ANALYSIS - Indonesia Blackouts May Be Sign Of Dark Years Ahead
Date: 29-Feb-08
Country: INDONESIA
Author: Muklis Ali and Adhityani Arga
Outages on the main commercial islands of Java and Bali, the country's worst since a day-long blackout brought Jakarta to a halt in August 2005, were due to storms that hit coal deliveries and exposed the precarious balance of Indonesia's power supply.
After chronic underinvestment and steadily growing demand from an economy growing at its fastest pace in a decade, analysts now see a crisis on the horizon for the world's fourth-most populous nation, which holds elections next year.
"The situation in Indonesia is worse than anywhere else in Asia," says Joseph Jacobelli, head of Asia-Pacific utilities research at Merrill Lynch.
Jakarta has managed to stave off the kind of supply crises seen in China and India in recent years, but as growth picked up after the 1997-98 financial crisis, plants built in the previous decade are showing their age and straining to meet demand.
Officials said the blackouts were due not to a lack of power plant capacity but of fuel -- ships carrying coal from Kalimantan were unable to reach port and unload their cargoes due to stormy weather, forcing two major power plants to cut production as their coal stocks dwindled to only two or three days.
State electricity firm PT Perusahaan Listrik Negara (PLN) staged planned powercuts in Jakarta's commercial and residential areas over the weekend in order to save precious supplies.
Critics blamed the crisis on poor planning, and said that PLN should have been better prepared, with larger stockpiles. The firm may now require plants to double stocks to 30 days.
But even with sufficient fuel supplies, Indonesia is already struggling to meet peak period demand, officials say, a situation set to worsen until new plants are built by 2010 -- provided the government can overcome a legacy of investor resistance.
"Indonesia will inevitably face more power shortages. The political will to tackle the problem is there, but efforts are too few and too late," says Citigroup economist Anton Gunawan.
The interim choices are clear but costly -- buy more diesel and fuel oil to revive expensive oil-fired generators; limit coal exports to ensure domestic supplies; or reduce the government's popularity by instituting more rolling blackouts.
SUPPLY STRAIN
Of the 17,500 megawatts (MW) installed capacity on Java and Bali, about three-quarters of the country's total, only about 15,500 MW is in operation since many of the plants are old and inefficient, said a PLN official, who declined to be named.
With evening demand peaking at 15,200 MW, they operate at a razor-sharp 2 percent supply cushion, a dire situation made worse when plants shut for maintenance or repairs. At peak times, demand can exceed capacity, the PLN official said.
Given its abundant natural resources, Indonesia should be well placed to meet its own energy needs. It is Asia's only OPEC member, the world's second-biggest liquefied natural gas (LNG) producer, and the biggest thermal coal exporter.
But last week's blackouts showed the need to address energy policy urgently to keep Asia-Pacific's sixth-largest economy ticking along after last year's 6.3 percent growth -- its fastest in a decade but still trailing giants China and India.
President Susilo Bambang Yudhoyono wants to attract billions of dollars of investment for infrastructure, including the power sector, to spur economic growth and reduce high unemployment.
But the power industry is one of many infrastructure woes plaguing this sprawling archipelago of 226 million people, along with unsafe ferries, single-track railways and scruffy airports.
In August 2007, PLN signed power plant deals worth around $2 billion with China's Shanghai Electric Corp and Dongfang Electric Corp as part of Indonesia's plan to build 10,000 MW of additional capacity, an increase of 42 percent nationwide.
EXPORT CURB, POLITICAL STRAIN
But apart from the estimated $20 billion it wil