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COVID-19 hits already struggling power firm
PLN recently cut its power offtake from several small-scale hydropower plants in North Sumatra due to financial constraints.
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he COVID-19 pandemic has hit state-owned electricity giant PLN like a brick, adding to its problems over the past five years that have eroded the company’s finances and thus its ability to develop green energy.
Analysts say PLN's financial circumstances put at immediate risk Indonesia’s clean energy goals as the company is bogged down by the government’s 35GW program, 60 percent of which is coal plants, while other virus-stricken economies shift away from the fossil fuel.
“PLN’s quiet crisis reflects dysfunctional planning and governance that have put the company into strategic paralysis,” said analyst Elrika Hamdi of the Institute for Energy Economics and Financial Analysis (IEEFA) in a recent report.
PLN saw key debts and expenses swell between 2015 and 2019 due to President Joko “Jokowi” Widodo’s massive 35 gigawatts (GW) power plant construction plan. As a result, the company has become dependent on government support, including from the state budget, to keep going.
PLN is not only building one-fourth of the total 35GW but also incentivizing the remaining three-fourths, which are being built by independent power producers (IPPs). The incentive, called the Take-or-Pay policy, guarantees that PLN will buy minimal amounts of power from IPPs.
PLN’s bank and bond debts doubled during 2015 to 2019 to nearly Rp 400 trillion (US$26.75 billion) in developing the new plants, the company’s financial reports show.
Meanwhile, the company’s electricity purchase expense in offtaking power from IPPs grew 40 percent during 2016 to 2019 to Rp 84 trillion.
In raising income, PLN had plans to raise electricity tariffs – expressed in rupiah per kilowatt hour (Rp/KwH) – but the government froze the plan in 2017 as Jokowi was to begin his re-election campaign the following year. The state budget covers the difference instead.
“PLN has been forced to take big efficiency measures in cutting production costs and to continually rely on government compensation and subsidies,” Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa told The Jakarta Post on Sept. 23.
He added that the financially strained PLN “hesitated” to buy green electricity and made late payments to suppliers, such as cable producers, which then strained the latter industry.
The electricity giant recently cut its power offtake from several small-scale hydropower plants in North Sumatra due to financial constraints. The plants’ developers feared the cuts would undermine their future bankability.
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PLN president director Zulkifli Zaini, former CEO of state-owned Bank Mandiri, admitted on June 25 that the company had bad loaning habits, such as contributing zero percent of its internal funds to projects. Companies usually contribute at least 30 percent.
“As a banker, I know this is unhealthy,” he told House of Representatives lawmakers in Jakarta.
The COVID-19 pandemic adds to PLN’s financial woes. The electricity company saw its first half profit nosedive 96 percent year-on-year (yoy), yet it has been ordered to fork out $1 billion in electricity relief schemes, especially for Indonesia’s poorest homes.
The government, cash-strapped itself, has promised to compensate PLN but disbursement has been snail paced. In June 2020, the government still owed PLN $3 billion for electricity subsidies incurred between 2018 and 2019.
In the long term, PLN’s heavy debts risk turning into a taxpayer burden. Credit rating agency Moody’s, for instance, based its scores on the “very high likelihood of support from the Indonesia government in a distressed situation.”
The government has plans to inject Rp 9.6 trillion to PLN this year in helping Indonesia’s sole electricity company continue building power plants, power lines and substations.
“PLN has been driven to the brink and taxpayers will be left to pay the price,” writes Elrika.
The government introduced several measures to mitigate PLN’s financial woes such as appointing Zulkifli and by creating a new job position: business and customer director. The position, currently held by Bob Saril, is unusual considering the company holds a monopoly.
“We are also planning a smart grid to meet the renewable energy target in the electricity system,” said Energy and Mineral Resources Minister Arifin Tasrif on Sept. 23.
Furthermore, PLN announced plans to halve the company’s capital expenditure this year, emphasize electricity distribution development and boost renewables by, among other measures, swapping out 5 percent of coal with biomass in certain coal-fired power plants.
“We are also striving to convert our existing power plants into more sustainable power resources,” said Zulkifli, also on Wednesday.
However, analysts say such efforts are insufficient. They say the government and PLN need to revise the company’s upcoming 2020-2025 strategic procurement plan (RUPTL) to invest more in electricity distribution infrastructure and renewables.
Multilateral organizations the Asian Development Bank and the International Energy Agency (IEA) have explicitly called for Indonesia to invest in a green economic recovery post COVID-19.
“Even though they are more costly to construct, renewables are cheaper to operate than fossil fuels over the medium term, which is five years or less,” said economist Berly Martawardaya of the Institute for Development of Economics and Finance (INDEF).
