Editorial: Power rationing until 2009

Fri, 07/11/2008 10:12 AM  |  Opinion

The electricity sector today faces at least one certainty. Acute power shortages that require power rationing through rotating electricity blackouts or changes in industrial operating shifts will continue until late 2009.

Businesses are now calculating the losses they will suffer during the rotating blackouts. But most industrial companies seemed resigned to the tragic fact that the Indonesian government is virtually powerless to cope with the power supply crisis until some of the new power plants currently under construction, with combined capacity of 10,000 megawatts (MW), come on line in early 2010.

Hence, instead of asking for an assured power supply, let alone for additional electricity, they simply beg the state electricity monopoly PLN to give them a guaranteed schedule for the impending power blackouts.

Businesses have suffered big losses due to the increased frequency of sudden, unannounced power blackouts over the past two months. Unexpected power outages cause losses not only due to the stoppage of operations or production but also the severe damages inflicted on production processes and equipment. For example, in many industrial plants, the raw materials might be wasted if the production process abruptly stops due to power outages.

The Jakarta Japan Club complained early this week that 42 of its members had suffered total losses of Rp 42 billion (US$4.5 million) in May and June alone due to production interruptions caused by power blackouts. The Indonesian Chamber of Commerce and Industry (Kadin) and the Japan Club therefore asked PLN to provide a definite schedule for the planned blackout periods.

Such advance notifications as those PLN has issued in Jakarta and its surrounding towns for rolling power blackouts during the next two weeks will enable industrial firms to at least adjust their operations schedules to minimize losses.

Industries have asked that advance notification be clearly stipulated in the joint ministerial decree on power rationing which will take effect in October.

The power supply crisis is the culmination of ignorance, misguided energy policy and extreme lack of political leadership in pushing forward the development of badly needed basic infrastructure.

Analysts and industrialists had warned as early as 2002 of a looming power supply disruption in Java and Bali in view of the anticipated steep increase in demand when the economy began a robust recovery, while the prospects of new investment in power generation seemed quite bleak, due to financing and regulatory problems.

Legal foundations for private participation in the electricity sector were severely weakened in 2004 when the Constitutional Court annulled the new electricity law.

So until some of the power plants currently under construction start operations, forget all the big talk about bold reform measures to improve the investment climate. Without a reliable, adequate supply of power, not a single investor will come to this country.

Forget all the optimistic projections of more than 6.5 percent economic growth this year and next year. Lack of power or frequent blackouts could kill all the bullish sentiment.

The power supply crisis should therefore serve as a strong warning to the government that the current crash program to add 10,000 MW to the PLN grid only offers a medium-term solution.

This power crisis will continue to loom over the country as long as the government fails to improve the electricity rate structure. The current universal rate structure imposed on PLN cannot provide it with adequate revenues for achieving long-term financial sustainability.

Just look at how the government was forced to put up financial guarantees for investors and contractors, without which they would have been unwilling to take part in the implementation of the crash program.

The universal rate structure the government imposed on PLN, irrespective of the varying costs associated with providing electricity in different regions, places the company in a financial quandary as it cannot cover its supply costs.

The distorted rate structure also sends the wrong signal to private investors and creditors whose participation is badly needed in power supply. Still more damaging, other provinces outside Java are at a great disadvantage for attracting new investment in power generation because the costs of electricity supply in the outer islands are much higher than in Java.

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