T

he government will soon commence the construction of mega power plants in Java and Sumatra that will have a combined capacity of 10,000 megawatts (MW). The project constitutes the first phase of President Joko '€œJokowi'€ Widodo'€™s ambitious plan to build 35,000 MW power plants during his five-year term.

Sofyan Basir, president director of state-owned electricity company PLN, said his company would sign contracts for the development of the 10,000 MW power plants as early as next month.

Total investment in the power plants and their supporting electricity infrastructure is estimated at Rp 200 trillion (US$15.2 billion), which would be built by PLN and independent power producers (IPPs), he said after meeting with Jokowi and other top economic ministers on Tuesday.

PLN plans to cover up to 30 percent of the cost, with the rest coming from private investors.

'€œIf realized, the Rp 200 trillion projects would generate a massive number of jobs,'€ Sofyan said, predicting that total investment in the power plants would increase to Rp 1.1 quadrillion over the next five years.

He went on to say that while the first phase of the power plant project would focus on Java and Sumatra, plants powered by more sophisticated technology '€” such as hydro or solar '€” would also be built in developing areas in eastern Indonesia, including Papua and Nusa Tenggara.

The power plant projects are an effort to create more equal access to electricity, fix infrastructure bottlenecks and boost economic growth that has decelerated to its slowest level since 2009.

Former president Susilo Bambang Yudhoyono, during the presidential campaign ahead of his first term as president starting in 2004, pledged to build around 10,000 megawatts in power plants. He achieved that goal after five years.

Jokowi'€™s ambitious pledge could pose economic risks, economists have warned, noting the potential for a deterioration of the current-account deficit, as most of the material used in the plants was imported.

Power plant projects would be the biggest absorber of machinery imports '€” including goods like boilers, turbines and transformers '€” with the amount of overseas purchases standing at $4 billion annually, or about 0.3 percent of Indonesia'€™s expected gross domestic product (GDP) in 2017, according to a calculation from Citigroup.

Commenting on the issue, Coordinating Maritime Affairs Minister Indroyono Soesilo said the government would endeavor to promote local content in electricity infrastructure, including a requirement for companies involved in the development of power plants to utilize more locally manufactured goods.

'€œI would ask [for investors] to utilize more local content. At the moment, local content in power plants are around 40 percent and in electricity transmission infrastructure around 60 percent.

'€œWe would raise the requirement for power plants to 60 percent and for transmission to 70 percent,'€ Indroyono told reporters on Tuesday.

PLN is looking to secure direct loans from international finance agencies to support the development of the plants.

Under the direct-lending mechanism, financial agencies will be able to directly channel the loans to PLN. Previously, via the so-called sub-loan agreement (SLA), the agency disbursed the funds to the state, which then channeled the money to the designated state-owned firm.

The agencies offering direct lending to PLN and the government need only supply its guarantee. A presidential decree relating to the matter is being drafted, the company said recently.

PLN does not expect the loans will burden the budget, as the lending will come with competitive interest rates and a longer maturity period of up to 40 years. According to PLN, financial agencies such as the World Bank and the Asia Development Bank were willing to issue loans for the development of non-coal fired power plants, transmission networks and other programs aimed at accelerating improvement in the electrification ratio.