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.