INDONESIA is running short of gas. Nasri Sebayang, head of the primary energy division of the state-backed power utility PLN recently confirmed that right now PLN needs about 1,600 standard cubic feet of gas per day (MMSCFD) with only 900 MMSCFD available. Next year PLN will need 2,233 MMSCFD with only 1,258 MMSCFD available. By 2012 PLN will need a predicted 2,474 MMSCFD, with only an estimated 1,781 MMSCFD available.
As President Susilo Bambang Yudhoyono finalizes the Cabinet for his new government, he faces a continuing energy crisis that could undermine all his plans.
Indonesia is desperate to reduce dependence on oil, forcing the country back onto its huge coal reserves, presenting big logistical, financing and environmental problems. Renewable energy power stations under 10 megawatts are not yet taking off in Indonesia. This includes mini-hydro, solar, wind and biomass. Despite some progress, decentralized public administration, banks and project developers can’t keep up with the project preparation and funding needed, while regulations need improving.
As part of Kyoto II, international agencies must help push green and clean technologies in Indonesia to help fill the gap between projects and investors in this $30 billion power market.
The shortage of gas, problems with coal, and lack of progress with renewables are forcing the PLN utility to take a big gamble in the second 10,000 MW accelerated power program, by depending 48 percent on rapid expansion of the tiny geothermal sector, alongside 14 percent from gas, 12 percent from mini-hydro and 26 percent from coal.
The first 10,000 MW accelerated program started in 2006, based entirely on coal with major problems on supply, costs, financing models and power sales pricing.
The first 10,000 MW accelerated program, based on Equipment Procurement and Construction contracts and state-ownership was intended to buy time to bring in a B2B business model based on third-generation Power Purchase Agreements to back Independent Power Producers (IPPs) as major players. But progress on IPPs has been too slow.
So PLN still aims to finance and run 40 percent of the second 10,000 MW program. This may prove overambitious. To do it PLN needs restructuring to regionalize, corporatize, to drop the underpricing and social subsidies that cripple its business model and to raise more funds than ever before.
It’s not clear how a great leap forward in geothermal energy can happen in a country with huge geothermal reserves (reportedly 42,000 MW) but almost no track record in successful commercial structuring and implementation of geothermal projects, with attendant drilling and exploration risks.
So while Indonesia tries to more than double PLN power capacity from 24,000 MW last year to about 55,000 MW by 2015, whilst replacing oil, and with 82 million Indonesians still without power, national energy development faces major obstacles whatever mix of primary energy sources is chosen.
As PLN converts oil fired power stations to gas, the gap is growing between the amount of gas the country can produce and what it needs for its growing downstream industry, as well as LNG exports, despite new exploration and development.
President Yudhoyono wants to make a bold bid to modernize Indonesia into the 21st century as a leading member of the G20, but this continuing energy crisis is his weakest link.
The only thing that can change this fast is to sell clusters of the biggest PLN power stations to major investors, bringing in new funds in chunks of $5 billion at a time and privatize half the existing grid-connected power generation capacity in a few bold moves, while financing grid and production upgrading. This could save the day and the development plans of the president.
Time to put his foot down, step on the gas and beat the energy crisis.
— Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.
