Illustration Source: here.


*This is merely an opinion of the writer

Posted in Weekly Kontan Magazine, 1 – 6 September 2015

Rizal Ramli’s comments some time after being appointed as Coordinating Minister (Menko) for Maritime Affairs and Resources stung the Jokowi-Jusuf Kalla Government Working Cabinet. Rizal Ramli’s harsh criticism regarding the target of building a power plant with a total capacity of 35 thousand Mega Watt (MW) sparked a debate with his own superior, the Vice President, Jusuf Kalla. In fact, Rizal Ramli loudly invited Jusuf Kalla to debate in public.

What Rizal Ramli did was heat up the political temperature around the government circles. Pros and cons emerged over Rizal Ramli’s critical attitude as the media and the public are responding more critically. In addition, he also brought the debate into an insubstantial realm, which only accentuates subordinates’ defiance of superiors.

The public has emerged to the substance, which is actually interesting, as it triggers the discussion related to the lives of many people, namely the need for electrical energy and energy sovereignty. Yet behind this problem, Rizal Ramli conveyed the main message, namely the issue of electric power capacity and the realistic targets that must be achieved by the government in meeting national electricity energy needs.

On this occasion, let us forget the cold war between Rizal Ramli and Jusuf Kalla. Let us address more important issues in more elegant dialectics, through the objectivity-based building of thought. Answering Rizal Ramli’s statement, is it possible that the target of building a power plant with a total capacity of 35 thousand MW can be achieved according to the target?

Looking at the technocratic basis, the 35 thousand MW target is calculated based on the estimated national electricity demand. Currently, the installed capacity of the power plant has only reached 50,989 MW. It is estimated that until 2019, additional power plants with a total capacity of 35 thousand MW are needed. The assumption calculates needs based on the total population of 270.4 million people, number of customers as much as 71 million, consumption per capita reaching 1.2 MWh, electrification ratio of 97.4%, the peak load of 50,531 MW, and economic growth of 6-7% per year.

To achieve the 35 thousand MW target, 109 power plants are needed. A total of 35 power plant construction projects with a total capacity of 10,681 MW will be built by the government. Meanwhile, the remaining 74 projects with a total capacity of 25,904 MW were built by private parties or Independent Power Producers (IPP). The total investment required to build a power plant with a capacity of 35 thousand MW is Rp. 1.127 trillion.

Referring to the basis of calculation assumptions, the economic growth indicator of 6-7% can fall. Thinking realistically, with the economic conditions under pressure, achieving growth of 6 – 7% per year is related to the idiom of “Like the worst missed the moon”. Which means, it is impossible to achieve. In 2015 alone, it is estimated that the growth target will fall far below the target of 5.8 – 6.0% and the most optimistic is only 5.0%. With that, the estimated additional demand of 35 thousand MW is not met.

Regarding the financing of power plant construction, the problem is getting more complicated. The wave of economic downturn and the depreciation of the Rupiah against the United States Dollar (US) affected investment realization. Not only the private sector, the State Electricity Company (PLN) will also have to ponder for a long time when it comes to building a power plant as the costs are getting bigger. The high level of imported components used to build electric power plants, under the condition that the Rupiah continues to weaken against the US Dollar, has now reached Rp. 14,100 / USD. This, of course, causes less conducive investment in the electricity sector. This condition is predicted to the last one to two years.

The problem is getting more complicated when dealing with land acquisition. This is a structural obstacle that has yet to be resolved optimally. For example, the case of PLTU Batang, which until now has been constrained by land acquisition whereas the government and the private sector have committed to invest in PLTU Batang.

Licensing is also a problem in efforts to develop power plants in Indonesia. Although, the government has made efforts to simplify the licensing system from the previous 52 permits with a processing time of up to 923 days to 29 permits with a processing time of 256 days and the application of One Stop Services (PTSP). However, in practice, it is not as expected.

If it is related to the achievement of the target for the construction of a power plant with a total capacity of 35 thousand MW, then logically and realistically, this target is too ambitious. It is very logical if Rizal Ramli criticized this target. Perhaps for Rizal Ramli, it would not be good if the government set targets that were impossible to achieve.

Solutions for the Government

President Jokowi in his last statement to the public regarding the construction of power plants, will not revise the target of building a power plant with a capacity of 35 thousand MW. The sentiment of Rizal Ramli’s criticism does not reduce President Jokowi’s hope in realizing this target. However, considering the current conditions, it is necessary to take some notes for the government in its efforts to achieve the target of building a 35 thousand MW power plant.

First, the government must mitigate the impact of the weakening economy and the depreciation of the Rupiah against the US Dollar on the achievement of a power plant with a capacity of 35 thousand MW. This is important, to calculate the various obstacles that are occurring, especially in the investment aspect. Seeing the large investment needs and most of them are managed by the private sector. The issue of the weakening economy and the depreciation of the Rupiah against the US Dollar certainly disturbs the investment performance of the private sector.

Second, there must be a breakthrough in regulations related to the land acquisition process for the construction of power plants. Indeed, there is Law (UU) Number 2 of 2012 concerning Land Acquisition for Development in the Public Interest. However, the problem in the field is that there is a lot of land that is planned for the construction of power plants, not land for public use, and is located in protected forest areas. Thus, it is difficult to acquire the land. To be able to overcome this, it is necessary to revise the Spatial and Regional Planning (RTRW). If this becomes the government’s main agenda and concerns the livelihoods of many people, it is appropriate that the RTRW adjusts to the needs of power plant development.

Third, optimizing the licensing system through PTSP, which has so far been constrained by technical administration and the capacity of licensing administrators. This causes the simplification of the licensing system that has been implemented to experience obstacles in the implementation aspect. Therefore, it is necessary to improve these aspects immediately in the future.

Fourth, investment incentives are needed for private investors who are committed to building power plants. It can take the form of a tax allowance, tax holiday, exemption from import duty for raw material components or capital goods for power plants or an improvement in the price system between PLN and IPP. So, in difficult conditions like today, the investment climate can still be maintained.

Fifth, it needs legal certainty for investors regarding the construction of power plants. The Ministry of Energy and Mineral Resources has issued the Minister of Energy and Mineral Resources Regulation No. 3 of 2015 concerning the Procedure for Purchasing Electricity and the Benchmark Price for Purchasing Electricity by PT. PLN (Persero) through Direct Selection and Direct Appointment. The government must optimize this regulation to strengthen legal certainty.