Dissecting into Indonesia 35000 MW power plant project.

Power Plant

Following President Joko Widodo’s announcement in April 2015 to construct the 35,000MW electricity generation program during his 5-year tenure in office – the Indonesia National Electricity Board (PLN) has move to published its plan for the development of this 35,000MW power project initiative. In the stated blueprint, the first 25,000MW will be developed with private developers’ cooperation through the Independent Power Producers (IPPs) scheme, whilst the remainder will be developed by PLN. All projects are estimated to require aggregate investments of more than IDR1, 100 trillion (around USD110 billion) and have now been incorporated into PLN’s 2015-2024 Power Supply Business Plan.

Without doubt, this mega project is meant to cater for Indonesia increasing needs for power and infrastructure development. Countless time the message from Joko Widodo’s administration has been the same i.e. how the 35,000 MW project worth Rp 1,100 trillion is absolutely required in order for the country to power up its annual economic growth to 6-7 percent by 2019. This is apart from creating equal access to electricity for households in the less developed regions.

The country ambitious power plans has also attracted foreign investors alike. Earlier last month in July 2015 – the Special Envoy to the Japanese Prime Minister Mirotomo Izumi met with Joko Widodo at the State Palace, Jakarta to express the Japanese Government commitment to invest in various Indonesia infrastructure sectors including the 35000 MW project. An Indonesian Minister during the meeting is reported to make favorable assessment to the Japanese proposal. Chinese investors are equally lobbying hard for their share in the power plant projects.

However the ambitious project apart, there are also various hurdles, which the Indonesia government may need to overcome:

The procurement of Land for Electricity project

The procurement of land in various ‘Jakarta far-flung’ district has always been an impediment to various projects. It is important to note that Indonesia is a big archipelago with 34 provinces followed by numerous regencies, districts and hundred of villages. Web of complex interaction and negotiation are required with respective Governors and mayors to ease the bureaucratic process of land use by the Central Government. While it is also worth noting that Governors in respective Indonesia province has also a separate autonomy for land usage.

A frequently cited problem is the 2000 MW Batang coal powered fire plant in Central Java, which requires an area of around 226 hectares – to date has faced years of delay. The Batang power plant begun its construction in 2012 and was slated for commercial operation by the end of 2016. However under the current condition and various land acquisition issues at local governorate level, the project finalization has been brought forward to 2019.

The funding of the 35000 MW project

With a required aggregate investment of more than IDR1, 100 trillion (around USD110 billion), there have been doubts on Indonesia’s capability to raise a large capital and to proceed with the mega project. Foreign investors may have sensed this and interestingly a few have included quick loans in their overall proposal package to Indonesia. Specifically this has been the Japanese offer to Indonesia during the visit from Japanese Special Envoy Mirotomo Izumi.

More apparently, Minister for Economic Affairs, Sofyan Djalil remarked such offer as helpful for a government desperate in -need of a loan. It is anticipated that Indonesia will be facing big challenges ahead in gathering an adequate amount to finance the project.

Project Transparency

Transparency will also be the main issue facing the project. Given various bureaucratic layers where the project communication, handling and purchasing of material needs to go through, there is strong likelihood for local corruption to go unnoticed. On a similar front, Indonesian Forum for Budget Transparency (FITRA) recently in April this year criticized the PLN approved direct appointment mechanism of Independent Power Providers to head various aspect of the 35000 mw project. FITRA argued such approach as counterproductive to the overall principle of fair competition.

Looking Ahead for Indonesia.

Indonesia needs to propel ahead with the 35000 MW project to ensure its country socio-economy viability and sustainability towards the future. Apart from reducing reliance on fossil oil as the source of energy, the mega project is crucial in providing impetus to the development of downstream projects direly needed by its population such as health infrastructure, education and the encouragement of foreign direct investment. It is also anticipated that this project will use a lot of domestic industrial products, and employment up to 3 million people, local reports suggest.

Given Jokowi’s enthusiastic push towards the completion of the project within 5 years from 2015, the strategic solution now is not to wipe entirely the problems highlighted earlier (Land acquisition/Funding and Transparency) – but to reduce it to a bare minimal.

To achieve this, the Central Government will likely need to increase its collaboration, communication and coordination across various agencies and Ministries both local and central. Proactive management tools such as Key Performance Index (KPI) may need to be introduce as a mechanism to ensure the pace of various government machineries are moving smoothly towards the Central government objectives. Last minute and unannounced visit to on-going projects by Central government officials (Turun Padang) should be inculcated as some of the mode to move the project pro-actively.

In terms of governance, immediate regulations must be introduced to ensure fair and transparent election of IPP’s to head various aspect of the project. For practical reasons, this is to reduce incompetent providers which can slow down the overall project machinery towards realizing the 2020 dateline.

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