with Ulysses R. Simandjuntak, Vice Chairman, Indonesian Electrical Society (MKI) – Masyarakat Ketenagalistrikan Indonesia
Please describe to our readers the main purpose behind MKI and an overview of the work that you do?
MKI is an association that represents power producers, manufacturers of electrical equipment and other companies of businesses related to the electricity sector, such as gas and coal suppliers, engineering companies and consulting firms. Essentially, the association covers the entire electricity spectrum starting from generation all the way to retail. MKI was created in direct response to the liberalization of the electricity sector in 2002, when the government issued a law that opened up the sector to private companies to move away from the PLN monopoly model. As a matter of fact, it was the government, in coordination with Parliament, which called for the creation of MKI as a group of electricity ‘players’ as a representative of society that could advise the government in energy-related matters. In this way the government could always consult the ‘players’ before releasing any new regulations that would affect the electricity business in Indonesia. Until today we have very close cooperation with the government and often propose initiatives to them that will attract greater investments. Furthermore, whenever the government requires our advice or assistance on any matter, we respond very quickly by creating a team of experts to analyze the issue and set forth recommendations to the authorities.
What are the main issues on MKI’s agenda today?
We are currently addressing the priorities of our working program 2012-2014 that mainly revolve around the broader issue of Indonesia’s dependency on oil for power generation at a time when oil prices are skyrocketing. Indonesia’s aim is to reduce its reliance on oil, and therefore MKI has set out to increase business opportunities and attract investors to develop other energy resources, particularly gas, and eventually renewable resources, such as geothermal. This is what MKI is focusing on at the moment and we are proposing to the government a number of initiatives that could assist in accelerating this transition away from oil.
On another front, we are also encouraging users and producers to increase their efficiency in the consumption of oil. We cannot eliminate entirely the use of oil due to the fragmented nature of Indonesia as an archipelago, which requires that remote areas use individual diesel generators for their power generation, but we can certainly reduce it. Generators are also used to supplement the power grid during peak hours, which is why we are advocating for large energy consumers to adopt efficiency measures that would considerably reduce our use of oil for power generation.
As Indonesia moves to develop its plentiful energy sources in order to reduce oil dependency, what are the main challenges that the country is facing?
One of the main challenges at the moment is related to the development of the coal sector, which today is the prime power generation source for Indonesia. The good news is that Indonesia has sufficient coal resources to sustain its energy needs for the next century, which is why the government is pushing for the construction of numerous coal-fired power plants throughout the country. The bad news is that Indonesia’s coal varies greatly in quality, which poses a challenge for us to develop power plants specifically designed to the quality of coal that will be used to generate power in each region. Many of our coal resources are classified as low rank coal, and this requires that will build the power plants directly at the mouth of the mine because transporting this coal is too expensive and cost-inefficient. MKI is supportive of the development of mine-mouth power plants as we consider this a great priority for Indonesia to be able to meet its energy needs. The additional challenge, however, is how to build these power plants given that most of the coal reserves are in remote areas devoid of infrastructural access. This is why we are also working together with the government to push for the construction roads and highways that can provide better access to the country’s natural resources.
On another note, Indonesia also has great challenges ahead regarding the transmission and distribution of electricity. This is particularly due to the regionalization of government under which each regional government now has the right to grant permission for all power projects in their region to be carried out or not. As you can imagine, coordinating with all these local authorities to construct a transmission line can be quite tricky because people are rarely ever in unanimous agreement. The result is that transmission projects can be delayed for many months or years before all the necessary approvals from the regional governments have been obtained. All projects now require intensive involvement with local communities to educate them about the benefits that transmission lines can bring to their area and about the limited environmental impact that they will create. There is a requirement that for any transmission project that crosses a forest area there must be a reforestation plan to replant two trees for each tree that is felled. Distribution lines are somewhat easier to install because most of them simply follow the path of roads and highways.
Even though transmission and distribution has also been opened up to the participation of the private sector, we have seen minimal activity in this sense because of all these challenges. Furthermore, the 2009 Electricity Law also stipulates that any company who is in charge of delivering electricity to a specific geographic area must be fully accountable for the electricity needs of that geographic area. Essentially they must manage electricity supply for that region and set their own tariff prices approved by local government. We do have a couple of successful examples where the government has granted rights for the provision of electricity to specific geographic areas to a private company. The most notable cases are those of Cikarang Listrindo in Cikarang and also on the island of Batam where four operators are responsible for the provision of electricity, namely BatamIndo, Kabil, Panbil and PLN Batam. Batam is also an interesting case because there have been proposals to use the island as a exporting hub of electricity to Singapore. The idea is to build a number of power plants with a total generating capacity of up to 4000MW and exporting this electricity to Singapore as a means to reduce Indonesia’s exports of natural gas to that country. This will allow us to use those natural gas reserves for our own power generation. All current electricity import and export discussions in Indonesia are based on the ASEAN cooperation schemes for the transmission of electricity.
We have noticed that a great emphasis has been placed on the development of coal-fired power plants, but is it not in the country’s best interest to focus on renewable and cleaner energy sources?
Indeed we are also pushing alternative sources of energy, including natural gas that is abundant in Indonesia with proven reserves estimated to last for more than 30 years. Gas powered turbines provide a perfect interim solution to our sharp increase in energy demand, primarily because they are very fast to build. The only obstacle that prevents a widespread use of gas for power generation is the lack of transport infrastructure, such as pipelines, terminals and storage facilities. Nevertheless, progress on this front is also underway, for example with the construction of the first Floating Storage and Regasification Unit (FSRU) in North Jakarta being completed this year. There are already plans to build a second unit in North Sumatra due to the heavy consumption of oil for power generation in that region.
MKI is also actively pushing for the development of geothermal power plants which are very peculiar in their development because this is a site-specific energy source that cannot be transported. Indonesia counts with the largest geothermal capacity in the world, standing over 25,000MW, but to tap this energy source we require high technology that must come from international partners with such expertise.
Furthermore, due to the high costs and risks involved in developing geothermal projects, we feel that there need to be greater incentives and guarantees on behalf of the government in order to attract the necessary international investors.
Regarding renewable energy sources, there are a number of successful smaller-scale projects throughout the country. The reality is that renewable energy sources will never be sufficient to meet Indonesia’s expanding energy needs, but we must still begin to develop this sector right now to ensure that it flourishes progressively. Mini-hydro and biomass are particularly promising, because these are the two renewable resources that are most available throughout Indonesia. The government’s target is that by 2020, 5% of the country’s energy mix will come from renewable energy resources. I am certain that if the price of oil continues to increase steadily, then renewable energy projects will gain more importance in Indonesia.
You mention the need to create greater incentives in order to attract investors and companies with the appropriate expertise. What specific policies need to be implemented in order to achieve this?
The best incentive that the government can implement would be to fund and conduct the feasibility studies for new power projects, particularly for geothermal projects that are very risk-intensive. The Philippines has been extremely successful in tapping into their geothermal capacity and I think we have a lot to learn from them, including how the government conducts the feasibility studies for the project before licensing them out to the private sector. Under this model, the private companies still absorb part of the cost of the feasibility studies in their bid for the project, but at least they are guaranteed that the capacity is there and that the project will be a success. Our government is currently considering this model, but we they still have a lot to learn before it becomes a standard policy.
Clearly there is still a lot of work to be done in order to maximize Indonesia’s potential in electricity generation. Realistically, what would like MKI to have achieved over the next five years?
Our first step must be to further develop our organization in building closer ties to the government to establish a constant dialogue with them. Ideally, the government will contact MKI every time they would like to make a change in the regulation of the power sector. At the same time we don’t want to be views as an agent of the government, but rather MKI should constantly gather input from all of its members to absorb all ideas and suggestions in order to overcome challenges collectively. The essence to our success will be in establishing the closest relationship to the government as possible while still remaining independent. At the end of the day we all have the same aim, which is to develop the electricity sector of Indonesia as a core component of the country’s greater economic and social development.
I would also like to see greater cooperation amongst our members, which can be difficult at times because some of our member companies compete directly against each other in the business world. Beyond this, I would also like to see that all of our members are trained and educated at the same level in order to have the most fruitful discussions. Being an association we also have a role play in this education and capacitating process, by providing educational opportunities through workshops, seminars and conferences. As you can imagine, the difference in education levels in Indonesia can vary greatly, which is why MKI should ensure that all its members have the same basic level of education that will ensure the most productive and fruitful discussions during our meetings. We have a great wealth of practical information based on the real-life experience of our members, and therefore, we must make sure that this knowledge is shared. This capacity-building is important not only within our headquarters in Jakarta, but it is essential that it takes place throughout the regions as well.
What is your final message to international investors looking to come to Indonesia?
Indonesia today represents a prime investment market based on its political stability and economic success over the past years. Furthermore, the demand growth of this country of 240 million people is a major opportunity that must be taken advantage of. While certainly some challenges remain, MKI is here to assist any partners that are looking to invest in Indonesia’s power sector. We are here to guide you and assist in the cooperation with governmental authorities and local players. MKI welcomes anyone interested in Indonesia’s electricity business that is currently booming. It has been estimated that Indonesia requires close to US$10 billion of investment per year in the power sector in order to maintain the same levels of economic growth. Clearly this cannot be done by the government alone, which is why we need international partners and investors to assist in the process of driving this country’s growth forward.