Dark clouds are already looming over the centerpiece of a gigantic infrastructure improvement initiative announced by the Indonesian government a year and a half ago.
Plans to build power generation plants with a combined output of 35,000 megawatts, positioned at the core of the initiative to spend 5,400 trillion rupiah ($413 billion) on infrastructure by 2019, have hit a snag due to successive cancellations and postponements of bids and delays in the procurement of land.
In April, the state-owned power company Perusahaan Listrik Negara, or PLN, suddenly canceled a tender for a 2,000MW power plant in Java, one of the largest power generation facilities in Indonesia. A Chinese-Indonesian consortium, including an Indonesian state-owned construction company, and a major Japanese trading house were reported to be preparing bids.
PLN attributed the cancellation to a bungled bidding procedure, without offering details. It remains unknown when bidding will be reopened.
The bidding procedure was characterized by an extreme lack of transparency, and investors will shun Indonesia if the situation continues, said Supangkat Iwan Santoso, former head of the Independent Power Producers Association of Indonesia.
New power plants that began operating in or after 2015 had a total capacity of about 170MW, as of the end of June, less than 1% of the target for 2019. In addition, more than 80% of the land needed to lay electric power cables has yet to be purchased. Under the circumstances, it is impossible to meet the target for power generation, Santoso said.
For Indonesian President Joko Widodo, who is seeking to stimulate regional economies, improving power generation systems is a priority that cannot wait. His administration plans to meet rising demand for power consumption in Indonesia, which is forecast to double per person by 2025, while raising the domestic electrification rate — or the rate of access to electricity — to almost 100% from the current 88%.
Funding requirements for the target are estimated at 1,100 trillion rupiah, roughly equal to Indonesia’s annual tax revenue. The government plans to finance 70% of the sum with investments from the private sector such as independent power producers, such as independent power producers. At an international conference in Jakarta in April 2015, Widodo called for investments from participants, promising them “incredible profits.”
The power generation project got off to a strong start. PLN CEO Sofyan Basir, who was given the post because of the management skills he demonstrated at a state-owned bank, picked participants in the project one after another. He signed contracts with independent power producers and others to buy 17,300MW, half the targeted power output, in 2015 alone. He intended to conclude contracts by the middle of this year to cover the rest, according to a person involved in the project.