Were it not for the corruption-infested public procurement system and the potential conflicts of interest of several members of President Susilo Bambang Yudhoyono's Cabinet, the proposed crash program to build several coal-fired power plants with a total capacity of 10,000 megawatts within the next three years would not have set off such a heated controversy.
The country urgently needs to expand its power generation capacity to prevent an electricity crisis within two to three years. It is also urgent to minimize state power firm PLN's dependence on oil-based generation, which now is estimated at between 30 and 35 percent of its total capacity, to control the electricity subsidy and keep the fiscal deficit at a manageable level.
Since most analysts have predicted the era of cheap oil will never return, it is economically imperative to diversify power generation into coal and natural gas-based plants whose costs are three to four times cheaper than diesel oil, which by itself will be responsible for the almost US$3 billion power subsidy the government has to bear this year.
Certainly, a crash program requires a much faster implementation process, even the possibility of directly awarding power projects to bona fide contractors, to meet the demands of an emergency situation.
However, the government's plan to "expedite" the tendering of the projects and the fact that the crash program was allegedly derived from a proposal by Vice President Jusuf Kalla's younger brother Achmad Kalla, the chairman of the Bukaka engineering company, has caused great concern about the possible abuse of inside information, conflicts of interest, collusion and corruption.
Moreover, if the idea of the crash program truly came out of Kalla's private talks with his younger brother, that would appear strange because the national electricity blueprint was just revised last year as part of infrastructure policy reforms.
Concerns about excesses in the tendering of projects under this type of crash program are reasonable.
Even the standard government procurement system, which is quite elaborate and designed with comprehensive built-in anticorruption mechanisms, has always been the biggest source of corruption and inefficiency within public sector spending. The system is prone to corruption and collusion, lacks transparency and fails to achieve its objective of procuring goods and services with maximum economic efficiency through fair competition and equitable treatment of all suppliers, contractors and consulting companies.
Most of the irregularities discovered by the Supreme Audit Agency during its annual audits of the state budget implementation are related to procurements. Most foreign creditors, notably the World Bank and the Asian Development Bank, have frequently expressed concern about malfeasance within the public procurement process.
In late 2002, for example, the World Bank and Asian Development Bank abruptly stopped loan disbursements for projects in South Sulawesi and North Sumatra, on the suspicion of conspiracy among bidders and collusion between bidders and officials in the tendering of the projects.
The risk of blatant collusion and questionable practices would be even greater under the proposed "expedited" tendering process from the usual one year to three months, because there are only a small number of local contractors qualified to build major power plants. What makes the public more apprehensive is the fact that the families of senior politicians and some Cabinet members, including Jusuf Kalla and Aburizal Bakrie, the coordinating minister for the people's welfare, control the largest of the big contractors.
Strong noneconomic influence (political lobbying and collusion) over public procurements has often substantially raised the costs of public projects and services, thereby imposing punitively high taxes on the intended beneficiaries of government investments – the poor and the vulnerable groups who can least afford them.
As long as these potential conflicts of interest among Cabinet members are not dealt with under a credible system of checks-and-balances and the government procurement system remains notoriously corrupt, the tendering of major projects will unnecessarily cause controversy. And national contractors, many of which have connections to senior officials, will always be under suspicion of collusion and the abuse of inside information.
The government therefore should execute the long-delayed plan to set up an independent national public procurement office to reform the procurement system.
The economic and social benefits of a credible procurement system would be huge, given the tens of billions of dollars worth of goods and services are purchased by the government and state companies every year.