at Indonesia’s Centre for Strategic and International Studies, told Xinhua in an interview on Wednesday that the power shortage has become a major stumbling block in maintaining a sustainable economic growth in Indonesia. Indonesia’s economy has been experiencing strong growth with 6 percent to 6.5 percent since the 2008 financial crisis, posting a higher 6.29 percent growth in the first three quarters of this year.

Indonesia unveiled the master plan for the acceleration and expansion of Indonesia’s Economic Development (MP3EI) last year, aiming to drive the country to be one of the world’s 10 biggest economies by 2025 with GDP to reach $4.5 trillion and the per capita income from the present $3,000 to $15, 000.

However, given the shortage of power supply, coupled with poor infrastructure, this ambitious growth target may be difficult to achieve, Pande said.

A 2011 World Bank report ranked Indonesia 161st among 183 countries in the ease of getting reliable electricity supply for business, down three places from the previous year. In polls conducted by the Asia Foundation in 2010 and 2011, almost half of the 13,000 companies surveyed reported experiencing power outages at least three times a week. Some companies have resorted to using diesel generators during blackouts but this will increase their business costs and force them to procure and store their own fuel.

“A good and reliable power supply is the foundation for business activities, and is vital to the economic growth,” Pande said.

Jarman, director general of Electricity at Indonesian Energy and Mineral resource Ministry, said just 73 percent of the population was connected to state grid as of March this year, lagging far behind its regional peers. As to the long-term solution for power shortage, Pande pointed out that Indonesian government needs to build additional power plants, reconsider the current pricing system and issue reasonable fiscal incentives for the private sector that would go into power-generation.

Li Zugeng, an electrical engineer and director of Dongfang Electric, a China based power generating equipment supplier, told Xinhua that currently coal-fired power plant is the most economical and practical solution to Indonesia’s power shortage. Nearly 90 percent of Indonesia’s current power is generated from fossil fuels, with coal accounts for 44 percent of all power generation sources.

“The government is too rash to start a renewable energy power plant without fully considering the cost and the number of consumers it will cover,” Li said, adding that the government has insufficient project studies being presented to prospective investors.

For the pricing, Pande said, Indonesian should raise the price of electricity because PLN cannot cover costs at current relatively low tariffs, which caps the state enterprise’s ability to invest in new power plants and renovate its power grid. PLN posted a $30.4 billion debt in 2011, up 12 percent from a year earlier, according to company data.

“Unless the government is really determined to have all these changes, Indonesia will not be able to solve its power shortage,” Pande added.