10 July 2008

Electricity and Investment in Indonesia

Indonesia might be an emerging democracy but for what was once on of the tiger economies of Southeast Asia there are significant structural problems that over the last 10 years are yet to be resolved. Electricity, specifically the generation of electricity is a growing problem in Indonesia with rolling blackouts expected to run through to at least October 2009.

It so happens there is an election next year and it would make sense for the government to get a better handle on this. As is regularly the way in Indonesia the government was behind the ball on this and the tender process was long and drawn out. Nevertheless, there are several electricity generation projects working towards completion and a 10,000 MW generator is scheduled to come on line sometime after October 2009.

With the rising cost of oil and much of Indonesia's electricity being based on generation by the exploitation of oil. So, any shortages in oil supply means that there is to be a shortfall in electricity and then a subsequent shortage in electricity availability. This has led to rolling blackouts. The State Electricity Company (PLN) is begging for understanding but why should the people be so forgiving? Unannounced blackouts have led to the damaging of electronic goods among others. Unannounced blackouts also mean that cold storage facilities have suffered losses in food that is no longer edible as it has gone bad. Rolling blackouts effect and affect everyone.

On a personal level, I have been the victim of the unannounced rolling blackouts over the last month or so. However, in order to try and avert some of the unannounced aspect of this PLN has posted on its website the locations of the next blackout.

The government has flagged its intentions of restricting office and manufacturing hours in an effort to reduce consumption.

This begs the question, how does this effect the future of investment in Indonesia, particularly considering the government has made investment one of its policy pillars?

The reality is that putting into place a regulatory framework is only half the battle. If the government cannot guarantee supply then no matter how much a local or foreign investor dumps into a project if those investors cannot progress to production or if they have to operate on restricted capacity because there is no electricity to power their operations.

The government needs to start considering and making moves towards alternative energy. The cold hard truth is that an ever-increasing population is going to place ever-increasing demands on energy and particularly electricity. If the government continues to remain a step behind then Indonesia is going to become increasingly uncompetitive in the global market.

The government really does need to get a handle on this going forward.

10 comments:

the writer said...

Uh-oh, this is a rather complicated post :) I'd better invite you to see the naked run video in my blog :P

Rob Baiton said...

:D

treespotter said...

frankly, not that i disagree with you, but it's more the priority.

I think where the energy crisis in Indonesia is concerned, it's a lot more to do with efficiency. They need to get a grip on the narrow, specific areas of energy policies rather than busying their little heads with every other things Al Gore-ish. I personally think alternative energy is just unnecessary distraction in the short term for this gov't.

They should privatize the energy sector instead and fix the policy to encourage transparency and market mechanism for better efficiency. centralized control like now allows for too much excess.

Rob Baiton said...

Tree...

It was not intended to be an in-depth analysis...

Perhaps avoiding all things Al Gore-ish might be an initial response but alternative energy is something that needs to be considere at some point in the future.

I agree that there needs to be productivity reform and efficiency in the energy sector generally and in PLN specifically. The excesses are often related to corruption so a good cleaning out might be in order.

Full privatization?

treespotter said...

i understand you don't mean to go too deep here.

My point being that i think the talk about alternative energy in indonesia is far too hyped up and fads. It serves only as a distraction and a convenient scapegoat for incompetent management and stupid policies. they should forget alternative energy, burn the coal and dig the oil, we've enough of that shit for now: just make sure we manage it properly and effeciently.

Alternative energy works only in economic terms AFTER there's a good policy in place and thus requiring improvement.

Solar, Wind, Nuclear, Hydrogen, Cold Fusion, won't make a damn difference with these stupid policies - i'm talking policies not just officials.

PLN and Pertamina, two monopolies in a country as large as this, with as much resources and yet they both lose money.

It doesn't make ANY GODDAMN sense that they could lose money: market monopoly and gov't subsidy, technically, they can't possibly lose money.

And yet, they did.

Privatize them all. The gov't should get out of business altogether. The constitutional grounds are icky and vague, if water isn't a monopoly, i can't see why earth is.

Rishardana said...

---This begs the question, how does this effect the future of investment in Indonesia, particularly considering the government has made investment one of its policy pillars?---

A good cleaning is in order indeed Pak. I don't know, but so many of the problems that's occurring in this country stems from corruption. It's basically the root of all evil.

There's also cases of electricity stealing from informal sectors such as the kaki limas which made the usage overload to specific areas.

I read somewhere that the government will 'try their best' to ensure that Industry will be protected from this rolling blackouts. Many years of 'hard work' promoting the competitiveness of Indonesia for foreign investments wiped out instantly by problems such as this.

Small people like me, what can we do? :D

Rob Baiton said...

RH...

The point that I was making albeit in a more cryptic way was that leading into an election year the current prez has the perfect opportunity for not just a little bit of spring cleaning but a thorough cleaning of the house,so to speak.

The prez's PR people must be some of the most overpaid, pver-hyped, under-performing people on the payroll!

Have a look at the news over the last couple of months. The prez would have been on a PR winner if he had stepped up to the plate and cleaned house at the AG's office. He could have literally got away with firing all their sorry asses and seen an upturn in his support!

He could have jumped on board the KPK bandwagon and seen that he picked up some positve spin from the damage the DPR is doing to itself by not learning any lessons from those caught previously with their hands in the cookie jar.

On the energy front, PLN is also providing the perfect opportunity for a full-scale audit and productivity / efficiency review. It also opens up the door to debate about privatizing or part-privitization of government monopolies.

Sometimes business just does a better job than the public sector in managing fundamental resources such as water, electricity, and energy.

Perhaps public oversight to some degree as the private market forces can be ruthless at times but otherwise the complete and total inefficiencies being allowed to continue by the government will still hurt the little people the most.

What can the little people do. The little people can come out en masse and vote. I am about to write a piece on the idea of "Golput".

I understand the democratic right that one exercises in choosing not to vote or to donkey vote and poke more than the permissible holes allowed, but this allows the status quo to remain and ultimately hurts those doing the golput-ting.

Democracy will only ever become real if you give politicians a chance to make change. If they do not make change then you exercise your democratic right and vote them back to the kampung from where they came and put some one new in the DPR.

This for me is democracy.

But hey, what do I know?

Rishardana said...

I hear you Pak Rob, on the vote issue. I've never been a fan of GolPut and always try to vote even it almost always feels like buying a cat from a black bag.

I think one of the many reason the current president didn't act too much following on the corruption issue is that previously on his way to power he made a lot of commitments to a lot of people of the wrong kinds. There's even a strong link connecting his in laws on some BI mishaps.

On the DPR issues, yeah hands in the cookie jar with pants down, literally. One more reason for people being skeptical about our kind of democracy. We somehow did vote on this people, I don't know how.

There's a point from Mr. Treespotter that I agree on though. With regards of finding alternative energy source, etc. I think for now clean the house and the basic policies first, that's the fundamental thing to do to clean up this mess.

I also read somewhere that the whole issue on bio-diesel from minyak jarak thing is way over rated. We will need a hugely vast area of land (where people can grow rice instead) and an advanced refinery until the bio-fuel ready for the market. I think the government will have to thread carefully on this, they don't want the whole blue energy stupidity repeated.

Privatization, well it could be the way.

I'm largely indifferent on this matter. On the other hand the thought of vital and strategic industries in the hands of private (which could mean foreign) will risk the country's dependency and security. On the other hand total incompetence by the government to manage the same industry. Snip or Snap :D

Lesson learned though, will try to research better all of the candidates when it comes to election.

Sigh, I used to think Mr. SBY would really make a difference, back then.

Rob Baiton said...

on the SBY, you and many others :D

Rob Baiton said...

I should add that the Treespotter is a smart man with very many ideas bouncing around in that noggin of his.

I, too, agree with many of the things that he puts down in various blogs throughout the blogosphere.

Is alternative energy over-rated? Depends on how far we are looking into the future. Efficiency improvements and better policies will only advance Indonesia so far and then alternative fuels are going to have to be put into the policy framework...

GJ has made a good point on the fact that maize is over-rated as a bio-fuel and that there might be better alternatives to maize or corn.

My personal view is that now is as good a time as any to start the ball rolling...

Just my view :)