State SOE Minister Mustafa Abubakar said Thursday that state-owned electricity utility PT PLN would cooperate with the private sector to help push forward a major expansion of small power stations especially in the provinces.

The government and PLN are aware that one of the best ways to increase power supply in the provinces will be to encourage smaller power stations located in areas closer to towns and communities.

The existing PLN grid system  will cope better with both base and peak loads while demand for electricity is rising, with a major expansion of the smaller power sector based increasingly on renewable and clean energy technologies including geothermal , mini-hydro, gas and biomass as well as clean coal.

“These [smaller units] will have smaller capacities of between five MW and 25 MW,” said Mustafa, adding that they would be built, for example,  in South Sumatra, and Sulawesi in locations like Bangka and Belitung, amongst others.

He added did not know precisely where the independent power producers (IPPs) would be constructed but was aware  that  locations were being currently planned, some as part of the second 10,000  MW accelerated power program.

Coordinating Economic Minister Hatta Rajasa said last month the government’s main focus at the moment would be on improving the financial health of PLN to enable it to help provide sufficient electricity nationwide.

PLN data showed that in 2009, the electrification ratio reached only 64.8 percent throughout Indonesia. PLN said it needed Rp 32.7 trillion (US$3.5 billion) next year to address the blackouts, which are a source of widespread complaints by businesses.

The government reportedly plans to help mobilize up to Rp 10 trillion through  loan agreements with PLN, while part of the remaining funds needed would be financed also by issuing bonds, PLN said.

The government is also looking to raise PLN’s margin on its electricity sales prices, which are fixed by the state, from 5 percent to 8 percent to help make its financial balance healthier and to give it greater borrowing capacity so that it will be in  a better position to finance power stations and strengthening of power transmission systems.

Mustafa said PLN would sign  power purchase agreements (PPAs)  with IPPs to buy electricity at better prices. This will help PLN save Rp 20 trillion in operational costs annually [by saving on fuel oil,
he said.

Energy and Mineral Resources Minister Darwin Z. Saleh said the government was designing a subsidy scheme to allow PLN to raise the electricity base tariff without burdening low-income consumers.

It has been proposed to transfer such subsidies from electricity directly to poorer people so as to no longer distort the power market.

The government has delayed raising the electricity base tariff for now. Under the 2010 state budget, the allocation for the electricity subsidy stands at Rp 37.8 trillion.

President Susilo Bambang Yudhoyono , in Banten to inaugurate two coal-fired power plants as part of the government’s first 10,000 MW accelerated program, said the government aimed to solve the electricity supply shortage this year.

Unit 1 of the Labuan coal-fired power plant in Banten is the first power plant inaugurated under the first phase of the 10,000 MW program. It has a capacity of  600 MW.

Yudhoyono also inaugurated the Labuhan Angin coal-fired power plant in North Sumatra, which has a capacity of 230 MW.

The government is going ahead with the second 10,000  MW program, Yudhoyono said.

“We expect 20,000 megawatts will be enough until 2015. But keep in mind that the economy is growing, so we may need to build another 10,000 megawatts program.”

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