INDONESIA - The Power Sector.

Indonesia's power sector faces shortages of electricity due to under-investment in new generating capacity. The generating capacity has been estimated recently at 28.1 gigawatts. The biggest producer is state-owned power utility PT PLN (Persero), formerly known as Perusahaan Listrik Negara (PLN). But the utility is still known as PLN.

PT PLN operates roughly two-thirds of the country's generating capacity. The country's energy officials have set out a programme to expand generation capacity. The plan, known as the "10,000 MW Acceleration Program" and announced in 2004, has aimed to add 10,000 MW of new capacity by 2010.

PLN warned in early 2001 that 21 regions would suffer power shortages in the near future, including Aceh, Bangka, Bengkulu, Jambi, Pontianak, Lombok, Ambon, Balikpapan and Papua. It said power demand in the heavily populated islands of Java and Bali would reach 17,167 MW by 2003, while installed capacity was 19,697 MW, leaving a reserve margin of only 14.7% instead of the minimum 30% required. No major expansions has since been reported in these regions.

Most of Indonesia's power generating capacity is thermal (oil, gas, and coal), and 10.5% is hydro-power. Before the Asian financial crisis, Indonesia had plans for a rapid expansion of power generation, based mainly on opening up Indonesia's power market to IPPs. The crisis led to severe financial strains on PLN, which made it difficult for the firm to pay for all of the power for which it had signed contracts with IPPs.

Already by early 2005 PLN had over $5 bn in debt, which had grown markedly in terms of local currency due to a decline in the value of the rupiah. The government has been unwilling to take over the commercial debts of PLN. Indonesia is again facing an electricity supply crisis. Intermittent blackouts are already an issue across Java.

Demand for electrical power is expected to grow by about 10% per annum for the next six years. The majority of Indonesia's electricity generation is currently fuelled by oil, but efforts are underway to shift generation to lower-cost coal and gas-powered facilities. Geothermal energy and hydro-power are also being investigated.

The World Bank has offered help to support a corporate and financial restructuring of PLN. An initial plan requires that PLN restructure two of its units, PT Indonesia Power and PT Pembangkit Jawa Bali (PJB). The two together provide about 80% of the power supply to Java and Bali.

Since 2003, the government has renegotiated 26 power plant projects with IPPs. Of those, five projects were to be assumed by the states in co-operation with PLN and Pertamina. The government in early 2005 foresaw inviting private investors to participate in some of the projects.

Competition for power generation has been planned to be open on the islands of Batam, Java, and Bali by 2007. It has also been planned that, by 2008, retail competition in the power market will begin under the terms of the nation's new electricity law, approved in September 2002. The law requires an end to PLN's monopoly on distribution within five years, after which time private companies (both foreign and domestic) were to be permitted to sell electricity directly to consumers. However, all companies will need to use PLN's existing transmission network.