Bill Guerin, Jakarta – With Indonesia's power needs hovering on the critical, a mothballed specter from the unlamented Suharto past – a 1,320-megawatt coal-fired plant in central Java – is being resurrected along with more than two-score other Suharto-era plants that were halted when the aging dictator fell from power in 1998. This time, however, they are to be run more rationally.
The cash register in front of the ill-starred Tanjung Jati B plant, as it was known, was operated by Suharto's daughter, Siti Hardiyanti Rukmana. Toward the end of the Suharto era, it was hopeless to start a major project of any kind in Indonesia without taking as a partner one of Suharto's rapacious children. Siti's PT Impa Energy Co simply took a 20 percent stake in Tanjung Jati B, begun in 1997 by Hong Kong-based Hopewell Holdings, as a cost of doing business.
Tanjung Jati B was emblematic of the entire Suharto kleptocracy. From rice to cars to beer to hotels to highways to buses, there was little that escaped the eye of Siti and her siblings. PT Impa Energy's stake was to be covered by a purchase price of US$0.0645 per kilowatt-hour – more than 50 percent higher than contracts are being negotiated today – that Hopewell had "negotiated" with Indonesia's state electricity utility, PT Perusahaan Listrik Negara (PLN).
Japan's giant trading house, Sumitomo, was the designated engineering and equipment contractor. The plant was originally planned to be finished in 2004 but was shelved when it was 70 percent completed after critics, including the World Bank, said power purchase prices were much too high.
Today, however, after decades of successful industrialization and development, Indonesia is power-starved. Home industries and small factories, even in the most isolated rural areas, depend on power as much as industry does. PLN's installed capacity is about 21,000MW nationwide, with some 18,000MW for the densely populated islands of Java and Bali. In practice, however, PLN can only provide 12,000-14,000MW in Bali and Java, where the peak load can reach 16,000MW.
Additional power demand until 2005 in Java alone is projected to be about 12,000MW. PLN calculates its minimum power reserve margin at 30 percent to avoid extended blackouts during peak demand periods, but transmission bottlenecks prevent it transmitting excess supply from East Java, where spare capacity is available, to West Java, where it is needed. Hence the resurrection not only of Tanjung Jati B, but a whole panoply of energy plants.
The decades of Indonesia's transition to a power-fed economy – and the seeds of its current power shortage – flowered in the early 1990s, when the Suharto regime had grown so corrupt that the national power monopoly was forced to sign power purchase agreements with independent power producers (IPPs) for 27 power plants, all with consortia of international energy companies whose enforced local partners were Suharto's family members and cronies.
PLN was virtually stony-broke after the financial meltdown in late 1997 and the ensuing nose-dive of the rupiah against the US dollar. Most of Indonesia's borrowing and its oil and gas and private power costs are in dollars, while its revenues are in rupiah. IPPs in effect owned and ran PLN's monopoly power-supply network. Today, many of the other resurrected projects are not due on-stream for another three or four years, although some are running and selling power to PLN. Most have chosen to sign new agreements rather than expose their previous contracts to public scrutiny.
PLN had little support from the three administrations that followed Suharto's 1998 downfall until finally President Megawati Sukarnoputri's coordinating minister for the economy, Dorodjatun Kuntjoro-Jakti, took up the torch. (The power crisis forced itself into the public mind when a major blackout last September plunged most of Greater Jakarta into darkness for several hours after a rupture of transmission lines from a giant 3,400MW coal-fired complex in Suralaya, west of Jakarta; see Indonesia's power sector gropes in the dark, September 20, 2002.)
A ministerial team was set up, headed by Kuntjoro-Jakti, tasked with restructuring the power sector and renegotiating the private power contracts. The minister pushed for the resumption of work on 26 power plants, which need a total investment of some $12.5 billion. In July 1999 Jakarta approached Japan asking it to bail out the project and eventually, in December 2000, Sumitomo announced it was interested in more than just constructing Tanjung Jati B.
In June 2001 Hopewell's chairman, Gordon Wu, who himself was nearly driven bankrupt by the Asian financial meltdown, said he had reached a provisional agreement with Jakarta to sell his interest in Tanjung Jati B, and that Indonesia would seek a soft loan to finance the acquisition. Wu eventually declared force majeure, a legal stratagem intended to excuse him from liability on the ground that failure to perform could not be avoided by the exercise of due care. He abandoned what had become a white elephant that had cost him HK$4.8 billion (US$640 million). He sold out to Sumitomo early last year and pocketed a mere US$215 million after settling outstanding contractors' bills of $38 million. Suharto's daughter's company walked off with $53 million.
Sumitomo announced last week that it was about to resume building the $1.65 billion project. It will provide $550 million, with the rest funded by the Japan Bank for International Cooperation (JBIC) and a consortium of Japanese financial institutions.
At the end of March Tokyo committed to a yen loan deal worth $616 million to be used to expand the capacity of the Muara Tawar and Muara Karang gas-fired power plants, just outside Jakarta. Indonesia's oldest ally and investor, Japan, will be the country's biggest creditor by far when Jakarta severs its link with the International Monetary Fund, which came in to attempt to rescue the economy in 1997 after the Asian financial meltdown. The many Japanese businesses operating in Indonesia, particularly in the manufacturing sector, are keen to see a secure and developed power infrastructure, especially in industrialized West Java.
Possibly out of fear of PLN default, JBIC asked the government to provide a guarantee. Jakarta will provide modest financial support – $540 million by way of a liquidity facility covered by a sovereign guarantee. In the event of PLN's default the guarantee would kick in and it would take over the loan repayments, though PLN would be expected to repay the government.
PT Central Java Power (CJP) will manage the project along with PLN. The latter will rent the plant from CJP for power distribution to the public when it is finished in 2006. PLN will buy the power at a negotiated price of $0.04 per kilowatt-hour.
The project was also delayed when Kuntjoro-Jakti and his fellow ministers encountered major problems with Minister of Trade and Industry Rini Soewandi, who argued for months that a sovereign guarantee mandated counter-trade obligations. Kuntjoro-Jakti, Energy Minister Purnomo Yusgiantoro and PLN president director Eddie Widiono all disagreed, as did Sumitomo and CJP. In mid-April Soewandi suddenly threw in the towel and dropped her insistence on the need for counter-trade in that deal.
Two weeks later, however, while accompanying Megawati to Moscow on an official visit, Soewandi pulled off a major counter-trade deal for the purchase of Russian Sukhoi fighters and other hardware (see Arms deals buoy Russian-ASEAN trade, April 23). She is now being blamed by many legislators for neatly bypassing government procedures, though military chief General Endriartono Sutarto has told parliament it was his idea and not the minister's.
Kuntjoro-Jakti and his team have also helped PLN successfully negotiate new contracts with other private electricity suppliers covering periods of between 20 and 30 years and a total available capacity of 10,430MW. Widiono said last week that of the 26 independent power producers, 14, with combined generating capacity of 10,615MW, had agreed to continue their projects under a new tariff rate averaging $0.046 per kilowatt-hour. This compared with up to $0.084 previously and will save the utility at least $5.9 billion over the next 20-30 years.
Pertamina, the state-owned oil and gas giant, took over one project and the government and PLN each agreed to take over two others. Seven others agreed to terminate their purchase agreements and the government is offering them to new investors.
Though some $65 billion has been spent on bailing out the banking industry, the power sector had been all but neglected and left to fend for itself. This has now changed and the government is inking in a brand-new energy policy as a national priority.
The policy will redress earlier government failures to develop the potential of Indonesia's abundant reserves of natural gas. Last month PLN signed two deals that signal a move toward gas as the fuel of choice for firing power plants. It agreed to buy about 100 million cubic feet of gas per day from Amerada Hess for 21 years, starting in 2005, for $1.2 billion and 40 million to 60 million cubic feet of natural gas per day from Australian-based Santos Ltd for $250 million.
The gas in both deals comes from offshore blocks in East Java and will be used as an alternative source of energy to keep the lights burning at home.