INDONESIA’S “CRASH PROGRAM” FOR ELECTRICITY: GOVERNANCE IMPLICATIONS FOR SECURITY AND SUSTAINABILITY

1. INDONESIA’S “CRASH PROGRAM” FOR ELECTRICITY:GOVERNANCE IMPLICATIONS FOR SECURITY AND SUSTAINABILITY Friday, December,7 2007 Melia Bali Hotel, Batur Room, Nusa Dua Bali Indonesian Institute for Energy Economics (IIEE)

2. Agenda • Background • The Crash Program • Viability • Security of Supply for Power Generation • Other Issues • Summary

3. Background • High dependency on oil fuels, decreasing oil reserves and production, and stagnant refinery capacity lead to increasing oil fuels import to meet the demand growth • Power generation also depends on petroleum fuels • Geographic condition, lack of infrastructure, small scale electricity demand • Substitute for gas unavailability • Load peaker • Increasing international crude oil prices • Prices of non subsidized fuels follows • Government spending on fuel subsidy ballooned since 86% of petroleum products consumption is highly subsidized • Government policy to reduce subsidy burden • Fuel price adjustments • Substituting kerosene with LPG for household • Crash program of coal power plant development

4. The Crash Program Program description: • Coal power capacity expansion of 8900-11500 MW during 2006-2009 • Around 78% are located in Java • Interdepartmental team to produce necessary policy and arrangements and supervise implementation • PLN to develop the power plants and related transmission-distribution requirement Objectives: • Meet the energy needs of 9% economic growth • Address existing shortages and unreliability • Allow for increase in energy access • Alleviate dependence on imported oil fuels and subsidy burden on the state budget

5. Viability • National capacity share of coal power plant: • Planned: 52% by 2010 • Estimated: 64% by 2015 • National capacity factor average 67% in 2015 • Prone to international coal price changes • Differential of domestic and international coal prices • Existing export orientation • Higher share of domestic coal electricity generation has a significant impact to generation costs • Around 3000 MW gas power plants to be mothballed, but assumption of limited gas supply may not hold: • Additional gas supply is possible: surrounding fields, LNG terminal • Successful demand side management • Delayed in construction of power plants & T/D • Potential excess capacity if the above happens

6. Security of Coal Supply for Power Generation • Crash program relies on low grade coal: • Gap between domestic and international coal price, especially for high and medium grade coal makes export market more attractive • Large deposits of low grade coal • New fiscal incentive for low grade coal fields • No recent addition in coal reserves • Regulatory conflicts: • Forestry: protected areas, conservation forests • Spatial Arrangement Plan: mining areas not included • Central and sub-national government regulations: overlapping permits and work areas • New mining law is under process

7. Other Issues • Extending access • More than 40% population without electricity access, mostly at Outside Java • The Program puts a higher emphasis on Java • Project Affected People • Plant sites on highly populated areas • Impact of local pollutions from the plants • Land acquisition: none or fake ownership certificates, multiple ownerships • Environmental Impact Assessment (AMDAL) • Air pollution, health impacts, water needs of coal plants • Learn from the past: • Impact analysis has been limited, AMDAL reduced to bureaucratic formality • Public hearings and consultation were poorly structured

8. Summary (1)

9. Summary (2) • Many issues to be resolved and anticipated: • Availability, Accessibility, Affordability, Acceptability • Economic, social, and environmental issues • Good governance of the process is crucial

10. Fuel Subsidy Sources: www.migas.esdm.go.id; Ministry of Finance; National Development Planning Body

11. Crash Program Sites and Coal Sources

12. Impact of the Crash Program on Java-Bali Generating Capacity

13. Average Capacity Factor in 2015

14. Impact of Coal Price Increase inGenerating Cost

15. Coal Reserves by Quality 2005 Source: Pusat Sumber Daya Geologi, Badan Geologi DESDM

16. Coal Prices Differentials Sumber: Handbook Statistics Energy Economics Indonesia 2006

17. Coal Consumption, Export and Production Sources: Handbook Statistics of Energy Economics Indonesia 2006

18. CO2 Emission from Coal Power Plant Sources: Electricity production 2006-2010 are from RUPTL 2006-2015 revision Electricity production 2004-2005 are from PLN Statistics 2005 CO2 emission 2004 data is from Handbook Statistics of Energy Economics 2006

19. Implikasi Governance terhadap Energy Security dan Sustainability

20. Kesimpulan • Disatu sisi “crash program coal power plant” diperlukan dengan pertimbangan secara ekonomi lebih terjangkau. Disisi lain laju pertambahan GHG emisi menjadi lebih cepat. • Resiko finansial dapat muncul dari sumber dan persyaratan pendanaan, perubahan harga batubara internasional, harga jual listrik dan kebijakan subsidi • Dengan pola governance process seperti saat ini dapat menimbulkan kerentanan terhadap energy security dan keseimbangan ekonomi, sosial dan lingkungan • Tidak ada solusi generik dalam menyeimbangkan berbagai elemen governance, security, dan sustainability sehingga perlu dialog, konsensus building, komitmen, inovasi dan leadership dari semua elemen bangsa • Transparansi dan peningkatan partisipasi publik dapat meningkatkan dukungan dalam pelaksanaan program