power indonesia report 2012
DESCRIPTION
Written after exclusive interviews with Indonesia's decision makers from NOCs and multinational E&P companies, legislators, financialTRANSCRIPT
1
IndonesiaPower reportJanuary 2013
2
Acknowledgements
Special thanks to Paul Ratumbanua from The Indonesian Electrical Power Society
(MKI) for all the support, information and contacts provided throughout the report.
To
Director General Jarman from the Directorate General of Electricity, Director
General Kardaya Warnika from the Directorate General of Renewable Energy, Stefan Koeberle from the World Bank and
Nur Pamudji from PLN for their contribution.
3
This report was prepared by Focus ReportsProject Director: Leonardo Barquero. Project Coordinator: Fleur Richard, Isabella Romeo Gomez. Contributors: Roslan Khasawneh, Cameron Rochette Project Publisher: Ines Nandin.
CopyrightAll rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports.While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.
CONTENTS
INTERVIEWS
2 ACKNOWLEDGEMENTS
5 POWER FOR THE ISLAND MOSAIC
6 GEARING UP TO POWER UP
8 FAST TRACK PERFORMANCE
10 THE POWER OF COAL
11 THE PHASE 1 PRECEDENT
12 STRENGTHENING INDONESIA’S GRID
14 THE PRO MISE OF PHASE 2 A RENEWABLE SALVATION
18 EXPERT OPINIONS ON INVESTING IN INDONESIA
20 LOCAL ENGINEERING RE-ENERGISED
22 INTERVIEW WITH: Jarman - Director General, of Electricity
24 INTERVIEW WITH: Ulysses Simandjuntak - Vice Chairman
26 INTERVIEW WITH: Supramu Santosa - CEO, Supreme Energy
28 INTERVIEW WITH: Fazil Alfitri - President Director, Medco Power
30 INTERVIEW WITH: Low Kian Min - President Director, Paiton Energy
32 INTERVIEW WITH: Takumi Sakabe - President Director, Fuji Electric
34 INTERVIEW WITH: Hans Peter Haesslein - CEO, Siemens Indonesia
For exclusive ITVs and more insights, log on to
energy.focusreports.net
5
www.PowerEngineeringInt.com 1Power Engineering International
This sponsored supplement was produced by Focus Reports. Project Director: Leonardo Barquero;
Project Coordinator: Fleur Richard, Isabella Romeo Gomez; Contributors: Roslan Khasawneh, Cameron Rochette;
Project Publisher: Ines Nandin.For exclusive interviews and more info, please visit energy.focusreports.net or write to [email protected]
Power for the IslanD MosaIC:
special Country report
INdoNEsIa’s uPhILL jouRNEy To
ELECTRIFy ITs PEoPLE
Courtesy of PLN
I t is 1 o’clock in the morning in jakarta.
The glow from the city lights illuminates
the hazy sky above with a permanent
yellowish-orange light that erases any
sight of a starlit sky. While the majority
of its 12 million inhabitants are asleep,
the city’s skyline displays its unnatural aura in
its full glory. From the pinnacle of Wisma 46,
jakarta’s tallest skyscraper at 250 metres, to the
hundreds of bare light bulbs of the street-food
vendors, there is an evident, if not wasteful,
abundance of electricity throughout the city.
upon questioning one out of the dozens
of fried rice hawkers on the street – “Where
do all of you get the electricity to keep your
lights on?” – a revealing truth is uncovered:
“We simply hook up to the electricity pole
over there”. Ignoring the safety hazards
related to his affirmation, the pervasive sense
that electricity is free around here becomes
increasingly clear. Nonetheless, this impression
is not endemic to illegal electricity tapping,
but rather is further replicated throughout all
levels of society. a clear example are the high-
class bars in jakarta’s financial heart that run
their air-conditioning units in open air terraces
to keep their wealthy patrons cool from the
stifling heat.
With such widespread behavior it comes
as no surprise that Indonesia’s government
will spend close to $ 9.5 billion in electricity
subsides this year. at the end of the day,
someone has to foot the bill.
With a population nearing 250 million,
an average annual economic growth of
6 per cent and a growing middle class today
estimated at 131 million, Indonesia is one of
the most attractive fast-growing markets in
asia, if not the world. Even in the midst of the
global financial crisis, the country remained
relatively impervious with a solid GdP growth
rate of 4.5 per cent in 2009.
The World Bank’s country director in
Indonesia, stefan Koeberle, conveys that
“Indonesia represents a country with a
very favourable growth outlook and has
been highly successful at attracting foreign
investment. also, it has been quite successful
at sustaining this growth rate for a number of
years. Essentially, this has been on the basis of
a booming commodities export industry and
the expanding domestic market.”
however, Indonesia’s enviable performance
of previous years is in jeopardy of not being
sustained because of an electricity crisis that
has been plaguing the country since 2008.
as the country’s economy has been steadily
6
climbing, electricity demand has been
outpacing supply with growth rates between
8–10 per cent every year. Furthermore, the
country’s unique geography spanning over
17,000 islands, out of which more than 7000
are inhabited, further exacerbates Indonesia’s
hardships to power its people. The grim
circumstances became more than apparent
in 2008 when the national electricity company,
Perusahaan Listrik Negara (PLN), began
executing rolling blackouts as a means to
manage peak electricity demand.
In 2009, the government began
implementing a series of policies dedicated
to boosting the national electrification rate.
“our main goal is that by 2020, we hope
[the] electrification rate [will] have reached
99 per cent. Today it is around 73 per cent, so
there is still 27 per cent to be developed. In
terms of numbers this represents 16.8 million
households [that] do not have access to
electricity and 50 million people (more than
two times the population of australia). Most of
these are located in remote areas and islands.
We hope that by 2020, almost everybody
will have access to electricity”, explains
Indonesia’s director general of Electricity,
jarman, who is responsible for the sector’s
regulation as a part of the Ministry of Energy
and Mineral Resources.
The reality is that the country’s rate
of electrification remains strikingly low
when compared to its neighbors, such as
Thailand, Malaysia and singapore, which
boast electrification rates of 99.3 per cent,
99.4 per cent and 100 per cent respectively.
Indeed, Indonesia’s figures are comparable to
some sub-saharan african countries.
Furthermore, given the country’s
abundance of virtually all energy resources,
including coal, oil & gas, geothermal,
hydropower, biomass, solar and wind, it is
difficult to understand why more than a
quarter of its population still has no access
to electricity. This raises the question as to
whether Indonesia’s electricity monopoly is
the appropriate power model to electrify its
people. Nonetheless, the last few years have
seen signs of positive change on behalf of
the government that promises an overhaul of
Indonesia’s power infrastructure.
under such plans it is estimated that
the country will require at least $6 billion of
annual investment in new power infrastructure,
including an additional 5000 MW on a yearly
basis for the next five years. It remains to be seen
whether these ambitions
are overzealous lip service
or a true reflection of
Indonesia’s latent potential
becoming a reality.
GearInG UP to Power UPTo understand the current
state of affairs there is a
need to grasp the political
history of this young
democracy that saw
the end of authoritarian
rule a mere 13 years ago. having ratified its
constitution in 1945 and officially gaining
its independence from the Netherlands in
1949, Indonesia decided that electricity was
a commodity that its entire population was
entitled to and that, by law, the government
should provide. under such a premise, in
1945 the government created the Bureau of
Electricity and Gas, and was the precursor
to today’s state-owned PLN, which holds a
monopoly on the transmission and distribution
of electricity throughout the country.
Essentially, anything related to power
generation must involve PLN as it is the sole
purchaser of electricity in the country. With
such a mammoth task at hand, PLN is currently
the second-largest state-owned enterprise
in Indonesia in terms of assets, which are
worth an estimated $53.5 billion across nine
subsidiaries, including some 28,500 MW of
installed generating capacity. Most would
argue that a company of this magnitude and
importance is bound to be inefficient when
managed by the government.
Certainly most of the figures augur with
that view considering that PLN’s average tariff
for electricity stands at $7.7 cents per kWh
compared to its average cost of production
estimated at $11.6 cents per kWh. some
explain such discrepancies as a result of
the company’s stunted plans to develop
a number of power plants in the 1990s
that were abruptly halted due to the asian
financial crisis. It took more than a decade
for PLN to recover from overwhelming losses
and get back on track to success. since
2009, PLN has been aggressively stepping
up the optimization of its business processes
to meet the needs of its customers and to
prove critics that it is capable of fulfilling
its mandate.
PLN’s current president director, Nur Pamudji,
took on his role as the head of the company
in late 2011 with the vision to transform it into
a world-class utility business. “It is my dream to
make PLN the largest utility company in asia.
We already count 46 million customers and
we only expect that this will grow considerably
over time. While India and China have massive
populations, their power is guaranteed by a
number of companies, which is why I believe
we have a solid chance at becoming #1 in the
region,” he confidently affirms.
2 Power Engineering International www.PowerEngineeringInt.com
Indonesia
Growing Electricity Demand
350
280
210
140
70
0
(in TWh)
2011 2013 2015 2017 2019
Java-Bali Outside Java-Bali
125
36
161
150
44
194
179
55
234
213
68
281
253
82
334
Jarman, director-general of Electricity.
Jero wacik, minister of Energy and Mineral Resources
www.PowerEngineeringInt.com 3Power Engineering International
Indonesia
“as a first priority, we have the aim to
improve our relations with customers and to
enhance the service that we provide to them.
We are doing this by implementing a pre-paid
metering system that provides us with better
information regarding our customers, so that
we can better tailor our services to them.
We are also in the process of implementing
our Enterprise Resource Planning (ERP)
programme and have already completed 70
per cent of it. overall, the vision is to become
a modern utility company that incorporates
information technology intensively in order to
provide the best service possible.”
The results to such initiatives have already
begun to pay off, as the pre-paid metering
system guarantees improved cash flows with
more efficient payment collection for PLN.
Pamudji notes that “our customers are greatly
satisfied with the pre-paid meters as it allows
them to monitor their usage of electricity on a
daily basis. Indirectly it also serves to sensitise
them about energy usage and conservation
because they see the direct relation between
their own consumption and how much they
have to pay.”
The additional cash in the bank is a
boon for PLN, particularly at this time when
intensive spending is being demanded of
the company. This is due to the fact that focus
on Indonesia’s energy and electricity policies
goes beyond the company’s individual plans.
In effect, energy is a determining factor in the
future economic performance of Indonesia,
and has therefore become a core priority for
President susilo Bambang yudhoyono, who
is perceived as the steward of the country’s
robust economic growth over the past
six years.
Coming to power in 2004 and being
reelected for another five-year term in 2009,
yudhoyono is generally well-regarded
because of his liberal economic and fiscally
conservative policies that have allowed
Indonesia to grow into a modern market
economy. his vision for the country’s electricity
sector is no different, with the introduction of a
new regulatory framework in 2009 commonly
referred to as the ‘2009 Electricity Law’. under
this law, power generation was fully opened to
the participation of private power producers,
known in Indonesia as independent power
producers (IPPs), which sell their electricity to
PLN for distribution.
Theoretically, even the transmission and
distribution of electricity can be undertaken
by a private party, as long as PLN has foregone
its option to do so. This new regulatory
framework was devised precisely to push for
the participation of private investments into
the power sector as it became clear that PLN
was incapable of meeting electricity demand
on its own. Even though private interests had
been allowed since 2002, their involvement
and direct investments into power generation
have been scarce.
Prior to the 2009 Electricity Law, yudhoyono
had already emphasized the urgent need
for power infrastructure by implementing
a two-phase fast-track programme aimed
at building 20,000 MW worth of new power
plants. The plan is divided into phases of
10,000 MW each, with the first focusing entirely
on the construction of coal-fired power plants,
mostly by PLN, from 2006–10. The second
initiative emphasizes the role of IPPs and the
development of cleaner energy sources,
particularly geothermal, propped up by the
Committed to Indonesia,we drive the country forward.
PT Pembangkitan Jawa-Bali Jl. Ketintang Baru No. 11 Surabaya 60231 Indonesia
T : (62-31) 8283180 (Hunting)F : (62-31) 8283183
www.ptbjb.com
7
climbing, electricity demand has been
outpacing supply with growth rates between
8–10 per cent every year. Furthermore, the
country’s unique geography spanning over
17,000 islands, out of which more than 7000
are inhabited, further exacerbates Indonesia’s
hardships to power its people. The grim
circumstances became more than apparent
in 2008 when the national electricity company,
Perusahaan Listrik Negara (PLN), began
executing rolling blackouts as a means to
manage peak electricity demand.
In 2009, the government began
implementing a series of policies dedicated
to boosting the national electrification rate.
“our main goal is that by 2020, we hope
[the] electrification rate [will] have reached
99 per cent. Today it is around 73 per cent, so
there is still 27 per cent to be developed. In
terms of numbers this represents 16.8 million
households [that] do not have access to
electricity and 50 million people (more than
two times the population of australia). Most of
these are located in remote areas and islands.
We hope that by 2020, almost everybody
will have access to electricity”, explains
Indonesia’s director general of Electricity,
jarman, who is responsible for the sector’s
regulation as a part of the Ministry of Energy
and Mineral Resources.
The reality is that the country’s rate
of electrification remains strikingly low
when compared to its neighbors, such as
Thailand, Malaysia and singapore, which
boast electrification rates of 99.3 per cent,
99.4 per cent and 100 per cent respectively.
Indeed, Indonesia’s figures are comparable to
some sub-saharan african countries.
Furthermore, given the country’s
abundance of virtually all energy resources,
including coal, oil & gas, geothermal,
hydropower, biomass, solar and wind, it is
difficult to understand why more than a
quarter of its population still has no access
to electricity. This raises the question as to
whether Indonesia’s electricity monopoly is
the appropriate power model to electrify its
people. Nonetheless, the last few years have
seen signs of positive change on behalf of
the government that promises an overhaul of
Indonesia’s power infrastructure.
under such plans it is estimated that
the country will require at least $6 billion of
annual investment in new power infrastructure,
including an additional 5000 MW on a yearly
basis for the next five years. It remains to be seen
whether these ambitions
are overzealous lip service
or a true reflection of
Indonesia’s latent potential
becoming a reality.
GearInG UP to Power UPTo understand the current
state of affairs there is a
need to grasp the political
history of this young
democracy that saw
the end of authoritarian
rule a mere 13 years ago. having ratified its
constitution in 1945 and officially gaining
its independence from the Netherlands in
1949, Indonesia decided that electricity was
a commodity that its entire population was
entitled to and that, by law, the government
should provide. under such a premise, in
1945 the government created the Bureau of
Electricity and Gas, and was the precursor
to today’s state-owned PLN, which holds a
monopoly on the transmission and distribution
of electricity throughout the country.
Essentially, anything related to power
generation must involve PLN as it is the sole
purchaser of electricity in the country. With
such a mammoth task at hand, PLN is currently
the second-largest state-owned enterprise
in Indonesia in terms of assets, which are
worth an estimated $53.5 billion across nine
subsidiaries, including some 28,500 MW of
installed generating capacity. Most would
argue that a company of this magnitude and
importance is bound to be inefficient when
managed by the government.
Certainly most of the figures augur with
that view considering that PLN’s average tariff
for electricity stands at $7.7 cents per kWh
compared to its average cost of production
estimated at $11.6 cents per kWh. some
explain such discrepancies as a result of
the company’s stunted plans to develop
a number of power plants in the 1990s
that were abruptly halted due to the asian
financial crisis. It took more than a decade
for PLN to recover from overwhelming losses
and get back on track to success. since
2009, PLN has been aggressively stepping
up the optimization of its business processes
to meet the needs of its customers and to
prove critics that it is capable of fulfilling
its mandate.
PLN’s current president director, Nur Pamudji,
took on his role as the head of the company
in late 2011 with the vision to transform it into
a world-class utility business. “It is my dream to
make PLN the largest utility company in asia.
We already count 46 million customers and
we only expect that this will grow considerably
over time. While India and China have massive
populations, their power is guaranteed by a
number of companies, which is why I believe
we have a solid chance at becoming #1 in the
region,” he confidently affirms.
2 Power Engineering International www.PowerEngineeringInt.com
Indonesia
Growing Electricity Demand
350
280
210
140
70
0
(in TWh)
2011 2013 2015 2017 2019
Java-Bali Outside Java-Bali
125
36
161
150
44
194
179
55
234
213
68
281
253
82
334
Jarman, director-general of Electricity.
Jero wacik, minister of Energy and Mineral Resources
www.PowerEngineeringInt.com 3Power Engineering International
Indonesia
“as a first priority, we have the aim to
improve our relations with customers and to
enhance the service that we provide to them.
We are doing this by implementing a pre-paid
metering system that provides us with better
information regarding our customers, so that
we can better tailor our services to them.
We are also in the process of implementing
our Enterprise Resource Planning (ERP)
programme and have already completed 70
per cent of it. overall, the vision is to become
a modern utility company that incorporates
information technology intensively in order to
provide the best service possible.”
The results to such initiatives have already
begun to pay off, as the pre-paid metering
system guarantees improved cash flows with
more efficient payment collection for PLN.
Pamudji notes that “our customers are greatly
satisfied with the pre-paid meters as it allows
them to monitor their usage of electricity on a
daily basis. Indirectly it also serves to sensitise
them about energy usage and conservation
because they see the direct relation between
their own consumption and how much they
have to pay.”
The additional cash in the bank is a
boon for PLN, particularly at this time when
intensive spending is being demanded of
the company. This is due to the fact that focus
on Indonesia’s energy and electricity policies
goes beyond the company’s individual plans.
In effect, energy is a determining factor in the
future economic performance of Indonesia,
and has therefore become a core priority for
President susilo Bambang yudhoyono, who
is perceived as the steward of the country’s
robust economic growth over the past
six years.
Coming to power in 2004 and being
reelected for another five-year term in 2009,
yudhoyono is generally well-regarded
because of his liberal economic and fiscally
conservative policies that have allowed
Indonesia to grow into a modern market
economy. his vision for the country’s electricity
sector is no different, with the introduction of a
new regulatory framework in 2009 commonly
referred to as the ‘2009 Electricity Law’. under
this law, power generation was fully opened to
the participation of private power producers,
known in Indonesia as independent power
producers (IPPs), which sell their electricity to
PLN for distribution.
Theoretically, even the transmission and
distribution of electricity can be undertaken
by a private party, as long as PLN has foregone
its option to do so. This new regulatory
framework was devised precisely to push for
the participation of private investments into
the power sector as it became clear that PLN
was incapable of meeting electricity demand
on its own. Even though private interests had
been allowed since 2002, their involvement
and direct investments into power generation
have been scarce.
Prior to the 2009 Electricity Law, yudhoyono
had already emphasized the urgent need
for power infrastructure by implementing
a two-phase fast-track programme aimed
at building 20,000 MW worth of new power
plants. The plan is divided into phases of
10,000 MW each, with the first focusing entirely
on the construction of coal-fired power plants,
mostly by PLN, from 2006–10. The second
initiative emphasizes the role of IPPs and the
development of cleaner energy sources,
particularly geothermal, propped up by the
Committed to Indonesia,we drive the country forward.
PT Pembangkitan Jawa-Bali Jl. Ketintang Baru No. 11 Surabaya 60231 Indonesia
T : (62-31) 8283180 (Hunting)F : (62-31) 8283183
www.ptbjb.com
8
4 Power Engineering International www.PowerEngineeringInt.com
2009 Electricity Law, which eased regulations
for private investors to finance new power
plants. The second phase is expected to be
completed by 2014.
These fast-track programmes make up the
backbone of the country’s plans to raise the
electrification rate and tap into new sources of
energy by attracting deep-pocketed investors
and companies with the appropriate know-
how and technologies. In essence, the fast-
track programme has become the promise of
a modern electricity sector with a diversified
energy mix.
fast traCK PerforManCeWhile Indonesia today struggles to satisfy its
own energy needs, the country was once a net
exporter of energy and a major oil-producing
member nation of oPEC up until 2008. It
was precisely this wealth of hydrocarbon
resources that shaped the country’s energy
policies from the 1950s onwards, and based
power generation on the use of oil as the
main fuel source. as oil reserves declined
and investments for exploration waned,
Indonesia was forced to begin importing oil
and subsidise its prices for
fuel domestically. subsidies
for electricity soon followed.
Currently, fuel subsidies
are more than double
those for electricity and
are estimated to reach $23
billion by the end of this
year because of global
oil prices. Together, fuel
and electricity subsidies
consume roughly 4 per
cent of the country’s
$845.7 billion GdP. This
situation has sent the government scrambling
for fast and efficient solutions to address
the increasing demand for power. Most
understand that both fuel and electricity
subsidies are not sustainable in the long
term, however, income levels for the majority
of the population are not high enough to
absorb the costs. This is particularly true
given that Indonesians take having access
to inexpensive fuel and electricity for granted.
Next year, the government is expecting that
energy subsidies will increase by a further 36
per cent, compared to a 15 per cent rise in
spending for infrastructure.
The World Bank’s Koeberle believes that
subsidies present a greater problem related to
“the uneven distribution of public resources in
the sense that these subsidies do not reach
the poorest populations. In other words, it
is seldom the rural populations who are
the consumers of fuel for transportation or
have access to electricity, and are therefore
not benefiting directly from these subsidies.
under the current state of affairs however, the
nur Pamudji, president director, PLN
stefan Koeberle, country director Indonesia, The World Bank
Indonesia
www.PowerEngineeringInt.com 5Power Engineering International
energy subsidies are only benefiting the richer
households as they represent the largest
segment of energy consumers.”
Nonetheless, when the government
attempted to raise fuel prices earlier this
year, it was forced to back down as people
took to the streets in peaceful protests and
demonstrations. With upcoming presidential
elections in 2014, politicians opted not to take
any risks that would make them unpopular.
The only other solution is to find alternative
fuel sources for power generation to replace
approximately 7000 MW of generating
capacity based on diesel generators.
While natural gas is abundant in
Indonesia, close to 70 per cent of gas
reserves are located in hard-to-reach offshore
locations and transportation infrastructure for
gas is rather limited. In light of this, regional
governments have been making their own
efforts to develop natural gas in their areas
rather than waiting for national oil company,
Pertamina, to do the job for them.
Petrogas jatim utama (Pju), is a prime
example of this trend as a state-owned-
company established by the government
of East java tasked with developing natural
gas infrastructure in the region. “our business
consists of upstream, downstream and
services covering the entire value chain.
Essentially, we are responsible for managing
infrastructure built by the local government
of East java in order to then distribute [the]
gas that we purchase from Lapindo Brantas.
Pju manages the main distribution station,
while private companies handle the smaller
satellite distribution centres. In managing this
gas infrastructure, our main aim is to reduce
gasoline consumption, as it’s very expensive”,
explains president director abdul Muid.
“at the moment we face a great deal
of competition in our sector, especially from
Pertamina that controls a significant portion
of the market. however, this is changing as
SumateraKalimantan
Java-Bali NTBNTT
Sulawesi
Maluku
Papua
PapuaDiesel 266MWHydro 4mmTotal 270MW
NTTDiesel 53MWGeothermal 4mmHydro 1mmTotal 58MW
NTBDiesel 141MWHydro 1mmTotal 142MW
Java-BaliHydro 2,399MWGeothermal 375MWSteamturbine 8,680MWCombined 6,786MWCycleGas turbine 2,114MWDiesel 120WIPP 3,997MWTotal 24,471MW
SumateraHydro 867MWGeothermal 0MWSteam-turbine 1,175MWCombined 858MWCycleGas-turbine 874MWDiesel 953WIPP 601MWTotal 5,3281MW
KalimantenHydro 32MWSteam-turbine 201MWCombined 60MWCycleGas-turbine 113MWDiesel 969WOthers 39MWIPP 45MWTotal 1,459MW
SulawesiHydro 220MWGeothermal 60MWSteam-turbine 55MWGas-turbine 123MWDiesel 567WIPP 300MWTotal 1,325MW
MalukuDiesel 198MWTotal 198MW
TotalHydro 3,523MWGeothermal 439MWSteam-turbine 10,111MWCombined 7,704MWcycleGas-turbine 3,224MWDiesel 3,268WOthers 39WIPP 4,943MWTotal 33,251MW
Map: Indonesian Power Geneation Network, june 2011
Indonesia
9
4 Power Engineering International www.PowerEngineeringInt.com
2009 Electricity Law, which eased regulations
for private investors to finance new power
plants. The second phase is expected to be
completed by 2014.
These fast-track programmes make up the
backbone of the country’s plans to raise the
electrification rate and tap into new sources of
energy by attracting deep-pocketed investors
and companies with the appropriate know-
how and technologies. In essence, the fast-
track programme has become the promise of
a modern electricity sector with a diversified
energy mix.
fast traCK PerforManCeWhile Indonesia today struggles to satisfy its
own energy needs, the country was once a net
exporter of energy and a major oil-producing
member nation of oPEC up until 2008. It
was precisely this wealth of hydrocarbon
resources that shaped the country’s energy
policies from the 1950s onwards, and based
power generation on the use of oil as the
main fuel source. as oil reserves declined
and investments for exploration waned,
Indonesia was forced to begin importing oil
and subsidise its prices for
fuel domestically. subsidies
for electricity soon followed.
Currently, fuel subsidies
are more than double
those for electricity and
are estimated to reach $23
billion by the end of this
year because of global
oil prices. Together, fuel
and electricity subsidies
consume roughly 4 per
cent of the country’s
$845.7 billion GdP. This
situation has sent the government scrambling
for fast and efficient solutions to address
the increasing demand for power. Most
understand that both fuel and electricity
subsidies are not sustainable in the long
term, however, income levels for the majority
of the population are not high enough to
absorb the costs. This is particularly true
given that Indonesians take having access
to inexpensive fuel and electricity for granted.
Next year, the government is expecting that
energy subsidies will increase by a further 36
per cent, compared to a 15 per cent rise in
spending for infrastructure.
The World Bank’s Koeberle believes that
subsidies present a greater problem related to
“the uneven distribution of public resources in
the sense that these subsidies do not reach
the poorest populations. In other words, it
is seldom the rural populations who are
the consumers of fuel for transportation or
have access to electricity, and are therefore
not benefiting directly from these subsidies.
under the current state of affairs however, the
nur Pamudji, president director, PLN
stefan Koeberle, country director Indonesia, The World Bank
Indonesia
www.PowerEngineeringInt.com 5Power Engineering International
energy subsidies are only benefiting the richer
households as they represent the largest
segment of energy consumers.”
Nonetheless, when the government
attempted to raise fuel prices earlier this
year, it was forced to back down as people
took to the streets in peaceful protests and
demonstrations. With upcoming presidential
elections in 2014, politicians opted not to take
any risks that would make them unpopular.
The only other solution is to find alternative
fuel sources for power generation to replace
approximately 7000 MW of generating
capacity based on diesel generators.
While natural gas is abundant in
Indonesia, close to 70 per cent of gas
reserves are located in hard-to-reach offshore
locations and transportation infrastructure for
gas is rather limited. In light of this, regional
governments have been making their own
efforts to develop natural gas in their areas
rather than waiting for national oil company,
Pertamina, to do the job for them.
Petrogas jatim utama (Pju), is a prime
example of this trend as a state-owned-
company established by the government
of East java tasked with developing natural
gas infrastructure in the region. “our business
consists of upstream, downstream and
services covering the entire value chain.
Essentially, we are responsible for managing
infrastructure built by the local government
of East java in order to then distribute [the]
gas that we purchase from Lapindo Brantas.
Pju manages the main distribution station,
while private companies handle the smaller
satellite distribution centres. In managing this
gas infrastructure, our main aim is to reduce
gasoline consumption, as it’s very expensive”,
explains president director abdul Muid.
“at the moment we face a great deal
of competition in our sector, especially from
Pertamina that controls a significant portion
of the market. however, this is changing as
SumateraKalimantan
Java-Bali NTBNTT
Sulawesi
Maluku
Papua
PapuaDiesel 266MWHydro 4mmTotal 270MW
NTTDiesel 53MWGeothermal 4mmHydro 1mmTotal 58MW
NTBDiesel 141MWHydro 1mmTotal 142MW
Java-BaliHydro 2,399MWGeothermal 375MWSteamturbine 8,680MWCombined 6,786MWCycleGas turbine 2,114MWDiesel 120WIPP 3,997MWTotal 24,471MW
SumateraHydro 867MWGeothermal 0MWSteam-turbine 1,175MWCombined 858MWCycleGas-turbine 874MWDiesel 953WIPP 601MWTotal 5,3281MW
KalimantenHydro 32MWSteam-turbine 201MWCombined 60MWCycleGas-turbine 113MWDiesel 969WOthers 39MWIPP 45MWTotal 1,459MW
SulawesiHydro 220MWGeothermal 60MWSteam-turbine 55MWGas-turbine 123MWDiesel 567WIPP 300MWTotal 1,325MW
MalukuDiesel 198MWTotal 198MW
TotalHydro 3,523MWGeothermal 439MWSteam-turbine 10,111MWCombined 7,704MWcycleGas-turbine 3,224MWDiesel 3,268WOthers 39WIPP 4,943MWTotal 33,251MW
Map: Indonesian Power Geneation Network, june 2011
Indonesia
10
6 Power Engineering International www.PowerEngineeringInt.com
the market is opening up, particularly with the
regional government structure that provides
greater autonomy to local governments. Finally,
being a state-owned enterprise, Pju also serves
a purpose of delivering value to the surrounding
community. For such reason, we have been
succesfully operating a city gas distribution
business in surabaya and sidoarjo using part
of the gas which we purchase from Lapindo
Brantas. This operation is currently serving close
to 7000 households,” concludes Muid.
While the example of Pju is commendable,
it is not viable on a national scale since most
regional government do not have the capital
or expertise for such projects. Furthermore,
while the country waits for gas infrastructure
to be installed, electricity demand steadily
keeps rising. and so was born Phase 1 of the
fast-track programme that focuses entirely on
coal for the generation of 10,000 MW.
director General jarman explains that
“in 2011, the energy mix in Indonesia relied
22 per cent on oil, and we are striving to bring
this number down to 13 per cent by the end of
2012, to 9 per cent by 2013 and to 4 per cent
by 2015, in line with oECd countries. We cannot
eliminate the oil
fuel for electricity
as it is still required
in remote areas
for generators,
but we can
definitely reduce
the dependency”.
Coal seems to be
the sure answer as
it already accounts
for 47 per cent of
power generation.
the Power of CoalIt is Indonesia’s fortune to be blessed with
extensive coal reserves that today make this
nation the world’s prime exporter of this raw
material. Earlier this year, estimated coal reserves
were raised to over 25 billion tonnes as more
mining companies provide the government
with higher quality data of their operations.
The challenge for the coal mining sector lies in
balancing export commitments and revenues
with an increased national demand for coal to
be used for power generation.
This year a 20 per cent export tax for
unprocessed coal was announced by
the government as a means to boost the
availability of resources for local consumption.
Mining companies have lashed out against
such protectionist measures. ultimately, they
argue that an export tax hinders economic
growth and the greater potential of Indonesia’s
economy. Bob Kamandanu, chairman of
the Indonesian Coal Mining association,
speaks of his responsibility to express “to the
government that they should let the market
decide the supply and demand of coal,
Maintaining Quality Services for Quality Customers
Wisma PSM, JL. Swadaya II No. 7, Tanjung Barat, Jagakarsa,
Jakarta Selatan 12530, IndonesiaPhone: +62-21-7803300; 7891481
Fax: +62-21-7801054; 7804070www.trubagroup.com
PT. TRUBA JAYA ENGINEERING
INDONESIA FUEL MIX 2010-2019400.000
350.000
300.000
250.000
200.000
150.000
100.000
50.000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 20192016 2017
Historical Projection
HSD MFO
LNG
GAS
COAL
Geothermal
Hydro
Indonesia
www.PowerEngineeringInt.com 7Power Engineering International
because there is tough competition around
the world and Indonesia could easily lose its
place as #1 if we start placing market barriers.
With such restrictions in place, we foresee that
Indonesia would lose its place as the leading
coal exporter within the next ten years.”
on the other hand, Indonesia’s coal
mining sector has been accused of
becoming excessive and careless in their
practises, which is why greater regulation is
necessary to maintain environmental and
safety standards.
With power-hungry customers such
as China and India in the region, mining
companies of all shapes and sizes have
rushed to make a buck out of Indonesia’s
natural wealth. Now that oil prices are on the
rise, Indonesia wants a piece of the pie for itself
as it looks to convert over 7700 MW of diesel
power generation into coal-fired power plants,
in addition to the 10,000 MW in new coal-fired
power stations allotted by the first phase of the
fast-track programme.
“The good news is that Indonesia has
sufficient coal resources to sustain its energy
needs for the next century, which is why the
government is pushing for the construction of
numerous coal-fired power plants throughout
the country. The bad news is that Indonesia’s
coal varies greatly in quality, which poses a
challenge for us to develop power plants
specifically designed to the quality of coal that
will be used to generate power in each region”,
explains ulysses R. simandjuntak, vice chairman
of the Indonesian Electrical Power society (MKI).
In parallel to the initial opening of the power
sector to private interests back in 2002, MKI
was created to represent power producers,
manufacturers of electrical equipment and
other companies of businesses related to
the electricity sector, such as gas and coal
suppliers, engineering companies and
consulting firms. as the most respected
association in the country’s power sector, MKI
serves an advisory role to the government
in order to ensure that private interests are
considered in policy making.
In relation to the first stage of the fast-track
programme, those private interests have been
less than expected because of a number of
challenges that hinder the development of
new coal-fired power plants. according to
simandjuntak, a question worth asking is “how
to build these power plants given that most of
the coal reserves are in remote areas devoid
of infrastructural access”. This is particularly
challenging for Indonesia
given that a majority of the
country’s coal resources
are classified as low-rank
coal with high moisture
content that makes it very
heavy and expensive to
transport. Furthermore,
as most coal reserves
are located far from the
core java-Bali grid on
the islands of sumatra
and Kalimantan, the
government is rethinking its strategy as coal
feedstock becomes more difficult to source.
the Phase 1 Precedentalmost six years since the announcement
of the first fast-track programme, PLN’s
results to generate the desired 10,000 MW
by 2010 have been sluggish at best. The
company expects that by the end of 2012
they will have achieved 60 per cent of the
targeted installed capacity for Phase 1. Cited
setbacks to projects are as expected, and
include cumbersome bureaucracy and land
acquisition disputes, which are ultimately
linked to the decentralised regulation of power
projects that grants regional governments
the power to approve projects or not. often,
local authorities are ill-equipped to grasp the
technical details of the projects because of a
lack of qualified human resources.
Koeberle of The World Bank believes that
one of the greatest challenges for power
projects has been “the uncertainty of dealing
with the numerous different actors in the
development process, including the local
authorities. It is not just a capacity issue for
dealing with investors, but also the uncertainty
that comes from dealing with many different
actors who have authority and are often not
well coordinated.”
Paiton Energy, which owns and operates
Indonesia’s largest coal-fired power plant
and the first to use supercritical technology,
inaugurated its third gen eration unit on
5 june 2012 with a grand ceremony attended
by minister of Energy, jero Wacik. The 815 MW,
$1.5 billion project, which brought the total
plant’s capacity to 2035 MW, was completed
a month ahead of schedule and is widely
recognized as a model of success. Low Kian
Min, Paiton Energy’s president director, claims
that while there are indeed challenges
to Indonesia’s power sector, they are not
impossible to overcome.
“Indonesia can certainly be difficult to
understand at times, and I say this even
though I am asian myself. I think every country
has its own nuances as to how you have to
deal with people, and I don’t think Indonesia
is any different. The keys are to understand the
local culture and understand how people
work, what motivates them and what they
mean when they say ‘yes’. at the end of the
day the most important thing is to deliver your
end of the bargain and therefore obtaining the
respect and trust of the locals. This has been
fazil alfitri, president director, Medco Power
Fuel Cost Comparison
2,400
1,800
1,200
600
0
(Rp/kWh)
Natural Gas Coal Geothermal Fuel Oil
268 249
659
2,359
352 368560
1,368
374326602
1,610
2,072
325347
693
2008 2009 2010 1H 2011
erman suparno, president director, Truba jaya Engineering
Indonesia
11
6 Power Engineering International www.PowerEngineeringInt.com
the market is opening up, particularly with the
regional government structure that provides
greater autonomy to local governments. Finally,
being a state-owned enterprise, Pju also serves
a purpose of delivering value to the surrounding
community. For such reason, we have been
succesfully operating a city gas distribution
business in surabaya and sidoarjo using part
of the gas which we purchase from Lapindo
Brantas. This operation is currently serving close
to 7000 households,” concludes Muid.
While the example of Pju is commendable,
it is not viable on a national scale since most
regional government do not have the capital
or expertise for such projects. Furthermore,
while the country waits for gas infrastructure
to be installed, electricity demand steadily
keeps rising. and so was born Phase 1 of the
fast-track programme that focuses entirely on
coal for the generation of 10,000 MW.
director General jarman explains that
“in 2011, the energy mix in Indonesia relied
22 per cent on oil, and we are striving to bring
this number down to 13 per cent by the end of
2012, to 9 per cent by 2013 and to 4 per cent
by 2015, in line with oECd countries. We cannot
eliminate the oil
fuel for electricity
as it is still required
in remote areas
for generators,
but we can
definitely reduce
the dependency”.
Coal seems to be
the sure answer as
it already accounts
for 47 per cent of
power generation.
the Power of CoalIt is Indonesia’s fortune to be blessed with
extensive coal reserves that today make this
nation the world’s prime exporter of this raw
material. Earlier this year, estimated coal reserves
were raised to over 25 billion tonnes as more
mining companies provide the government
with higher quality data of their operations.
The challenge for the coal mining sector lies in
balancing export commitments and revenues
with an increased national demand for coal to
be used for power generation.
This year a 20 per cent export tax for
unprocessed coal was announced by
the government as a means to boost the
availability of resources for local consumption.
Mining companies have lashed out against
such protectionist measures. ultimately, they
argue that an export tax hinders economic
growth and the greater potential of Indonesia’s
economy. Bob Kamandanu, chairman of
the Indonesian Coal Mining association,
speaks of his responsibility to express “to the
government that they should let the market
decide the supply and demand of coal,
Maintaining Quality Services for Quality Customers
Wisma PSM, JL. Swadaya II No. 7, Tanjung Barat, Jagakarsa,
Jakarta Selatan 12530, IndonesiaPhone: +62-21-7803300; 7891481
Fax: +62-21-7801054; 7804070www.trubagroup.com
PT. TRUBA JAYA ENGINEERING
INDONESIA FUEL MIX 2010-2019400.000
350.000
300.000
250.000
200.000
150.000
100.000
50.000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 20192016 2017
Historical Projection
HSD MFO
LNG
GAS
COAL
Geothermal
Hydro
Indonesia
www.PowerEngineeringInt.com 7Power Engineering International
because there is tough competition around
the world and Indonesia could easily lose its
place as #1 if we start placing market barriers.
With such restrictions in place, we foresee that
Indonesia would lose its place as the leading
coal exporter within the next ten years.”
on the other hand, Indonesia’s coal
mining sector has been accused of
becoming excessive and careless in their
practises, which is why greater regulation is
necessary to maintain environmental and
safety standards.
With power-hungry customers such
as China and India in the region, mining
companies of all shapes and sizes have
rushed to make a buck out of Indonesia’s
natural wealth. Now that oil prices are on the
rise, Indonesia wants a piece of the pie for itself
as it looks to convert over 7700 MW of diesel
power generation into coal-fired power plants,
in addition to the 10,000 MW in new coal-fired
power stations allotted by the first phase of the
fast-track programme.
“The good news is that Indonesia has
sufficient coal resources to sustain its energy
needs for the next century, which is why the
government is pushing for the construction of
numerous coal-fired power plants throughout
the country. The bad news is that Indonesia’s
coal varies greatly in quality, which poses a
challenge for us to develop power plants
specifically designed to the quality of coal that
will be used to generate power in each region”,
explains ulysses R. simandjuntak, vice chairman
of the Indonesian Electrical Power society (MKI).
In parallel to the initial opening of the power
sector to private interests back in 2002, MKI
was created to represent power producers,
manufacturers of electrical equipment and
other companies of businesses related to
the electricity sector, such as gas and coal
suppliers, engineering companies and
consulting firms. as the most respected
association in the country’s power sector, MKI
serves an advisory role to the government
in order to ensure that private interests are
considered in policy making.
In relation to the first stage of the fast-track
programme, those private interests have been
less than expected because of a number of
challenges that hinder the development of
new coal-fired power plants. according to
simandjuntak, a question worth asking is “how
to build these power plants given that most of
the coal reserves are in remote areas devoid
of infrastructural access”. This is particularly
challenging for Indonesia
given that a majority of the
country’s coal resources
are classified as low-rank
coal with high moisture
content that makes it very
heavy and expensive to
transport. Furthermore,
as most coal reserves
are located far from the
core java-Bali grid on
the islands of sumatra
and Kalimantan, the
government is rethinking its strategy as coal
feedstock becomes more difficult to source.
the Phase 1 Precedentalmost six years since the announcement
of the first fast-track programme, PLN’s
results to generate the desired 10,000 MW
by 2010 have been sluggish at best. The
company expects that by the end of 2012
they will have achieved 60 per cent of the
targeted installed capacity for Phase 1. Cited
setbacks to projects are as expected, and
include cumbersome bureaucracy and land
acquisition disputes, which are ultimately
linked to the decentralised regulation of power
projects that grants regional governments
the power to approve projects or not. often,
local authorities are ill-equipped to grasp the
technical details of the projects because of a
lack of qualified human resources.
Koeberle of The World Bank believes that
one of the greatest challenges for power
projects has been “the uncertainty of dealing
with the numerous different actors in the
development process, including the local
authorities. It is not just a capacity issue for
dealing with investors, but also the uncertainty
that comes from dealing with many different
actors who have authority and are often not
well coordinated.”
Paiton Energy, which owns and operates
Indonesia’s largest coal-fired power plant
and the first to use supercritical technology,
inaugurated its third gen eration unit on
5 june 2012 with a grand ceremony attended
by minister of Energy, jero Wacik. The 815 MW,
$1.5 billion project, which brought the total
plant’s capacity to 2035 MW, was completed
a month ahead of schedule and is widely
recognized as a model of success. Low Kian
Min, Paiton Energy’s president director, claims
that while there are indeed challenges
to Indonesia’s power sector, they are not
impossible to overcome.
“Indonesia can certainly be difficult to
understand at times, and I say this even
though I am asian myself. I think every country
has its own nuances as to how you have to
deal with people, and I don’t think Indonesia
is any different. The keys are to understand the
local culture and understand how people
work, what motivates them and what they
mean when they say ‘yes’. at the end of the
day the most important thing is to deliver your
end of the bargain and therefore obtaining the
respect and trust of the locals. This has been
fazil alfitri, president director, Medco Power
Fuel Cost Comparison
2,400
1,800
1,200
600
0
(Rp/kWh)
Natural Gas Coal Geothermal Fuel Oil
268 249
659
2,359
352 368560
1,368
374326602
1,610
2,072
325347
693
2008 2009 2010 1H 2011
erman suparno, president director, Truba jaya Engineering
Indonesia
12
exactly what we have
done with PLN, which
is why we have such a
positive and beneficial
relationship today.”
The same cannot
be said about most
of the projects
commissioned under
Phase 1 though. some
point to PLN’s bidding
process and criteria as
the main cause for the
delay of most power
plants under the fast-
track programme. In
its effort to be cost-
effective and hasty
in the development
of the projects, PLN
largely opted for
Chinese contractors
and equipment providers, accounting for almost 95 per cent of contracts,
which promised rock bottom prices and speedy delivery times.
In the end, many of those promises brought unwanted consequences,
including faulty equipment and imprecision that inevitably caused
delays in construction and greatly increased costs. Given that many
of the Chinese contractors were also involved in the financing of these
projects, the higher costs led to a shortage of capital and lengthy
renegotiations. Erman suparno, chief executive officer of PT Truba jaya
Engineering, asserts that this is why “we are working with European,
japanese and reputable overseas companies, given that their projects
are of high quality and it is easy for us to follow them in terms of the
cooperation since we follow the same values”.
his company is one of the most active Indonesian EPC contractors
in the power sector, not only with coal projects, but also for geothermal
and hydropower plants, as well as in the oil & gas sector. Counting
30 years of experience, Truba jaya will be providing its services for
approximately 7000 MW worth of projects commissioned under the
Phase 1 programme. “Foreign companies choose us for three major
reasons: setting, scheduling and quality. We are involved day by day
in our projects and are very concerned with the quality of our services
because we always want to provide the best. We plan to expand to other
international markets in order for Truba jaya to become a global player
in this field. We have started our operations in saudi arabia in 2004, so
we have a good track record in that country with manufacturing and
EPC companies,” concludes suparno. It is reputable local companies
like this that provide foreign investors with the local expertise to operate
successfully under the “Indonesian way”.
strengthening Indonesia’s GridBeyond the ramping up of power generation, Indonesia’s triumph
in electrifying its people will be dependent on the development of
a modern and integrated grid that can support its energy-hungry
economy and the development of new regions. The Indonesian
electricity network is composed of eight interconnected grids, with
the java-Madura-Bali (jMB) grid accounting for 29,077 kmc of
transmission lines out of a total 43,640 kmc in 2010, plus an additional
600 smaller stand-alone networks. as of 2010, the island of java
alone accounted for approximately 20,000 MW of the country’s total
28,000 MW generating capacity.
With a population of 140 million and host to Indonesia’s financial
and industrial base, java is by far the greatest consumer of electricity
in the country and home to the fastest growing demand. such a
concentrated network, however, is partly the reason for the country’s
unimpressive electrification rate. It goes without saying that linking
thousands of islands on a single power grid is logistically and
economically unfeasible. still, there is a need to integrate the major
islands of java, Bali, sumatra, Kalimantan and sulawesi to encourage
a full transformation of Indonesia’s
electricity matrix.
“We are in fact focusing our
transmission and distribution (T&d)
efforts outside of the java-Bali area. In
sumatra, for example, we are building
275 kV backbone transmission lines
from north to south and a 500 kV line
from south sumatra to Medan. The
west side of the island already has
a 275 kV transmission line that will
complement these other two projects
that we expect to finish over the next
8 Power Engineering International www.PowerEngineeringInt.com
Your indonesian partner of choice for:
ww
w.in
dopo
wer
inte
rnat
iona
l.co.
id
Combine CycleSteam Power
GeothernalSubstation
TransmissionGas Turbine
Hydro Power
Illustrative Photo: Paiton Project, courtesy of Truba jaya Engineering
susanto Purnomo, president director, PjB
Indonesia
www.PowerEngineeringInt.com 9Power Engineering International
Indonesia’s water injection expert providing reverse osmosis technology to convert sea water into fresh water
As PLN strives to modernise the transmission and distribution of electricity,
equipment providers have been reactive in adapting to new standards and
regulations. The local content quota has further coaxed manufacturers to design
their production sites according to Indonesia’s needs. Takashi Aso, president
director of Metbelosa, elaborates that “Indonesia’s GDP is comprised mostly
of local demand, close to 70 per cent, which is quite unique when compared
to other ASEAN countries. Any manufacturer in Indonesia has the advantage of
producing its products locally and having them consumed here as well.” Metbelosa
is a manufacturer of electrical meters, which has now moved to become a prime
supplier of PLN’s new pre-paid meters.
The company was set up as a joint-venture by Japanese Osaki and a
former state-owned company. “Our primary production facilities are designed to
manufacture mechanical meters, including single and multi-phase kWh meters.
The demand for these products has been quite high since the beginning, and
today there is a current demand of 2-3 million single-phase meters every year in
Indonesia. As one of the leading manufacturers of electrical meters, we have been
enjoying this high demand that is fueled by the country’s rapid economic growth,”
concludes Aso.
Furthermore, he is “counting that PLN’s shift to pre-payment and smart meters
will continue beyond a decade, and it is my aim to have Metbelosa supply this
shift. Our mission is to produce the largest quantity of meters as possible to meet
PLN’s demands and to compete with all the companies in the market. In response
to all these opportunities we are soon to complete our second factory here in
Indonesia, specifically designed to produce electric kWh meters only. As part of
the global trends, we are now moving to pay more attention to Smart Grids and
smart metering, which is something we wish to do here in Indonesia as well. We
have to newly develop products directly linked to the Smart Grid, which is why
Osaki recently just completed a merger with Singapore-based EDMI. EDMI is a
medium-sized electronic metering company that is very competitive in European
markets and especially in British Commonwealth countries.” Metbelosa finished
the construction of its second manufacturing site in late May this year and began
producing its meters a month later.
Lee Kwang Mong, managing director of EDMI, speaks of the merger between
the two companies as a guarantee for growth for both companies. “When you
consider the history of both our companies there are great complementarities
between the two that will make us a stronger entity in the future. On the one hand,
Osaki has a long legacy of manufacturing electro-mechanical meters and has only
recently begun to switch over to producing electronic single-phase meters. On the
other hand, EDMI specializes in high-end electronic three-phase meters that are
typically used by larger energy consumers. As a company we have always dedicated
ourselves to designing custom-made meters that have a capacity to accommodate
the closest possible relation to other electronic companies.” By joining forces both
companies look to tackle the fast-developing Indonesian market, as well as new
international targets.
Indonesia
ManUfaCtUrInG for eleCtrICIty DeManD
13
exactly what we have
done with PLN, which
is why we have such a
positive and beneficial
relationship today.”
The same cannot
be said about most
of the projects
commissioned under
Phase 1 though. some
point to PLN’s bidding
process and criteria as
the main cause for the
delay of most power
plants under the fast-
track programme. In
its effort to be cost-
effective and hasty
in the development
of the projects, PLN
largely opted for
Chinese contractors
and equipment providers, accounting for almost 95 per cent of contracts,
which promised rock bottom prices and speedy delivery times.
In the end, many of those promises brought unwanted consequences,
including faulty equipment and imprecision that inevitably caused
delays in construction and greatly increased costs. Given that many
of the Chinese contractors were also involved in the financing of these
projects, the higher costs led to a shortage of capital and lengthy
renegotiations. Erman suparno, chief executive officer of PT Truba jaya
Engineering, asserts that this is why “we are working with European,
japanese and reputable overseas companies, given that their projects
are of high quality and it is easy for us to follow them in terms of the
cooperation since we follow the same values”.
his company is one of the most active Indonesian EPC contractors
in the power sector, not only with coal projects, but also for geothermal
and hydropower plants, as well as in the oil & gas sector. Counting
30 years of experience, Truba jaya will be providing its services for
approximately 7000 MW worth of projects commissioned under the
Phase 1 programme. “Foreign companies choose us for three major
reasons: setting, scheduling and quality. We are involved day by day
in our projects and are very concerned with the quality of our services
because we always want to provide the best. We plan to expand to other
international markets in order for Truba jaya to become a global player
in this field. We have started our operations in saudi arabia in 2004, so
we have a good track record in that country with manufacturing and
EPC companies,” concludes suparno. It is reputable local companies
like this that provide foreign investors with the local expertise to operate
successfully under the “Indonesian way”.
strengthening Indonesia’s GridBeyond the ramping up of power generation, Indonesia’s triumph
in electrifying its people will be dependent on the development of
a modern and integrated grid that can support its energy-hungry
economy and the development of new regions. The Indonesian
electricity network is composed of eight interconnected grids, with
the java-Madura-Bali (jMB) grid accounting for 29,077 kmc of
transmission lines out of a total 43,640 kmc in 2010, plus an additional
600 smaller stand-alone networks. as of 2010, the island of java
alone accounted for approximately 20,000 MW of the country’s total
28,000 MW generating capacity.
With a population of 140 million and host to Indonesia’s financial
and industrial base, java is by far the greatest consumer of electricity
in the country and home to the fastest growing demand. such a
concentrated network, however, is partly the reason for the country’s
unimpressive electrification rate. It goes without saying that linking
thousands of islands on a single power grid is logistically and
economically unfeasible. still, there is a need to integrate the major
islands of java, Bali, sumatra, Kalimantan and sulawesi to encourage
a full transformation of Indonesia’s
electricity matrix.
“We are in fact focusing our
transmission and distribution (T&d)
efforts outside of the java-Bali area. In
sumatra, for example, we are building
275 kV backbone transmission lines
from north to south and a 500 kV line
from south sumatra to Medan. The
west side of the island already has
a 275 kV transmission line that will
complement these other two projects
that we expect to finish over the next
8 Power Engineering International www.PowerEngineeringInt.com
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ww
w.in
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inte
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iona
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id
Combine CycleSteam Power
GeothernalSubstation
TransmissionGas Turbine
Hydro Power
Illustrative Photo: Paiton Project, courtesy of Truba jaya Engineering
susanto Purnomo, president director, PjB
Indonesia
www.PowerEngineeringInt.com 9Power Engineering International
Indonesia’s water injection expert providing reverse osmosis technology to convert sea water into fresh water
As PLN strives to modernise the transmission and distribution of electricity,
equipment providers have been reactive in adapting to new standards and
regulations. The local content quota has further coaxed manufacturers to design
their production sites according to Indonesia’s needs. Takashi Aso, president
director of Metbelosa, elaborates that “Indonesia’s GDP is comprised mostly
of local demand, close to 70 per cent, which is quite unique when compared
to other ASEAN countries. Any manufacturer in Indonesia has the advantage of
producing its products locally and having them consumed here as well.” Metbelosa
is a manufacturer of electrical meters, which has now moved to become a prime
supplier of PLN’s new pre-paid meters.
The company was set up as a joint-venture by Japanese Osaki and a
former state-owned company. “Our primary production facilities are designed to
manufacture mechanical meters, including single and multi-phase kWh meters.
The demand for these products has been quite high since the beginning, and
today there is a current demand of 2-3 million single-phase meters every year in
Indonesia. As one of the leading manufacturers of electrical meters, we have been
enjoying this high demand that is fueled by the country’s rapid economic growth,”
concludes Aso.
Furthermore, he is “counting that PLN’s shift to pre-payment and smart meters
will continue beyond a decade, and it is my aim to have Metbelosa supply this
shift. Our mission is to produce the largest quantity of meters as possible to meet
PLN’s demands and to compete with all the companies in the market. In response
to all these opportunities we are soon to complete our second factory here in
Indonesia, specifically designed to produce electric kWh meters only. As part of
the global trends, we are now moving to pay more attention to Smart Grids and
smart metering, which is something we wish to do here in Indonesia as well. We
have to newly develop products directly linked to the Smart Grid, which is why
Osaki recently just completed a merger with Singapore-based EDMI. EDMI is a
medium-sized electronic metering company that is very competitive in European
markets and especially in British Commonwealth countries.” Metbelosa finished
the construction of its second manufacturing site in late May this year and began
producing its meters a month later.
Lee Kwang Mong, managing director of EDMI, speaks of the merger between
the two companies as a guarantee for growth for both companies. “When you
consider the history of both our companies there are great complementarities
between the two that will make us a stronger entity in the future. On the one hand,
Osaki has a long legacy of manufacturing electro-mechanical meters and has only
recently begun to switch over to producing electronic single-phase meters. On the
other hand, EDMI specializes in high-end electronic three-phase meters that are
typically used by larger energy consumers. As a company we have always dedicated
ourselves to designing custom-made meters that have a capacity to accommodate
the closest possible relation to other electronic companies.” By joining forces both
companies look to tackle the fast-developing Indonesian market, as well as new
international targets.
Indonesia
ManUfaCtUrInG for eleCtrICIty DeManD
14
10 Power Engineering International www.PowerEngineeringInt.com
two years. In sulawesi we are also developing
the grid by connecting East Kalimantan with
south Kalimantan and then south Kalimantan
with Central Kalimantan with a 150 kV line”,
recounts PLN’s Pamudji. “similarly, we are
extending the grid in sulawesi in order make
use of several power plants that are being
developed there.
“These projects will be financed directly
by the government who has committed
to provide us with $950 million for grid
development every year. In the future we
also expect that many power plants will be
built by private companies who will operate
nickel smelters that require large amounts of
electricity. By building a strong grid we will also
be assisting the development of such mining
activities and the operation of local smelters.”
This downstream expansion is being
supported by local and foreign companies
that have been anxiously waiting for this
moment. While traditional global electricity
giants, such as siemens, aBB, Emerson and
schneider Electric, were the leading providers
of T&d equipment, in recent years PLN has
been enforcing a mandatory 40 per cent local
content requirement for all power projects.
at times it is unclear as to what exactly can
be considered local content. In any case,
foreign companies have been heeding
to local industry demands by localising
manufacturing in the country. The direct effect
is a vibrant local industry, which manufactures
everything from cables and transformers, to
switchboards and electrical meters.
aside from the installation of backbone
T&d infrastructure in the major islands, there
are also plans to integrate the sumatra and
java grids to transmit electricity generated
from sumatra’s coal and geothermal sites to
java. surely this will increase the attractiveness
of power generation projects in sumatra and
lure IPPs to that region. such plans bode well
with the ambitions of PLN’s second phase of
its fast-track programme, which has been in
development since 2010.
unlike the first stage, Phase 2 focuses
on the construction of power plants from
renewable sources, such as geothermal
(40 per cent) and hydropower (12 per cent),
as well as the role of IPPs. Benefitting from the
lessons learned in Phase 1 and an expanded
national grid, there are hopes that by 2014
Indonesia will be well on its way to satisfy its
electricity needs.
the ProMIse of Phase 2
a renewable salvationdespite the fact that Phase 1 of the fast-
track programme had achieved less than
40 per cent of its target goal by 2010, the
urgent need for electricity and foreign
investment ensured that Phase 2 went
ahead as planned. as part of the trend to
reduce hydrocarbon consumption for power
generation and to ‘green’ the country’s
energy mix, Indonesia’s Ministry of Energy
and Mineral Resources established the
directorate General for Renewable Energy
and Energy Conservation in august 2010. The
aim of the directorate General is to promote
and regulate the development of renewable
resources by enhancing both their regulatory
frameworks and investment potential.
director general, Warnika Kardaya,
boasts that 40 per cent of the world’s proven
geothermal reserves. however, I believe this
Indonesia
figure underestimates the full potential of
Indonesia’s geothermal power since it does
not consider the offshore reserves, which
account for about 70 per cent of Indonesia’s
territory. In addition to this, Indonesia is also rich
in biomass, hydro, solar, tidal and wind energy.
“Therefore, we need to allocate and
optimise our resources towards developing
and harnessing these renewable sources. First
and foremost, we recognize that one of the
main drivers of investment relates to the tariff
levels, and ultimately the profit margins, offered
to developers. Therefore, in order to address this
issue, we have recently made some progress
in this area by increasing the tariff levels in
the geothermal and biomass sectors by
50 per cent. We have set an ambitious target
for ourselves to establish an energy mix of
25 per cent renewable energy by 2025. This is
what we like to call our 25–25 vision.
“To be more specific, based on the current
projects in the pipeline, we expect that by
2015, the biomass fuel industry will have grown
from a current level of 400,000 barrels of oil
equivalent (BoE) to 12,000,000 BoE, whereas
the biomass power industry will have grown
from a mere 20 MW to
690 MW. In the geothermal
sector, we expect to
achieve 4400 MW by
2015 compared to today’s
1226 MW.” hydropower has
also become a priority
for the government, as it
provides a reliable source
of power generation
in those islands that
do not have mineral or
geothermal resources. The
onus has been placed on
developing mini and micro-
hydropower projects due to the fact that
Indonesia has few large rivers suitable for larger
dam projects. For example, PLN is obliged to
purchase electricity from projects under 10
MW without the negotiation and signing of a
power purchase agreement (PPa). however,
even mid and large-size hydropower projects
are rapidly being developed, including the
1000 MW, $800 million pumped-storage upper
Cisokan hydropower plant financed by The
World Bank.
The hype is so powerful that foreign
investors have been rushing to be a part of the
renewable frenzy in Indonesia. Chung-yul Choi,
president director of Wampu Electric, speaks
of the first Korean consortium that invested in
Indonesia’s hydropower sector by building a
3x15 MW power plant. “The Wampu
hydroelectric project involves the construction
of a dam to collect run-off water that will be used
to generate 3x15 MW of electricity for the supply
of the electric grid in sumatra. In charge of
developing this project is a consortium of three
www.PowerEngineeringInt.com 11Power Engineering International
Indonesia
takashi aso, president director, Metbelosa
harun al rosyid, president director,
Indopower International
15
10 Power Engineering International www.PowerEngineeringInt.com
two years. In sulawesi we are also developing
the grid by connecting East Kalimantan with
south Kalimantan and then south Kalimantan
with Central Kalimantan with a 150 kV line”,
recounts PLN’s Pamudji. “similarly, we are
extending the grid in sulawesi in order make
use of several power plants that are being
developed there.
“These projects will be financed directly
by the government who has committed
to provide us with $950 million for grid
development every year. In the future we
also expect that many power plants will be
built by private companies who will operate
nickel smelters that require large amounts of
electricity. By building a strong grid we will also
be assisting the development of such mining
activities and the operation of local smelters.”
This downstream expansion is being
supported by local and foreign companies
that have been anxiously waiting for this
moment. While traditional global electricity
giants, such as siemens, aBB, Emerson and
schneider Electric, were the leading providers
of T&d equipment, in recent years PLN has
been enforcing a mandatory 40 per cent local
content requirement for all power projects.
at times it is unclear as to what exactly can
be considered local content. In any case,
foreign companies have been heeding
to local industry demands by localising
manufacturing in the country. The direct effect
is a vibrant local industry, which manufactures
everything from cables and transformers, to
switchboards and electrical meters.
aside from the installation of backbone
T&d infrastructure in the major islands, there
are also plans to integrate the sumatra and
java grids to transmit electricity generated
from sumatra’s coal and geothermal sites to
java. surely this will increase the attractiveness
of power generation projects in sumatra and
lure IPPs to that region. such plans bode well
with the ambitions of PLN’s second phase of
its fast-track programme, which has been in
development since 2010.
unlike the first stage, Phase 2 focuses
on the construction of power plants from
renewable sources, such as geothermal
(40 per cent) and hydropower (12 per cent),
as well as the role of IPPs. Benefitting from the
lessons learned in Phase 1 and an expanded
national grid, there are hopes that by 2014
Indonesia will be well on its way to satisfy its
electricity needs.
the ProMIse of Phase 2
a renewable salvationdespite the fact that Phase 1 of the fast-
track programme had achieved less than
40 per cent of its target goal by 2010, the
urgent need for electricity and foreign
investment ensured that Phase 2 went
ahead as planned. as part of the trend to
reduce hydrocarbon consumption for power
generation and to ‘green’ the country’s
energy mix, Indonesia’s Ministry of Energy
and Mineral Resources established the
directorate General for Renewable Energy
and Energy Conservation in august 2010. The
aim of the directorate General is to promote
and regulate the development of renewable
resources by enhancing both their regulatory
frameworks and investment potential.
director general, Warnika Kardaya,
boasts that 40 per cent of the world’s proven
geothermal reserves. however, I believe this
Indonesia
figure underestimates the full potential of
Indonesia’s geothermal power since it does
not consider the offshore reserves, which
account for about 70 per cent of Indonesia’s
territory. In addition to this, Indonesia is also rich
in biomass, hydro, solar, tidal and wind energy.
“Therefore, we need to allocate and
optimise our resources towards developing
and harnessing these renewable sources. First
and foremost, we recognize that one of the
main drivers of investment relates to the tariff
levels, and ultimately the profit margins, offered
to developers. Therefore, in order to address this
issue, we have recently made some progress
in this area by increasing the tariff levels in
the geothermal and biomass sectors by
50 per cent. We have set an ambitious target
for ourselves to establish an energy mix of
25 per cent renewable energy by 2025. This is
what we like to call our 25–25 vision.
“To be more specific, based on the current
projects in the pipeline, we expect that by
2015, the biomass fuel industry will have grown
from a current level of 400,000 barrels of oil
equivalent (BoE) to 12,000,000 BoE, whereas
the biomass power industry will have grown
from a mere 20 MW to
690 MW. In the geothermal
sector, we expect to
achieve 4400 MW by
2015 compared to today’s
1226 MW.” hydropower has
also become a priority
for the government, as it
provides a reliable source
of power generation
in those islands that
do not have mineral or
geothermal resources. The
onus has been placed on
developing mini and micro-
hydropower projects due to the fact that
Indonesia has few large rivers suitable for larger
dam projects. For example, PLN is obliged to
purchase electricity from projects under 10
MW without the negotiation and signing of a
power purchase agreement (PPa). however,
even mid and large-size hydropower projects
are rapidly being developed, including the
1000 MW, $800 million pumped-storage upper
Cisokan hydropower plant financed by The
World Bank.
The hype is so powerful that foreign
investors have been rushing to be a part of the
renewable frenzy in Indonesia. Chung-yul Choi,
president director of Wampu Electric, speaks
of the first Korean consortium that invested in
Indonesia’s hydropower sector by building a
3x15 MW power plant. “The Wampu
hydroelectric project involves the construction
of a dam to collect run-off water that will be used
to generate 3x15 MW of electricity for the supply
of the electric grid in sumatra. In charge of
developing this project is a consortium of three
www.PowerEngineeringInt.com 11Power Engineering International
Indonesia
takashi aso, president director, Metbelosa
harun al rosyid, president director,
Indopower International
16
12 Power Engineering International www.PowerEngineeringInt.com
Korean companies, namely KoMIPo, PosCo
Engineering and MPM, which have great
expertise in developing hydropower plants
in Korea. The concession of this project was
assigned to us through a direct appointment
rather than through a bidding process, and this
was in response to our proposal put forth to PLN
through their request for proposals (RFP).”
The power plant is expected to be
completed by october 2014. “PLN has
agreed to buy our electricity at a price of
$7.3 cents per kWh for the next 30 years,
which is substantially higher than the average
$4 cents per kWh. our project is a model of
sustainable and clean energy, and given
the Indonesian’s government ambitions to
increase power generation from these kinds of
sources, we had a lot of leverage in negotiating
the terms of our PPa with PLN,” concludes Choi.
While much headway has been witnessed
in hydropower and biomass developments,
geothermal is unquestionably the golden child
of Indonesia’s renewable undertaking. Touting
the world’s largest geothermal capacity
estimated at 28,000 MW, the government
has been itching to jumpstart this sector and
attract foreign investors. Particularly with model
success stories in the region, such as the
Philippines and New Zealand, Indonesia’s lack
of expertise, technology and financial might
have stunted its geothermal sector.
“The Philippines has been very successful
in its geothermal sector because the country
has no other choice to satisfy its electricity
demand because it does not count on
extensive natural resources, like coal and
gas, the way Indonesia does. Geothermal
is the most abundant energy source in that
country and therefore the government had
to do everything possible to tap into it. The
difference between their country and ours is
that the Philippines allowed for fully liberalized
Indonesia
The hype over Indonesia’s geothermal potential has brought to light the difficulties that
lie ahead to tap into this vast renewable resource that sits beneath the ground’s surface.
From conflicting regulatory laws and high exploration risks to a lack of capacitated human
capital, the country’s challenges to develop its geothermal resources are numerous and
evident. The upside is that the government has prioritised building geothermal power
plants through the second phase of the fast-track programme, with plans to generate
4000 MW over the next three years.
This is in contrast to the current 1200 MW generated from geothermal, which has
taken approximately 30 years to incorporate into Indonesia’s electricity grid. Whether
this ambitious target is feasible will depend on how quickly Indonesian authorities
heed to the needs of foreign investors that widely call for greater incentives – regulatory,
fiscal and financial – in order to counterbalance the high stakes inherent in geothermal
power development.
Takumi Sakabe, director of Fuji Electric in Indonesia, explains that “geothermal power
development is time-consuming by nature, normally requiring more than seven years
from the initial survey and feasibility study until the start of power generation. During
such period, developers are exposed to high risk especially during exploration stage, yet
continue to invest. After successful exploration, the power plant becomes a critical asset
to realise developer’s revenue over a long period of time. We can contribute to support
developers in such an important stage through our technology.”
Fuji Electric is one of the world’s leading geothermal equipment providers, offering
not only turbine generators but comprehensive plant construction solutions covering
everything from plant system design through engineering and construction, installation,
and trial operation. The company has been active in geothermal since the 1960s,
and since then the company has learned to identify the most promising geothermal
opportunities, now betting that Indonesia will finally transform itself into the geothermal
hotspot it promises to be.
Even though Fuji Electric had been present in Indonesia for more than three decades,
it was only in October 2011 that the
company established a sales and
marketing subsidiary in order to
augment its position in the power
generation sector. “Indonesia is
one of countries with enormous
potential which started to
accelerate industrialisation, being
fully supported by a population
structure and stable politics over
those years. We recognized it was
high time for us to spread our solid
roots also in Indonesia as [as part
of a ]series of globalising activity,”
concludes Sakabe.
This is in line with the wider
trend of Japanese companies
and financial institutions
supportinggIndonesia’s power
generation objectives, as long-time
partners to the country’s social and economic development. Specific to the geothermal
sector, Indonesia could not ask for a finer collaborator considering that Japanese
geothermal technology leads the field globally, with three Japanese companies
accounting for close to 70 per cent of the global geothermal equipment market.
Such dominance is attributed to the unmatched quality and reliability of Japanese
technology, which in the long run is essential to maintaining the cost competitiveness
of a power plant. Fuji Electric, for example, is currently working on geothermal binary
generation, in addition to conventional flash-cycle technology, which makes low-
temperature resource generation possible. Given the high costs and hurdles associated
with developing geothermal power plants in Indonesia, there is no question that such
world-class technology will add an extra push to decisively tap into the country’s resources.
Up to now, Fuji Electric has provided nine power generating units to Indonesia and is
now considering opportunities beyond simply selling and providing equipment. Sakabe
elaborates that “though we were a downstream player in the series of such development,
we have been seamlessly involved in supporting this industry over 40 years, with the
equipment and EPC capability as well. EPC/turnkey solutions are normally required by
plant owners for the plant construction stage. We are capable of managing such turnkey
jobs with our core products. Nevertheless, it goes without saying, that we cannot do
everything on our own. This is why it will be important for us to collaborate with capable
and reliable partners, especially with local partners, for success.”
Even beyond EPC, Fuji Electric has recently donned the investor and owner hat with
a geothermal project in the US and, based on that power plant’s success, will explore
additional investment opportunities. “Of course, Indonesia will be one of potential targets
for such an approach”, confirms Sakabe. Luckily for Indonesia, this can only mean good
news for the country’s desire to become the world’s leading geothermal player and to
‘green’ its energy mix. As for Fuji Electric, expanding its geothermal business in Indonesia
is not solely for the sake of increasing profits, but rather it is also a means to practise its
values of contributing to the creation of a safe, serene and sustainable society.
JaPanese InGenUIty DrIvInG GeotherMal
Wayang Windu geothermal power plant
steam turbine
17
12 Power Engineering International www.PowerEngineeringInt.com
Korean companies, namely KoMIPo, PosCo
Engineering and MPM, which have great
expertise in developing hydropower plants
in Korea. The concession of this project was
assigned to us through a direct appointment
rather than through a bidding process, and this
was in response to our proposal put forth to PLN
through their request for proposals (RFP).”
The power plant is expected to be
completed by october 2014. “PLN has
agreed to buy our electricity at a price of
$7.3 cents per kWh for the next 30 years,
which is substantially higher than the average
$4 cents per kWh. our project is a model of
sustainable and clean energy, and given
the Indonesian’s government ambitions to
increase power generation from these kinds of
sources, we had a lot of leverage in negotiating
the terms of our PPa with PLN,” concludes Choi.
While much headway has been witnessed
in hydropower and biomass developments,
geothermal is unquestionably the golden child
of Indonesia’s renewable undertaking. Touting
the world’s largest geothermal capacity
estimated at 28,000 MW, the government
has been itching to jumpstart this sector and
attract foreign investors. Particularly with model
success stories in the region, such as the
Philippines and New Zealand, Indonesia’s lack
of expertise, technology and financial might
have stunted its geothermal sector.
“The Philippines has been very successful
in its geothermal sector because the country
has no other choice to satisfy its electricity
demand because it does not count on
extensive natural resources, like coal and
gas, the way Indonesia does. Geothermal
is the most abundant energy source in that
country and therefore the government had
to do everything possible to tap into it. The
difference between their country and ours is
that the Philippines allowed for fully liberalized
Indonesia
The hype over Indonesia’s geothermal potential has brought to light the difficulties that
lie ahead to tap into this vast renewable resource that sits beneath the ground’s surface.
From conflicting regulatory laws and high exploration risks to a lack of capacitated human
capital, the country’s challenges to develop its geothermal resources are numerous and
evident. The upside is that the government has prioritised building geothermal power
plants through the second phase of the fast-track programme, with plans to generate
4000 MW over the next three years.
This is in contrast to the current 1200 MW generated from geothermal, which has
taken approximately 30 years to incorporate into Indonesia’s electricity grid. Whether
this ambitious target is feasible will depend on how quickly Indonesian authorities
heed to the needs of foreign investors that widely call for greater incentives – regulatory,
fiscal and financial – in order to counterbalance the high stakes inherent in geothermal
power development.
Takumi Sakabe, director of Fuji Electric in Indonesia, explains that “geothermal power
development is time-consuming by nature, normally requiring more than seven years
from the initial survey and feasibility study until the start of power generation. During
such period, developers are exposed to high risk especially during exploration stage, yet
continue to invest. After successful exploration, the power plant becomes a critical asset
to realise developer’s revenue over a long period of time. We can contribute to support
developers in such an important stage through our technology.”
Fuji Electric is one of the world’s leading geothermal equipment providers, offering
not only turbine generators but comprehensive plant construction solutions covering
everything from plant system design through engineering and construction, installation,
and trial operation. The company has been active in geothermal since the 1960s,
and since then the company has learned to identify the most promising geothermal
opportunities, now betting that Indonesia will finally transform itself into the geothermal
hotspot it promises to be.
Even though Fuji Electric had been present in Indonesia for more than three decades,
it was only in October 2011 that the
company established a sales and
marketing subsidiary in order to
augment its position in the power
generation sector. “Indonesia is
one of countries with enormous
potential which started to
accelerate industrialisation, being
fully supported by a population
structure and stable politics over
those years. We recognized it was
high time for us to spread our solid
roots also in Indonesia as [as part
of a ]series of globalising activity,”
concludes Sakabe.
This is in line with the wider
trend of Japanese companies
and financial institutions
supportinggIndonesia’s power
generation objectives, as long-time
partners to the country’s social and economic development. Specific to the geothermal
sector, Indonesia could not ask for a finer collaborator considering that Japanese
geothermal technology leads the field globally, with three Japanese companies
accounting for close to 70 per cent of the global geothermal equipment market.
Such dominance is attributed to the unmatched quality and reliability of Japanese
technology, which in the long run is essential to maintaining the cost competitiveness
of a power plant. Fuji Electric, for example, is currently working on geothermal binary
generation, in addition to conventional flash-cycle technology, which makes low-
temperature resource generation possible. Given the high costs and hurdles associated
with developing geothermal power plants in Indonesia, there is no question that such
world-class technology will add an extra push to decisively tap into the country’s resources.
Up to now, Fuji Electric has provided nine power generating units to Indonesia and is
now considering opportunities beyond simply selling and providing equipment. Sakabe
elaborates that “though we were a downstream player in the series of such development,
we have been seamlessly involved in supporting this industry over 40 years, with the
equipment and EPC capability as well. EPC/turnkey solutions are normally required by
plant owners for the plant construction stage. We are capable of managing such turnkey
jobs with our core products. Nevertheless, it goes without saying, that we cannot do
everything on our own. This is why it will be important for us to collaborate with capable
and reliable partners, especially with local partners, for success.”
Even beyond EPC, Fuji Electric has recently donned the investor and owner hat with
a geothermal project in the US and, based on that power plant’s success, will explore
additional investment opportunities. “Of course, Indonesia will be one of potential targets
for such an approach”, confirms Sakabe. Luckily for Indonesia, this can only mean good
news for the country’s desire to become the world’s leading geothermal player and to
‘green’ its energy mix. As for Fuji Electric, expanding its geothermal business in Indonesia
is not solely for the sake of increasing profits, but rather it is also a means to practise its
values of contributing to the creation of a safe, serene and sustainable society.
JaPanese InGenUIty DrIvInG GeotherMal
Wayang Windu geothermal power plant
steam turbine
18
14 Power Engineering International www.PowerEngineeringInt.com
Indonesia
eXPert oPInIons on InvestInG In InDonesIa
Ali Herman, president director, Bakrie PowerUp to 2009 there were very little incentives for IPPs to
develop power plants in Indonesia, because the tariff
to sell to PLN was fixed at $4.5 cents per kWh, which
did not allow the projects to be profitable enough for
investors to take an interest. It is counterproductive
for the government to set such a low tariff when it
has realised the need to quickly increase generating
capacity and is actively calling for IPPs to develop new power plant projects.
Furthermore, the government must establish government guarantees that will
mitigate the risk for private investors who decide to build a new power plant. There
are already some funds that have been created for this purpose under the Ministry of
Finance, however, there are still too many procedures required for approval and this
ends up discouraging companies.
Ultimately we would like to see more incentives from the government that will
demonstrate its true commitment to IPPs as essential partners in developing the
country’s power infrastructure. This will require that we establish partnerships with
international companies and experts that can provide us with the right technology
and equipment to develop all of our energy resources. Overall, Indonesia has a
tremendous need to develop its infrastructure, and this can only be accomplished
with the adequate tools and conditions and through the efforts of IPPs.
On Geothermal:
Kerry Parker, managing director, Panax Geothermal Indonesia has enormous geothermal potential, the government has a desire to see
this developed and consequently there is a real wave of development. Many of
the earlier geothermal projects had unfavourable tariffs but this is now improving.
There is a $9.7 cents per kWh minimum price which may be increased. The main
opportunities outside of Java and Sulawesi lie in small geothermal stations
designed to supply energy to small populations or for industry.
Tjahjo Sasmojo, president director, PLN GeothermalThe most effective way to get the sector producing
would be to have the government assign the task
of exploration to PLN within a set timeline, and then
tendering these ready-to-start projects out to the private
investors. Under such a model PLN Geothermal’s role
in the sector would also be enhanced, as we would
be the ones responsible for the feasibility studies and
exploration of geothermal sites before they are handed over to private companies.
The reality is that geothermal requires large upfront investment and this is the part
that investors are sceptical about. If PLN and the Indonesian government were to
take on this responsibility, then the rest would come much quicker and smoother.
On Transmission and Distribution:
Fazil Alfitri, president director, Medco PowerEventually this is a possibility we will explore, and it is a trend that we are witnessing
in neighboring markets, such as the Philippines, Singapore and Australia. If the
Philippines, also being an archipelago, can develop its transmission business
through the private sector then Indonesian will soon have to follow the same
example. I also believe that once there is competition in this sector, it will force
PLN to become a lot more efficient, in the same way that happened with Pertamina
and their downstream business. It is a necessary step that Indonesia must take in
the near future. Perhaps one way to go about it is to have PLN handle transmission
exclusively, while having private companies dealing with the distribution of
electricity to end users.
So far we have already seen a number of success stories coming from regions
that independently developed their power sectors, such as Batam, and I think
similar models can be implemented in places like Bali, Jakarta and North Sumatra.
This would definitely fuel faster development and greater business opportunities.
Supramu Santosa, founder and president director, Supreme EnergyAs we all know, PLN has been around for a very long time and all the T&D
networks in Indonesia are controlled by it. Ideally the T&D sector would be
liberalized, but this will take a very long time and will only happen once the
government removes electricity subsidies. As long as those subsidies are still
there, then PLN will continue to have control over the distribution of electricity
and we will be dealing with a distorted market. I believe that a subsidy of any
kind only serves as a distortion in supply and demand. PLN’s infrastructure is
massive, and it will have to be a gradual process before the T&D sector can be
liberalized and PLN is replaced, but I do believe that it will have to happen in
the future.
model through which investors could develop
geothermal plans and negotiate electricity
prices according to market demand.
Considering that Indonesia’s power model
relies on PLN for the entire transmission and
distribution of electricity, such a model is not
viable,” explains udibowo Ciptomulyono,
president commissioner of PLN Geothermal.
PLN Geothermal (PLN-G) is PLN’s subsidiary
dedicated to developing geothermal power
plants. “so far PLN-G has three concessions
and has just concluded the exploration and
drilling in one of them, namely Tuleho, and we
expect to have this well operating within the
next 2–3 years,” confirms Ciptomulyono.
Even the biggest IPP players in Indonesia
have shifted their attention to the geothermal
sector given its promise of considerable
revenues. Earlier this year the government set
a feed-in tariff rate of $9.7 cents per kWh for
geothermal projects, which is well above the
average tariffs of between $6–7 cents per kWh.
ali herman, president director of Bakrie Power,
confirms that his company “is now shifting its
focus to the geothermal sector and is working
on three projects in partnership with australian-
based Panax. The Ngebel project consists of
three 55 MW geothermal stations, with a total
capacity of 165 MW, that will be used to feed
the java-Bali grid. Next, the sokoria power
plant will generate a total of 30 MW with the
capacity to expand up to 145 MW.”
he justifies this strategy with his assurances
that “the geothermal sector will become a
lot more attractive than coal or any other
thermal fuel source, mainly because of the
government’s pledge to have 25 per cent
of its energy mix originating from renewable
resources by 2025. Personally, I believe that
renewable energy sources are more attractive,
not only in the business-sense but also in
their long-term benefits of environmental
conservation and safety.”
Medco Power, one of Indonesia’s leading
IPPs, which is focusing on developing power
projects between 50–100 MW on islands other
than java, is also opting for the renewable
route. Fazil alfitri, president director of Medco,
speaks of his innovative financing strategies to
ensure that its geothermal project materialises.
“The largest project we are currently
developing is the sarulla geothermal
www.PowerEngineeringInt.com 15Power Engineering International
JalanWijaya I no. 61 KebayoranBaru, Jakarta 12170
Phone : +62 21 7210 450Fax : + 62 21 7210 170
www.plngeo.com
The leading partner for the development and/or operation of new
geothermal fields and power plants
Operation & maintenance activitiesUpstream Activity/ies
Indonesia
supramu santosa, founder and president director, supreme Energy
Djani sutedja, president director, Capital Turbines
abdul Muid, president director, Petrogas jatim utama
19
14 Power Engineering International www.PowerEngineeringInt.com
Indonesia
eXPert oPInIons on InvestInG In InDonesIa
Ali Herman, president director, Bakrie PowerUp to 2009 there were very little incentives for IPPs to
develop power plants in Indonesia, because the tariff
to sell to PLN was fixed at $4.5 cents per kWh, which
did not allow the projects to be profitable enough for
investors to take an interest. It is counterproductive
for the government to set such a low tariff when it
has realised the need to quickly increase generating
capacity and is actively calling for IPPs to develop new power plant projects.
Furthermore, the government must establish government guarantees that will
mitigate the risk for private investors who decide to build a new power plant. There
are already some funds that have been created for this purpose under the Ministry of
Finance, however, there are still too many procedures required for approval and this
ends up discouraging companies.
Ultimately we would like to see more incentives from the government that will
demonstrate its true commitment to IPPs as essential partners in developing the
country’s power infrastructure. This will require that we establish partnerships with
international companies and experts that can provide us with the right technology
and equipment to develop all of our energy resources. Overall, Indonesia has a
tremendous need to develop its infrastructure, and this can only be accomplished
with the adequate tools and conditions and through the efforts of IPPs.
On Geothermal:
Kerry Parker, managing director, Panax Geothermal Indonesia has enormous geothermal potential, the government has a desire to see
this developed and consequently there is a real wave of development. Many of
the earlier geothermal projects had unfavourable tariffs but this is now improving.
There is a $9.7 cents per kWh minimum price which may be increased. The main
opportunities outside of Java and Sulawesi lie in small geothermal stations
designed to supply energy to small populations or for industry.
Tjahjo Sasmojo, president director, PLN GeothermalThe most effective way to get the sector producing
would be to have the government assign the task
of exploration to PLN within a set timeline, and then
tendering these ready-to-start projects out to the private
investors. Under such a model PLN Geothermal’s role
in the sector would also be enhanced, as we would
be the ones responsible for the feasibility studies and
exploration of geothermal sites before they are handed over to private companies.
The reality is that geothermal requires large upfront investment and this is the part
that investors are sceptical about. If PLN and the Indonesian government were to
take on this responsibility, then the rest would come much quicker and smoother.
On Transmission and Distribution:
Fazil Alfitri, president director, Medco PowerEventually this is a possibility we will explore, and it is a trend that we are witnessing
in neighboring markets, such as the Philippines, Singapore and Australia. If the
Philippines, also being an archipelago, can develop its transmission business
through the private sector then Indonesian will soon have to follow the same
example. I also believe that once there is competition in this sector, it will force
PLN to become a lot more efficient, in the same way that happened with Pertamina
and their downstream business. It is a necessary step that Indonesia must take in
the near future. Perhaps one way to go about it is to have PLN handle transmission
exclusively, while having private companies dealing with the distribution of
electricity to end users.
So far we have already seen a number of success stories coming from regions
that independently developed their power sectors, such as Batam, and I think
similar models can be implemented in places like Bali, Jakarta and North Sumatra.
This would definitely fuel faster development and greater business opportunities.
Supramu Santosa, founder and president director, Supreme EnergyAs we all know, PLN has been around for a very long time and all the T&D
networks in Indonesia are controlled by it. Ideally the T&D sector would be
liberalized, but this will take a very long time and will only happen once the
government removes electricity subsidies. As long as those subsidies are still
there, then PLN will continue to have control over the distribution of electricity
and we will be dealing with a distorted market. I believe that a subsidy of any
kind only serves as a distortion in supply and demand. PLN’s infrastructure is
massive, and it will have to be a gradual process before the T&D sector can be
liberalized and PLN is replaced, but I do believe that it will have to happen in
the future.
model through which investors could develop
geothermal plans and negotiate electricity
prices according to market demand.
Considering that Indonesia’s power model
relies on PLN for the entire transmission and
distribution of electricity, such a model is not
viable,” explains udibowo Ciptomulyono,
president commissioner of PLN Geothermal.
PLN Geothermal (PLN-G) is PLN’s subsidiary
dedicated to developing geothermal power
plants. “so far PLN-G has three concessions
and has just concluded the exploration and
drilling in one of them, namely Tuleho, and we
expect to have this well operating within the
next 2–3 years,” confirms Ciptomulyono.
Even the biggest IPP players in Indonesia
have shifted their attention to the geothermal
sector given its promise of considerable
revenues. Earlier this year the government set
a feed-in tariff rate of $9.7 cents per kWh for
geothermal projects, which is well above the
average tariffs of between $6–7 cents per kWh.
ali herman, president director of Bakrie Power,
confirms that his company “is now shifting its
focus to the geothermal sector and is working
on three projects in partnership with australian-
based Panax. The Ngebel project consists of
three 55 MW geothermal stations, with a total
capacity of 165 MW, that will be used to feed
the java-Bali grid. Next, the sokoria power
plant will generate a total of 30 MW with the
capacity to expand up to 145 MW.”
he justifies this strategy with his assurances
that “the geothermal sector will become a
lot more attractive than coal or any other
thermal fuel source, mainly because of the
government’s pledge to have 25 per cent
of its energy mix originating from renewable
resources by 2025. Personally, I believe that
renewable energy sources are more attractive,
not only in the business-sense but also in
their long-term benefits of environmental
conservation and safety.”
Medco Power, one of Indonesia’s leading
IPPs, which is focusing on developing power
projects between 50–100 MW on islands other
than java, is also opting for the renewable
route. Fazil alfitri, president director of Medco,
speaks of his innovative financing strategies to
ensure that its geothermal project materialises.
“The largest project we are currently
developing is the sarulla geothermal
www.PowerEngineeringInt.com 15Power Engineering International
JalanWijaya I no. 61 KebayoranBaru, Jakarta 12170
Phone : +62 21 7210 450Fax : + 62 21 7210 170
www.plngeo.com
The leading partner for the development and/or operation of new
geothermal fields and power plants
Operation & maintenance activitiesUpstream Activity/ies
Indonesia
supramu santosa, founder and president director, supreme Energy
Djani sutedja, president director, Capital Turbines
abdul Muid, president director, Petrogas jatim utama
20
16 Power Engineering International www.PowerEngineeringInt.com
plant with a capacity of 330 MW. sarulla is
unique in that we are developing it through
a project financing model rather than an
equity financing model, which is what most
geothermal companies have been doing
in Indonesia so far. The difference in the two
models lies in the legalistic definition of how
one treats the asset, because, according
to the old geothermal law, a geothermal
plant will always belong to the people of
Indonesia. Today the law permits that such
assets be assigned to private entities for the
duration of their loan, therefore allowing them
to collateralise those assets with the banks.
ultimately, it has been this legal shift that has
allowed the development of geothermal
projects under a project financing model and
will create a smoother regulatory path for the
development of future geothermal projects.”
local engineering re-energisedWhile progress made on the fast-track
programme has not been optimal, there have
been indirect benefits to the rest of the industry,
particularly for EPC contractors, which have
been scuttling to become preferred partners
of IPPs and PLN. susanto Purnomo, president
director of PT Pembangkitan jawa-Bali (PjB),
explains how as a subsidiary of PLN his
company has been forced to step up its game
to be a part of new power plant projects. “as
a company, we are responsible for about
a 20 per cent market share of the country’s
total power generation capacity, compared
to Indonesia Power that holds 40 per cent of
total production. Private IPPs today account
for about 20 per cent of the total with the
remaining 30 per cent being owned by PLN.”
PjB is considered to be the country’s o&M
specialist and has even participated in a few
international projects, including in Malaysia
and saudi arabia, because of its reputation for
customised services and incomparable quality.
Purnomo is proud to assert that “PjB is known as
the best power company in Indonesia. Many
companies within the PLN family and even
in the private sector come to us to learn how
we achieve such successful o&M of power
plants. We have even developed a power
plant academy that operates as a corporate
university for the training of new engineers in
the power generation sector.”
To keep up with the pace of the industry
and its parent company PLN, PjB is moving
to improve its asset management and obtain
Pas 55 certification, which is now under
evaluation. Furthermore, it is undergoing a
full integration of business processes under
Iso 9000, 14000 and 18000 standards. The
company has also established partnerships
as a core part of its strategy. “Partnerships
allow us to be more quick and efficient in the
development of projects because the private
*
Empowering Indonesia
www.Bakrie-Brothers.comwww.Bakrie-Brothers.com
PT. Bakrie Power, Bakrie Tower 34th Floor,
Rasuna Epicentrum, Jm. HR Rasuna
Said Jakarta 12940 Indonesia.
phone: +62 21 2991 206
fax: +62 21 2991 2070
Bersama Wujudkan Cita-cita*Bersama Wujudkan Cita-cita*Together, we make dreams come true
* For the country
*
Indonesia
PLN Geothermal - Maintenance activity
www.PowerEngineeringInt.com 17Power Engineering International
*
Empowering Indonesia
www.Bakrie-Brothers.comwww.Bakrie-Brothers.com
PT. Bakrie Power, Bakrie Tower 34th Floor,
Rasuna Epicentrum, Jm. HR Rasuna
Said Jakarta 12940 Indonesia.
phone: +62 21 2991 206
fax: +62 21 2991 2070
Bersama Wujudkan Cita-cita*Bersama Wujudkan Cita-cita*Together, we make dreams come true
* For the country
*
Indonesia
interests tend to move faster than state-owned
enterprises. as a state company we have
some limitations, which is why we look for
private partners that are accountable for the
speedy development of projects. our interest
is to establish service and maintenance
contracts from these partnerships as this
is where most of our revenues come from,”
says Purnomo.
The effects of Indonesia’s power boom are
perhaps most striking with stories of small start-
up companies that are created by individual
engineers. such is the case of Indopower
International, which was created by a group
of retired PLN engineers who were not quite
ready for a tranquil life on a sandy beach
in Bali. Indopower International president
director, harun al Rosyid, describes how the
company “began working with thermal and
hydro power plant projects, for example
with coal-fired power plant and micro-
hydro power plants that have become very
profitable in recent years. My core business is
mainly in power plant engineering, including
preparing feasibility studies (Fs), basic design,
tender document preparation according
to international standards, detailed design,
design review, construction supervision and
also participation in the tender process, for
PLN, IPP and EPC clients.
“Furthermore, we have a portfolio of heat
exchanger design and manufacturing that
we supply to our EPC contractors, and this is
an area in which we would like to become
stronger.” Literally built from scratch in 1996,
the company today conducts its activities
“under the highest international standards,
including Iso standards. aside from our
jakarta office, we have a number of other
offices around the country that support our
active projects in their respective regions,”
concludes al Rosyid.
other engineers have grown beyond their
roots to become full-fledged IPPs as a means
to assist the country in the establishment
of a modern power sector. djani sutedja,
president director of Capital Turbines speaks
of his vision to start the company as his own
personal contribution to his country. “We
started as a small company involved in the
power sector selling electricity to PLN from
diesel generators. after this, we became
involved in the maintenance process of
power plants, especially in coal, after which
we moved to combined-cycle plants. Now
our focus has shifted to steam coal-fired
power plants to participate in Indonesia’s
growth. our share in the whole process may
not be that big but we excel in what we do
and at the end of the day we are helping
our country develop its power sector, which is
very much in need right now.
“The population needs hope, especially in
the East, I was in Papua a few years ago to
try and find the sources for the coal and the
people need to know that the situation will
change. In the next five [years] expect around
four or five more projects of about 300 MW
each, so we will be slowly moving into larger
projects. We have very ambitious plans to
grow quickly since the demand is very high.
Indonesia needs this, so we have to enlarge
our capability.”
such examples provide hope that
Indonesia can indeed achieve its target
electrification rate of 91 per cent by 2019.
Today, the rolling blackouts have mostly
vanished, but will this last?
21
www.PowerEngineeringInt.com 17Power Engineering International
*
Empowering Indonesia
www.Bakrie-Brothers.comwww.Bakrie-Brothers.com
PT. Bakrie Power, Bakrie Tower 34th Floor,
Rasuna Epicentrum, Jm. HR Rasuna
Said Jakarta 12940 Indonesia.
phone: +62 21 2991 206
fax: +62 21 2991 2070
Bersama Wujudkan Cita-cita*Bersama Wujudkan Cita-cita*Together, we make dreams come true
* For the country
*
Indonesia
interests tend to move faster than state-owned
enterprises. as a state company we have
some limitations, which is why we look for
private partners that are accountable for the
speedy development of projects. our interest
is to establish service and maintenance
contracts from these partnerships as this
is where most of our revenues come from,”
says Purnomo.
The effects of Indonesia’s power boom are
perhaps most striking with stories of small start-
up companies that are created by individual
engineers. such is the case of Indopower
International, which was created by a group
of retired PLN engineers who were not quite
ready for a tranquil life on a sandy beach
in Bali. Indopower International president
director, harun al Rosyid, describes how the
company “began working with thermal and
hydro power plant projects, for example
with coal-fired power plant and micro-
hydro power plants that have become very
profitable in recent years. My core business is
mainly in power plant engineering, including
preparing feasibility studies (Fs), basic design,
tender document preparation according
to international standards, detailed design,
design review, construction supervision and
also participation in the tender process, for
PLN, IPP and EPC clients.
“Furthermore, we have a portfolio of heat
exchanger design and manufacturing that
we supply to our EPC contractors, and this is
an area in which we would like to become
stronger.” Literally built from scratch in 1996,
the company today conducts its activities
“under the highest international standards,
including Iso standards. aside from our
jakarta office, we have a number of other
offices around the country that support our
active projects in their respective regions,”
concludes al Rosyid.
other engineers have grown beyond their
roots to become full-fledged IPPs as a means
to assist the country in the establishment
of a modern power sector. djani sutedja,
president director of Capital Turbines speaks
of his vision to start the company as his own
personal contribution to his country. “We
started as a small company involved in the
power sector selling electricity to PLN from
diesel generators. after this, we became
involved in the maintenance process of
power plants, especially in coal, after which
we moved to combined-cycle plants. Now
our focus has shifted to steam coal-fired
power plants to participate in Indonesia’s
growth. our share in the whole process may
not be that big but we excel in what we do
and at the end of the day we are helping
our country develop its power sector, which is
very much in need right now.
“The population needs hope, especially in
the East, I was in Papua a few years ago to
try and find the sources for the coal and the
people need to know that the situation will
change. In the next five [years] expect around
four or five more projects of about 300 MW
each, so we will be slowly moving into larger
projects. We have very ambitious plans to
grow quickly since the demand is very high.
Indonesia needs this, so we have to enlarge
our capability.”
such examples provide hope that
Indonesia can indeed achieve its target
electrification rate of 91 per cent by 2019.
Today, the rolling blackouts have mostly
vanished, but will this last?
22
Jarman - Director General, OF ELECTRICITY
Interview with: Jarman - Director General, of Electricity
INTERVIEW WITH:
Jarman - Director General, of Electricity
Focus Reports: It’s been a year since you have taken the lead of the Directorate General of Electricity, what was your mandate when you took on this role?JARMAN: Our main goal is that by 2020, we hope electrification rate to have reached 99%. Today it is around 73%, so there is still 27% to be devel-oped. In terms of numbers this represents 16.8 million households who do not have access to electricity and 50 million people. Most of these are located in remote areas and islands. We hope that by 2020, almost everybody will have access to electricity.
Our second mission is to improve the coun-try’s energy mix. In 2011, the energy mix in Indo-nesia relied 22% on oil, and we are striving to bring this number down to 13% by the end of 2012, to 9% by 2013 and to 4% by 2015, in line with OECD countries. We cannot eliminate the oil fuel for electricity as it is still required in remote areas for generators, but we can definitely reduce the dependency.
FR: Of course Indonesia has great potential in nat-ural resources which is why renewable sources of energy are becoming the new standard. What is your position on renewable sources of energy?JARMAN: We will definitely encourage renewable energy. I believe that our electricity will be mostly fuelled by coal, secondly by renewable sources, such as geothermal and hydro, and finally by gas. As you know, to operate generators during peak demand, we require diesel which is very costly. Alternatively we can us hydro pump-storage plants, but so far there is only one such plant under development.
By mid 2012, we will be able to stop using oil for power generation in Java, which is why we believe we can reduce our dependency on oil to 9% by 2013.
FR: Earlier you spoke about bringing electricity to remote areas. What initiatives is the Directorate General of Electricity implementing to make sure that this will happen?JARMAN: It is difficult to build power plants in such remote areas and it is also too expensive to construct diesel power plants. Therefore we use communal solar systems to electrify certain households. The idea is to develop independent solar generation sources in each of the villages to provide them with at least the most essential electricity needs. Over time when transmission lines finally reach these areas, the solar networks will be incorporated in to the grid and these vil-lages will operate under a hybrid energy model.
FR: In terms of the distribution and transmission of electricity to these regions, what sort of efforts are you collaborating with PLN in order to increase the grid and the transmission network to reach further islands and further remote areas? JARMAN: For big islands like Sumatera, we are con-structing high voltage transmission lines (i.e 275 KW and 500KW) just to transmit the power from the power plant to remote areas. The challenge is the interconnections, which is why we are plan-ning on interconnecting Sumatera and Java. We also want to install cables between the islands since it is too expensive for us to construct diesel powered power plants for some regions. There-fore, we use the energy from one big power plant and distribute that electricity to the more remote areas via a cable.
FR: We often hear that the fragmentation of Indo-nesia is one of the biggest challenges. What other challenges are you experiencing today in terms of insuring that you achieve your goal of 99% elec-trification rate by 2020?JARMAN: As you know, electricity is meant to sup-port economic growth. Without it, we cannot
23
sustain our economic growth. The problem is that today, the percentage of demand for electricity is around 9% which requires infrastructure and a lot of investment. Although the government has already allocated huge amounts of money for the infrastructure, we highly welcome the invest-ment of foreign IPPs.
For the time being, the percentage of the gen-eration by IPPs is around 23% including PPU and we would like to increase this number to 50%. As you know with increasing electricity demand, we require over 5000MW per year not including investment and projects needed in transmission and distribution.
IPPs are becoming increasingly important. Indeed, last year we generated over 5000MW and this year 5000MW and half of this electricity was generated by IPPs.
FR: What sort of initiatives does the Directorate General have in terms of energy conservation and the better utilization of electricity? JARMAN: We encourage people to use LED lighting as this is a lot more energy efficient. The govern-ment already issued a regulation whereby big companies that consume more than the equiva-lent of 6,000 tons of oil, need to audit and report their energy consumption to the government. The government has already planned a program to conserve not only oil for vehicles but also elec-tricity in households and offices. It is for example stated that the temperature for air conditioning should be set at 24°C and should be shut down after office hours. We hope that this program will reduce electricity consumption by 20%.
It is true that our electricity tariffs are so low that the population has rarely had the incentive to save electricity, which is why we want to edu-cate our people and reduce wasteful use of energy.
FR: One way to conserve energy is to implement a smart grid and new technologies. What efforts is Indonesia doing in order to move in this direction? JARMAN: We already have a pilot project for smart grids here in Java. Smart grids can only be imple-mented if the system is already mature, and this is what we are trying to achieve in Java first. As for the future, to speed up electricity generation we will use communal solar cells that will be incorporated into the grid. We hope that once the economy of those areas increases we will be able
to use smart grid to make electricity generation more efficient. Indeed, we hope that power gen-eration will not only come from solar but also from hydro sources as well. We will also have to educate the people to use the smart grid which takes time. This is why we are starting with a pilot project and will then roll out a national program based on the lessons we learn here in Java.
FR: If we look into the future, as Director General, what would you like to be achieved in the upcom-ing 5 years?JARMAN: 5 years from now, we hope that the fuel electricity mix will be less dependent on oil and that we will manage to bring the dependency down to no more than 4%, like it is the case in OECD countries. We also hope that renewable sources of energy will be more utilized and rep-resent a big proportion of our power generation along with coal which is inevitably our biggest power generation source. We have 28,000MW potential in geothermal and over 75,000MW potential in hydro which would be a good way of reaching remote areas. We have the “25-25” objective which aims to have 25% of power gen-eration from renewable sources by 2025. Finally, we hope that by 2017, electrification rate will have surpassed 85%.
FR: Do you have a final message to the readers?JARMAN: As you know, Indonesia is one of the countries with the highest economic growths and therefore the highest growing demands of elec-tricity but this growth requires infrastructure. We hope we will find the foreign investors to come to Indonesia not only to construct IPPs but also to manufacture electricity equipment. Schneider and GE have plans to expand their operations in Indonesia for example. We also want the input of foreigners to understand what is needed to be done by the government to fur-ther attract foreign investment and bring the right incentives.
By mid 2012, we will be able to stop using oil for power generation in Java, which is why we believe we can reduce our dependency on oil to 9% by 2013.
24
Ulysses Simandjuntak - Vice Chairman, MKI
Interview with: Ulysses Simandjuntak - Vice Chairman, MKI
Focus Reports: Please describe to our readers the main purpose behind MKI and an overview of the work that you do?ULYSSES SIMANDJUNTAK: MKI is an association that represents power producers, manufacturers of electrical equipment and other companies of businesses related to the electricity sector, such as gas and coal suppliers, engineering companies and consulting firms. Essentially, the association covers the entire electricity spectrum starting from generation all the way to retail. MKI was created in direct response to the liberalization of the electricity sector in 2002, when the gov-ernment issued a law that opened up the sector to private companies to move away from the PLN monopoly model.
FR: What are the main issues on MKI’s agenda today?ULYSSES SIMANDJUNTAK: We are currently address-ing the priorities of our working program 2012-2014 that mainly revolve around the broader issue of Indonesia’s dependency on oil for power generation at a time when oil prices are sky-rock-eting. Indonesia’s aim is to reduce its reliance on oil, and therefore MKI has set out to increase business opportunities and attract investors to develop other energy resources, particularly gas, and eventually renewable resources, such as geo-thermal.
On another front, we are also encouraging users and producers to increase their efficiency in the consumption of oil. We cannot eliminate entirely the use of oil due to the fragmented nature of Indonesia as an archipelago, which requires that remote areas use individual diesel generators for their power generation, but we can certainly reduce it. Generators are also used to supplement the power grid during peak hours, which is why we are advocating for large energy consumers to adopt efficiency measures that would considerably reduce our use of oil for power generation.
FR: As Indonesia moves to develop its plentiful energy sources in order to reduce oil dependency, what are the main challenges that the country is facing?ULYSSES SIMANDJUNTAK: One of the main chal-lenges at the moment is related to the develop-ment of the coal sector, which today is the prime power generation source for Indonesia. The good news is that Indonesia has sufficient coal resources to sustain its energy needs for the next century, which is why the government is pushing for the construction of numerous coal-fired power plants throughout the country. The bad news is that Indonesia’s coal varies greatly in quality, which poses a challenge for us to develop power plants specifically designed to the quality of coal that will be used to generate power in each region. Many of our coal resources are classified as low rank coal, and this requires that we build the power plants directly at the mouth of the mine because transporting this coal is too expen-sive and cost-inefficient.
On another note, Indonesia also has great challenges ahead regarding the transmission and distribution of electricity. This is particularly due to the regionalization of government under which each regional government now has the right to grant permission for all power projects in their region to be carried out or not. The result is that transmission projects can be delayed for many months or years before all the necessary approvals from the regional governments have been obtained. All projects now require intensive involvement with local communities to educate them about the benefits that transmission lines can bring to their area and about the limited environmental impact that they will create.
FR: We have noticed that a great emphasis has been placed on the development of coal-fired power plants, but is it not in the country’s best interest to focus on renewable and cleaner energy sources?
INTERVIEW WITH:
Ulysses Simandjuntak - Vice Chairman, MKI
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ULYSSES SIMANDJUNTAK: Indeed we are also pushing alternative sources of energy, including natural gas that is abundant in Indonesia with proven reserves estimated to last for more than 30 years. Gas powered turbines provide a perfect interim solution to our sharp increase in energy demand, primarily because they are very fast to build. The only obstacle that prevents a widespread use of gas for power generation is the lack of transport infrastructure, such as pipelines, terminals and storage facilities.
MKI is also actively pushing for the develop-ment of geothermal power plants which are very peculiar in their development because this is a site-specific energy source that cannot be trans-ported. Indonesia counts with the largest geo-thermal capacity in the world, standing over 25,000MW, but to tap this energy source we require high technology that must come from international partners with such expertise. Fur-thermore, due to the high costs and risks involved in developing geothermal projects, we feel that there need to be greater incentives and guaran-tees on behalf of the government in order to attract the necessary international investors.
Regarding renewable energy sources, there are a number of successful smaller-scale projects throughout the country. Mini-hydro and biomass are particularly promising, because these are the two renewable resources that are most available throughout Indonesia. The government’s target is that by 2020, 5% of the country’s energy mix will come from renewable energy resources. I am certain that if the price of oil continues to increase steadily, then renewable energy projects will gain more importance in Indonesia.
FR: You mention the need to create greater incen-tives in order to attract investors and companies with the appropriate expertise. What specific pol-icies need to be implemented in order to achieve this?ULYSSES SIMANDJUNTAK: The best incentive that the government can implement would be to fund and conduct the feasibility studies for new power projects, particularly for geothermal projects that are very risk-intensive. Under this model, private companies still absorb part of the cost of the feasibility studies in their bid for the project, but at least they are guaranteed that the capacity is there and that the project will be a success. Our
government is currently considering this model, but they still have a lot to learn before it becomes a standard policy.
FR: Realistically, what would MKI like to have achieved over the next five years?ULYSSES SIMANDJUNTAK: Our first step must be to further develop our organization in building closer ties to the government to establish a con-stant dialogue with them. Ideally, the govern-ment will contact MKI every time they would like to make a change in the regulation of the power sector. At the same time we don’t want to be viewed as an agent of the government, but rather MKI should constantly gather input from all of its members to absorb all ideas and suggestions in order to overcome challenges collectively. The essence to our success will be in establishing the closest relationship to the government as pos-sible while still remaining independent.
What advice would you give to international investors looking to come to Indonesia?ULYSSES SIMANDJUNTAK: Indonesia today repre-sents a prime investment market based on its political stability and economic success over the past years. Furthermore, the demand growth of this country of 240 million people is a major opportunity that must be taken advantage of. While certainly some challenges remain, MKI is here to assist any partners that are looking to invest in Indonesia’s power sector. We are here to guide you and assist in the cooperation with gov-ernmental authorities and local players. MKI wel-comes anyone interested in Indonesia’s electricity business that is currently booming. It has been estimated that Indonesia requires close to US$10 billion of investment per year in the power sector in order to maintain the same levels of economic growth. Clearly this cannot be done by the gov-ernment alone, which is why we need interna-tional partners and investors to assist in the pro-cess of driving this country’s growth forward.
Indonesia today represents a prime investment market based on its political stability and economic success
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Supramu Santosa - CEO, SUPREME ENERGY
Interview with: Supramu Santosa - CEO, Supreme Energy
INTERVIEW WITH:
Supramu Santosa - CEO, Supreme Energy
Focus Reports: After a stellar career in the oil & gas sector with over 25 years of experience, in 2007 you decided to create Supreme Energy, as a com-pany entirely dedicated to geothermal energy. What about geothermal energy attracted you so much that you chose to devote yourself fully to it?SUPRAMU SANTOSA: The first and most important reason is the opportunity cost that geothermal energy represents in Indonesia. Geothermal energy has immense potential in this country, and at the time when I founded Supreme Energy, Indo-nesia was in the midst of an energy crisis that required new solutions. Until today the energy matrix relies heavily on oil and fossil fuels for power generation and with the increasing price of oil on a global scale, such an energy matrix will soon become unsustainable. The problem is fur-ther exacerbated by the billions of dollars paid in fuel subsidies by the Indonesian government every year. Until recently, this meant that renew-able energy could not compete with fossil fuels, because the cost to develop such energy sources was too costly compared to subsidized alterna-tives.
From the perspective of a businessman, I also see geothermal as a practical alternative to oil & gas, which is becoming increasingly difficult to explore and extract. The trend has been that to make significant discoveries in oil & gas, compa-nies are forced to move into more remote and higher risk areas, such as frontier locations and deepwater. Inevitably this means higher costs, which today could drive the exploration costs of a well close to US$200 million with a 10% success rate.
Otherwise you are limited to small exploration work onshore, which is not what I envision for myself and my company. It has always been my intention to build a monumental company and this is why I chose geothermal energy. When I cre-ated Supreme Energy there were very few players in the geothermal sector and I was lucky enough to have a group of young, experienced and tal-ented geologists working for me.
FR: Supreme Energy is currently exploring 3 work-ing areas. What is the current progress of these areas and when do you expect to become opera-tional?SUPRAMU SANTOSA: We have one area in West Suma-tra, called Liki Pinangawan Muara Laboh, from which we are expecting to develop 2 x 110 MW in partnership with Sumitomo and International Power-GDF Suez. Our second field is located in South Sumatra and is known as Rantau Dedap, from which we expect to develop 2 x 110 0MW in collaboration with International Power-GDF Suez and Marubeni. The final concession, located in Lampung, Sumatra, is known as Rajabasa and this one is also in partnership with Sumitomo and International Power GDF Suez we expect to obtain 220MW from it. Overall, all three projects will grant us almost 700MW of energy, which will make us a significant player in Indonesia’s energy matrix and one of the largest independent power producers (IPP). To conduct all three projects simultaneously is an extremely ambitious task that is requiring ± US$ 2.1 billion worth of invest-ment, but we are dedicated to making it happen. Currently, we are still in the exploratory phase with all three projects, and we are looking to begin operating before the end of 2016.
FR: What are the greatest hurdles that you are experiencing in the geothermal sector?SUPRAMU SANTOSA: With any investment in Indo-nesia, you must be extremely determined and patient to continue pushing forward. For geother-mal, I believe the greatest challenge lies in the lack of coordination amongst the different govern-ment entities that are regulating or involved in the sector’s development. We do see clear political will on behalf of the government to drive forward essential policies, such as the increase of the feed-in tariffs and the provision of financial guaran-tees, but this is not shared across all the minis-tries. The commitment is there on a macro level, but once you get down to the bureaucratic and smaller departments, then you will find that it
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isn’t there because they have not realized the urgency of the country’s energy situation.
Over the past four years I have been deter-mined to push all of these elements and policies forward in collaboration with the Indonesian Geo-thermal Association. Every day along the way I was knocking on people’s doors to communicate the importance and urgency of developing the geothermal sector by implementing the necessary policies.
FR: In light of the upcoming presidential elections in 2014, some have indicated that the government is no longer willing to take risks in regards to implementing new energy policies. Do you expect that we will see a lull in the development of geo-thermal due to this politicization?SUPRAMU SANTOSA: I don’t think the development of the sector will be affected by the upcoming presidential elections. The most important regu-lations that were needed to make the sector attractive have already been implemented. Now it is just a matter of moving the bureaucrats at the same pace as the industry, and this will require all of our commitment to do so. The reality is that renewable energy is a matter of survival for Indo-nesia; it is not simply a trend and no longer optional. The country’s growing demand in energy requires that we develop these resources particu-larly in the face of declining oil resources. Pur-chasing energy from other countries is also a lim-ited option, and given the wealth of our own natural resources, it only makes sense that we focus on developing these resources. It is esti-mated that every year Indonesia needs to develop 5,000MW of power generation in order to meet its energy demands - or 25,000MW by 2020. This will require huge investments and a solid dedica-tion from the government, but I am confident that we can achieve it. We see other countries around the world rising to meet similar and even greater energy challenges, such as Brazil for example; therefore we should be able to do the same. Brazil has become an energy superpower and has been successful in developing all its renewable energy resources that today make up close to 80% of the country’s energy mix. They have mobilized every possible energy source, from oil & gas and hydro-power, to wind, nuclear and even biofuels. Brazil truly serves as an example for us to strive for.
Some would say that the biggest hindrance to developing Indonesia’s energy sector is the coun-try’s own power model that revolves a single pur-chaser of electricity. Is such a monopoly model viable in the long-term?
As we all know, PLN has been around for a very long time and all the transmission and dis-tribution (T&D) networks in Indonesia as con-trolled by them. Ideally the T&D sector would be liberalized, but this will take a very long time and will only happen once the government removes electricity subsidies. As long as those subsidies are still there, then PLN will continue to have con-trol over the distribution of electricity and we will be dealing with a distorted market.
PLN’s infrastructure is massive, and it will have to be a gradual process before the T&D sec-tor can be liberalized and PLN is replaced, but I do believe that it will have to happen in the future. Currently the pricing of energy is one of the big-gest challenges for the sector as a whole, and due to subsidies PLN will always try to squeeze the lowest purchasing price possible out of any agree-ment. If the price were right, then investors would flock to Indonesia without a question, no matter how difficult the project or how high the risk. What is currently lacking is an adequate price and certainty that commitments to buy electricity will be met.
FR: Can we then expect that electricity subsidies will soon be eliminated?SUPRAMU SANTOSA: As we all know, this is a highly political issue and with upcoming presidential elections, I am doubtful that anyone will want to touch it any time soon. Even though it is entirely logical to remove subsidies, more real-istically I think this could only happen after the elections take place. Nonetheless, the reality is that the country cannot survive spending almost 25% of its revenue on energy subsidies. This affects the development of other key sectors, such as education and road infrastructure. Fur-thermore, the problem with subsidies is that everyone benefits from them, both rich and poor alike, which is clearly unfair. In this case the debate might not be whether we need to remove subsidies as a whole and raise the price of oil across the board, but rather how to make sure that those who have no need for the subsidies are not benefitting from them.
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Fazil Alfitri - President Director, MEDCO POWER
Interview with: Fazil Alfitri - President Director, Medco Power
INTERVIEW WITH:
Fazil Alfitri - President Director, Medco Power
Focus Reports: You have been at the head of Medco Power since the company was created in 2004. What was your vision for the company at its incep-tion and how has this evolved over time?FAZIL ALFITRI: From the outset my idea was to develop a world-class power company with a strong focus on small- and medium-sized projects. If we were to develop large-scale power plants we would be restricted by our capacity to fund such projects, which at that time was very difficult in Indonesia because local investors were very skep-tical to fund infrastructure projects ever since the Asian financial crisis of 1998.
Furthermore, we also decided to concentrate our efforts on areas outside of Java because most power companies were always looking to develop power plants in Java where there is the highest demand for electricity and the most developed power grid. Ultimately our target projects were defined as 50-100MW power plants at the munic-ipal level, because projects of this size allow us to raise capital quite quickly at the local level.
Considering that we were looking at smaller-sized projects, it did not make sense for us to build these power plants from scratch, but rather we determined that our best strategy was to acquire projects that were in distress and had stagnated for one reason or another.
FR: You mentioned that your projects are financed with Indonesian capital, however, local banks are notorious for being risk-averse. What is your per-ception on the willingness of Indonesian investors to spend their capital on local power projects?FAZIL ALFITRI: Back in 2004 I would have definitely agreed that Indonesian banks were unwilling to invest in local power projects, but I feel that the situation has changed with time. Right now is the time to come to Indonesia because perceptions about the country are changing and this is where the opportunities are. In the past, local banks focused mostly on retail banking and avoided investing in capital-intensive infrastructure proj-ects. This was mostly due to the fact that they did
not understand enough about project financing processes.
FR: Considering that Medco Power is relying entirely on a strategy of acquisitions for its expan-sion, how are you generating enough revenues in the short-term to back all these expenditures?FAZIL ALFITRI: In creating a differentiated power company, I always thought that Medco Power should focus on having a large portfolio of projects and services in order to have a balance between our different activities. Our investments in power projects are long-term investments that will only pay off after the plants are operating for a few years. This is why our company would not be able to survive in the short-term without the provision of services, which is where our O&M and EPC ser-vices come into play. We are one of the largest O&M operators in Indonesia with a total of 1,500MW of assets under our supervision.
When Medco Power was first created in 2004 we had a total capital of US$ 400 thousand and today we count on more than US$ 170 million due to the growth in our provision of services. Late last year Medco Power was acquired by Saratoga Capital, which has given us a new push in our growth and development. In this new phase of our expansion we are seeking to quadruple our gen-erating capacity by 2015.
FR: What projects do you have in your pipeline in order to achieve a fourfold expansion of your power generating capacity?FAZIL ALFITRI: The largest project we are currently developing is the Sarulla geothermal plant with a capacity of 330MW. Sarulla is unique in that we are developing it through a project financing
We believe that there is great potential in Indonesia for mini-hydro run of river power plants
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model rather than an equity financing model, which is what most geothermal companies have been doing in Indonesia so far. Today the law per-mits that such assets be assigned to private enti-ties for the duration of their loan, therefore allow-ing them to collateralize those assets with the banks.
At the same time we are looking to develop a mini-hydro power plant that will not require extensive feasibility and environmental impact studies. We believe that there is great potential in Indonesia for mini-hydro run of river power plants because there are many rivers throughout the country with potential for this kind of power gen-eration model. Currently we are looking at 17 dif-ferent projects, all consisting of less than 10MW, which will generate a total of 120MW.
FR: How has your strategy paid off so far in terms of your financial performance?FAZIL ALFITRI: We have stretched our targets for this year to achieve US$150 million revenue by the end of year, which represents a 40% increase from last year. In order to attain this goal we need to close several of our acquisitions and begin con-struction of the projects. For our mini-hydro proj-ects, for example, we are looking to build 30MW every year until 2015 for a total of 120 MW.
FR: What advice do you have to give to someone entering Indonesia’s power sector today and to the regulatory authorities?FAZIL ALFITRI: The key for success in Indonesia is knowing how to navigate the regulatory environ-ment. Perhaps one area in which the government can bring some positive changes is in setting higher feed-in tariffs that will make investments a lot more attractive. I also believe that Indonesia would benefit from further regionalization of feed-in tariffs, so that each region of the country is free to set the prices according to their needs and their vision for the development of their communities. Such a move would also help to reduce government subsidies of electricity, which are extremely costly and inefficient.
FR: Is Medco Power considering entering the trans-mission and distribution business to complement the rest of your operations?FAZIL ALFITRI: Eventually this is a possibility we will explore, and it is a trend that we are witness-
ing in neighboring markets, such as the Philip-pines, Singapore and Australia. If the Philippines, also being an archipelago, can develop its trans-mission business through the private sector then Indonesian will soon have to follow the same example. I also believe that once there is competi-tion in this sector, it will force PLN to become a lot more efficient, in the same way that happened with Pertamina and their downstream business. It is a necessary step that Indonesia must take in the near future. Perhaps one way to go about it is to have PLN handle transmission exclusively while having private companies dealing with the distri-bution of electricity to end-users.
FR: Beyond your business operations, Medco Power is also well-known for its CSR initiatives and its commitment to the communities where you oper-ate. FAZIL ALFITRI: Medco as a whole incorporates the value of improving the lives of people into all of their business activities. The idea is that this is not only that CSR is the right thing to do, but by sup-porting the communities around us this also ensures the continuity of our projects. It’s a mutu-ally beneficial endeavor with both sides supporting each other to grow in parallel. Furthermore, we do not believe in simply handing out charity, but rather we like to support self-sustainable projects that will continue to flourish in the future without our financial support.
FR: Having started this company from scratch and moving it to its current success, where do you envi-sion Medco Power in the near future?FAZIL ALFITRI: I hope that within the next five years Medco Power will have become a US$1 billion com-pany. This is a goal we have set for ourselves and it is my job to bring the company to US$1.4 billion by 2016. The hardest part is to crack the first bil-lion. Once you have achieved this, then the rest comes a lot easier. We first need to reach a critical mass of 100MW more than where we stand today and this will then regularize our costs and increase our revenues.
The key for success in Indonesia is knowing how to navigate the regulatory environment
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Low Kian Min - President Director, PAITON ENERGY
Interview with: Low Kian Min - President Director, Paiton Energy
INTERVIEW WITH:
Low Kian Min - President Director, Paiton Energy
Focus Reports: On June 5th Paiton Energy inaugu-rated its Unit 3 power plant, which experienced numerous setbacks and challenges over the years. What was the evolution of the project until its full operation and how did you manage to finally make it operational?LOW KIAN MIN: Paiton 3 was first bid out by PLN in 2007 as a power plant meant to be built on the Paiton generation complex located 140km east of Surabaya, Java. The complex was initially designed to house 4000MW of generation capac-ity, meaning that the plans for unit 3 have been there since the initial conception of the complex in the mid 1990s. Given the structure of the com-plex and the companies already running power plants there, namely Jawa Power, PJB and our-selves, it only made sense for these players to bid on the Unit 3 tender to share the existing facili-ties. Ultimately, only Jawa Power and Paiton Energy bid on the tender and it was awarded to us in July 2007. Immediately after, we began negotiations on the PPA with PLN, which took us just about a year until it was finally signed in August 2008. It was at this point that the project began to experience its greatest challenges, mostly due to the overall economic situation around the world and the severe global financial crisis.
As banks starting falling out and raising fees, we were faced with a tough situation in which our PPA had just been signed and therefore our costs and revenue projections were fixed according to those - tolerating cost increases was extremely difficult. We eventually managed to find the cap-ital and reached financial closing in March 2010. Our legal obligation to PLN was then to deliver electricity 42 months after financial close, taking us into 2014 to reach this goal. Instead of that, we agreed with PLN that we would deliver power by the summer of 2012, which required our spon-sors to put equity upfront prior to financing. All of the sponsors believed that the project would be financed over time, so the remaining uncer-
tainty was simply related to the timing rather than the ability to do so. Nevertheless, it was still quite a challenge to convince our sponsors to take that risk. To their credit, they did make that leap of faith, and here we are today with a successful project having been completed ahead of schedule.
Paiton Unit 3 is today the largest single-gen-erating unit in Indonesia, and it is also the first to be using supercritical water technology, which makes it the most efficient coal-fired power plant. Furthermore, taking into account our previously existing 1220MW generating capacity, we are now the largest IPP in Indonesia generating a total of 2035MW. This is of course until the next player comes along...
FR: How did you manage to convince your finan-ciers to take the risk that they did? Are the oppor-tunities of the Indonesia power sector that grand?LOW KIAN MIN: It’s been a long process and an excit-ing journey throughout, and today we are quite happy with what we have achieved. There has been one institution, the Japanese Bank for Inter-national Cooperation (JBIC), which has sup-ported us throughout the entire project and has been absolutely critical to making Paiton 3 a real-ity. Overall, JBIC has been very supportive of Indonesia, and specifically for our project they have stood behind it and always tried to bring all the other stakeholders along. It was certainly a difficult process to get everybody on board, but JBIC was willing to provide political risk coverage to the other banks, which they had listed as a
I am certain that the government understands what its challenges are, with the main one being the issue of subsidies.
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precondition to financing the project. In the future, if banks begin to take on the risk of proj-ects without political risk coverage, then this will open up a significant amount of cash for the financing of new infrastructure projects.
FR: What can be done to further reassure foreign investors about the stability of the country and the great returns that can be generated here?In terms of the energy sector, I am certain that the government understands what its challenges are, with the main one being the issue of subsi-dies. Electricity subsidies today represent US$10 billion every year, which is a massive amount of cash being misdirected. Until the government allows PLN to raise its tariffs in order to generate cash that will cover its costs, foreign banks will be unwilling to finance projects without govern-ment guarantees or political risk coverage. Fur-thermore, the government has also understood that subsidies are not well-targeted and that the people who benefit most from them are the larg-est consumers, meaning businesses and the upper classes of society. This situation calls for the need to redistribute wealth in a more precise manner, and this is one of the greatest challenges for Indo-nesia. The country is facing a similar situation with fuel prices and their subsidies, and we saw protests earlier this year when the government attempted to raise fuel prices.
FR: Are these protests a sign that the country’s social and political stability is fragile?LOW KIAN MIN: The protests we witnessed in rela-tion to the fuel price debate were very small and limited. These are not the same kind of protests that you would find in Indonesia in the late 90s and early 2000s. I am convinced that if the gov-ernment had the political will and if their coali-tion partners had the same vision, they could have certainly pushed a fuel price increase without any major consequences. The reason why the price increase did not follow through is more related to internal politics of the government rather than the possibility of any social unrest. This is further exacerbated by the impending presidential elec-tions in 2014. If people manage to set aside poli-tics and start thinking rationally, then this issue will certainly be resolved, and the reality is that it absolutely must be resolved because spending close to US$30 billion on fuel and energy subsidies
every year is entirely unsustainable. Now is the time to make such a change, because once you reach a crisis point and the government is forced to make the changes rather than doing it volun-tarily and in a planned manner, then that is when social unrest will be most likely.
FR: As a foreign manager in Indonesia, what has been key to your success in this country that is often mentioned as difficult to understand?LOW KIAN MIN: Indonesia can certainly be difficult to understand at times, and I say this even though I am Asian myself. I think every country has its own nuances as to how you have to deal with peo-ple, and I don’t think Indonesia is any different. The keys are to understand the local culture and understand how people work, what motivates them and what they mean when they say “yes”. At the end of the day the most important thing is to deliver your end of the bargain and therefore obtaining the respect and trust of the locals. This has been exactly what we have done with PLN, which is why we have such a positive and benefi-cial relationship today. In any agreement, the flex-ibility of parties is always crucial and in Indonesia this is especially important.
FR: What is your final message regarding the poten-tial of Indonesia’s power generation sector and Paiton’s commitment to it?LOW KIAN MIN: Indonesia is a good news story and will definitely continue to be so for the next 5-10 years at least. Its growth will surpass most of its peers in the region, if not the world, despite the challenges in implementing some of its desired policies. If those policies are successfully put into place, then we might even see its growth increase beyond what we see today. I am confident that the country will rise to meet its challenges, because it can only continue moving forward.
Indonesia is a good news story and will definitely continue to be so for the next 5-10 years at least. Its growth will surpass most of its peers in the region, if not the world.
32Interview with: Takumi Sakabe - President Director, Fuji Electric
INTERVIEW WITH:
Takumi Sakabe - President Director, Fuji Electric
Focus Reports: It’s been less than a year since Fuji Electric decided to set up a formal sales and mar-keting office in Indonesia in October 2011. What were the objectives of this expansion and what do you plan to achieve with your increased presence?TAKUMI SAKABE: We are a Japanese manufacturer and solution provider with equipment, devices, apparatus and system related to electricity and electronics and the range of product is quite broad; from power transistors to power plant equipment including steam turbines and gener-ators for thermal and geothermal. Also, our com-pany has the long history with almost 90 years. Our business for Indonesian market started more than 40 years ago but most of our business was mainly done through exporting from Japan. However, we have to say it was just intermittent approaches except for a part of our various busi-ness segments and we tended to prioritize domestic market in our home country, Japan.
Currently, we are focusing on our energy-related business with value added solution and then we are in the process to enhance our busi-ness and increase our presence so that we can become one of leading players in the world. In general point of view, Indonesia is one of coun-tries with enormous potential which started to accelerate motorization, being fully supported by population structure and stable politics over those years. We recognized it was high time for us to spread our solid roots also in Indonesia as series of globalizing activity, accordingly.
FR: Now that you have an established presence in Indonesia, how do you foresee your growth in this sector and what role will you be playing to develop this country’s power sector?TAKUMI SAKABE: Indonesia has vast potential in power generation, which will be further driven by expected economic growth based on its popu-lation and supported by richness in natural resources such as oil, gas, coal, CBM and also renewable resource such as geothermal, hydro, solar, biomass, ocean power, supported by a geo-
graphical advantage. Annual power generation capability is expected to be increased by more than 5000 MW for 10 years to cover growing power demand.
The government of Indonesia is also paying high attention to global warming, in parallel to need for continued economic growth. Mean-while, it is said that Indonesia has big potential in geothermal resources equivalent to 29000 MWe, which is 40% of world potential for the time being.
The government is now committed to devel-oping geothermal power projects under the sec-ond phase of their fast-track program, so called crash program, to increase power generation by 10,000MW for five years starting from year of 2010. The first phase of the two-phase program focused on developing coal-fired power plants, and now there is a greater focus on renewable sources of energy such as geothermal. Addition-ally, the government is working on reviewing related regulatory framework and laws to foster such development. A geothermal power develop-ment is time-taking in characteristics which nor-mally requires more than seven years from the initial survey and feasibility study until the start of power generation. During such period, devel-opers are exposed to high risk especially during exploration stage, yet continue to invest. After successful exploration, power plant is the critical assets to realize developer’s revenue for long time. So, power plant’s component and system should be proven technology with highest level reliability against corrosive and/or erosive nature of resources, however, pursuing cost competitive-ness to fully support developer’s effort before and after plant operation. Though we were a down-stream player in the series of such development, we have been seamlessly involved in supporting this industry over forty years with the equip-ment and EPC capability as well. Our accumu-lated know-how and reliable technology will con-tinue to contribute to developers.
Meanwhile, EPC/Turnkey solutions are nor-
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mally required by plant owners for the plant con-struction stage. We are capable to manage such turnkey jobs with our core products. In such sense, it will also be one of important factors to collaborate with capable and reliable partner, especially with local partner, for success.
In addition, for geothermal, participating in the ownership side will be more proactive approach for the downstream player like us, which will work on increasing own presence in the industry and also on learning many things for better solution in terms of equipment tech-nology and quality of maintenance service. We recently started with this activity in the US. Of course, Indonesia will be one of potential targets for such approach.
FR: As you just mentioned, Indonesia still faces some challenges to fully develop its power sector. What would you say the main challenges are for Fuji Electric in Indonesia today?TAKUMI SAKABE: Given Indonesia is currently paid high attention as a promising country by all over the world, I think our biggest challenges will be, firstly, to accelerate developing broad network to penetrate in this market by increasing both cus-tomers and partners. Secondly, it is to cope with the tough competition, not only with global big businesses who have been active for a long time with local operations, but also with players from emerging countries such as China. It will be get-ting more important for us to differentiate our added value from others.
FR: Beyond your participation in the development of Indonesia’s geothermal capacity, what advan-tages do Fuji Electric’s products offer in terms of energy efficiency and reducing the wasteful usage of electricity?TAKUMI SAKABE: In addition to energy-creating technology I referred to, we have earned good reputation from valued customers for drive con-trol, energy saving such as inverters, UPS, energy management system.
In Indonesia, for the time being, the average electrification ratio through the country reached, and is now more than 67.5% according to PLN. However, even the capital city of Jakarta area with electrification close to 100%, reliability of power supply is expected to be further improved. To avoid power outage is the critical issue for
industry, especially for the manufacturing sector and IT sector.
One of the issues for the government of Indo-nesia in terms of their energy scheme is energy conservation. Not only developing a new power supply, but also increasing efficiency is important to cope with rapidly growing power demands. The government issued more specific regulation inMay this year for such energy conservation, where an entity consuming 6000 oil ton/year is required to realize energy saving.
In the meantime, Indonesia is composed of more than 17,000 islands and remote islands are lacking power supply, where renewable energy such as solar and wind power work is expected to work to reduce burden of fuel cost of diesel power stations.
In light of those situations, there will also be huge opportunity for us to be of good help for such issues with power stabilization technology and converting technologies such as inverter, power conditioners and micro-grid technology.
FR: Thinking about the future of Fuji Electric in Indonesia, what would you like to have achieved in five years’ time?TAKUMI SAKABE: As a whole, Fuji Electric has ambi-tious goals for our global operation in the coming years. In 2011 total company sales were equiva-lent to US$8.7 billion and our objective is to increase this to US$12.5 billion by 2015, where the international sales is designed to increase from 25% of the total revenue of 2011 to 40% of that of 2015. This represents the international sales are expected to grow more than two times by 2015. In this context, Indonesia must become an important contributor to our growth. To real-ize this, the Indonesian operation will take major role and become the center to enhance the drive control, electrical distribution, energy saving and stabilization business mainly for industrial seg-ment, while the operation will be basically in the supportive position for our head-quarter’s activ-ities for the power generation segments.
Not only developing a new power supply, but also increasing efficiency is important to cope with rapidly growing power demands.
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Hans Peter Haesslein - CEO, SIEMENS INDONESIA
Interview with: Hans Peter Haesslein - CEO, Siemens Indonesia
INTERVIEW WITH:
Hans Peter Haesslein - CEO, Siemens Indonesia
Focus Reports: Siemens has been a committed part-ner for Indonesia’s economic development over the years, having invested in numerous areas including local manufacturing and power plants. What are your objectives for Siemens in Indonesia today?HANS PETER HAESSLEIN: Siemens has been in Indo-nesia since 1855 when the company performed its first installation for telecommunications. What do we do in Indonesia today? Firstly, I would like to point out that this is an exciting and important market, even though there are countries around the world that are deserving of similar attention. If you look at the demograph-ics, the electrification rate, the economic growth, the fact that it has a relatively stable democracy and the need for improvement in the infrastruc-ture sector in general - then Indonesia is a very exciting market. The question is: are the inter-national financing and investor communities prepared to move along at the same speed that the Indonesian government desires? The reality is that the President’s Master Plan (MP3EII) can-not be financed unless this happens. We have to attract investors. We must do this through pro-motions that will complement the master plan. The MP3EII’s targets are very ambitious and in the past, particularly in regards to electrification, previous targets have only partially been met. It is for this reason that Siemens is deeply commit-ted to the Indonesia market by providing our full portfolio of products, services and solutions.
FR: What is lacking in Indonesia to convince inves-tors that Indonesia is the place to be?HANS PETER HAESSLEIN: The country’s economy has been growing steadily over the years. I think sta-bility and predictability are extremely important to reassure investors on the opportunities that this country has to offer. I simply hope that the upcoming election for governor of Jakarta will bring investors to Indonesia and that the upcom-ing election for the presidency in 2014, regardless of who wins, does not bring any major changes.
FR: How has Siemens achieved double-digit growth and overarching success in this environ-ment that you identify as being so challenging?HANS PETER HAESSLEIN: There are two elements. One is that the investment environment is rela-tively healthy, which means people are bringing money into the country. Secondly, we have to understand that in some areas we are an investor - where we build a factory for the local market for example - and on the other side we are sup-porting the investors. This means that if indus-tries like steel, cement, pulp, paper or mining are investing then we will consequently also see an increase in business. So if the environment, polit-ical climate and stability bring investment, then it helps us boost our portfolio. We are successful because we have a portfolio - products, services, solutions - which is covering basically every need of any of those industries I mentioned, as well as others. Furthermore, our clients value our prod-ucts and services because we are highly efficient, modern, state-of-the-art, reliable, and afford-able.
FR: Speaking specifically about Indonesia’s power sector, some would argue that maintaining a monopoly for electricity transmission and distri-bution is unsustainable. Would you agree with this vision? HANS PETER HAESSLEIN: The problem as I see it is that we have PLN as a state-owned-enterprise and a monopoly of power distribution. Simulta-neously, by law or decree, you have a subsidized
The biggest problem that I see is the situation between what you can pay someone who is generating energy and what you can charge for it.
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electricity rate, which makes things difficult for investors to obtain attractive power purchase agreements. To create that interest for a big inves-tor, he needs a relatively high price, which at the moment of course leads to a higher subsidy from the government.
Ultimately the government must make a deci-sion to either decrease the subsidy, which is dif-ficult to do for everyone, because there still many poor and isolated people that could simply not afford electricity at higher rates. This is one of the changes or solutions that is more political than technical in nature. In terms of technical requirements, we have the ability to continuously build power plants of different types. The biggest problem that I see is the situation between what you can pay someone who is generating energy and what can you charge for it.
FR: How is Siemens assisting the government in addressing the problem of distributing energy across 17,000 islands?HANS PETER HAESSLEIN: The issue begins with the fact that small diesel-powered generators provide the majority of electrical energy to remote areas. On a positive note, the country has understood that this is unsustainable and that these genera-tors will have to be reduced over time due to the high cost of fuel. How soon this will happen is hard to say.
As you mentioned, there are 17,000 islands - let’s say half of them are inhabited. I believe that, for a long time, we will see areas where there is only a diesel power plant because the demand is very small with only basic power necessities like a TV, refrigerator, and lighting for residents. Now, in the areas where there is a bigger demand, and there are small industries, but there is no regu-lated energy, one would have to think about more permanent solutions, such as a small coal-fired power plant. Solar energy is also possible, although I do not see that happening for a long time because it is so expensive. What we are anticipating is a switch from diesel to other means. Just recently, we have started the produc-tion of small steam turbines in Indonesia, spe-cifically for, what I call, decentralized generation requirement. We have started that deliberately to, in the first place, serve the local market, and secondly, to have technology transfer into the country.
FR: What opportunities do you identify for Indo-nesia with regards to the international trade of electricity to neighboring countries?HANS PETER HAESSLEIN: I am convinced that we have the best technologies in this area and that puts us in a very good position. Of course, price is always an issue. Quality does have its price. Siemens is not and will not be a low cost or low quality producer. That is not what we have done over the past 165 years and not what we shall do.
Now, if we take the technology that we have as well as the reliability factor, the efficiency and availability into consideration - then I believe we are very well positioned as soon as the projects break. The problem comes back to power genera-tion. You still need a power plant to get the energy somewhere. However, we are very confident that at some point these projects that are currently under discussion will go ahead.
FR: Do you understand the responsibility that Sie-mens has in affecting the development of this country? And if so what is the vision you have for the country?HANS PETER HAESSLEIN: The future is bright. If we only fulfill part of the requirements of the MP3EII, it will still prosper and Indonesia will become one of the biggest and most rewarding markets we have seen for a long time. As I men-tioned before, political stability as well as predict-ability is paramount.
In my opinion, it’s also important to find a political solution to some of the major problems, such as subsidies for electricity and petrol. That is creating some sort of a problem because there is gas on one side, and there is oil on the other side here, and both are subsidized. This year, I believe we are going to be a net importer and that is not necessarily good.
If you are not only looking at the energy mar-ket, we have 11 or 12 cities - over one million people in this country - and not one of them has a modern mass transportation system. There is already a big demand, which will hopefully come to the market soon. The bottom line is that social and economic development brings opportunities for infrastructure. At the same time, almost all these things need electrical energy, meaning that there will be huge opportunities.
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Company index
Bakrie Power .............................. 20,21
Capital Turbines ................................18
Directorate General of Electricity .. 22
Directorate General of Renewable Energy .............................................. 14
EDMI ................................................ 15
Fuji Electric .................................. 17,32
Indonesian Coal Mining Association .......................................10
Indonesian Electrical Power Society (MKI) ................................................ 24
Indopower International ................ 12
Medco Power ............................... 8,28
Metbelosa ........................................ 14
Paiton Energy .................................. 30
Panax Geothermal ......................18,19
Pembangkitan Jawa-Bali (PJB) ....... 7
Perusahaan Listrik Negara (PLN) ..... 5
Petrogas Jatim Utama ................... 13
PLN Geothermal ..............................19
Siemens Indonesia ......................... 34
Supreme Energy ............................. 26
The World Bank .................. 5, 8, 11, 15
Truba Jaya Engineering ...................10
Wampu Electric ............................... 15
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