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

Agenda 1.Background 2.The Crash Program 3.Viability 4.Security of Supply for Power Generation 5.Other Issues 6.Summary

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 Background

The Crash Program Program description: Coal power capacity expansion of MW during 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

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

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

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

Summary (1)

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

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

Crash Program Sites and Coal Sources

Impact of the Crash Program on Java-Bali Generating Capacity

Average Capacity Factor in 2015

Impact of Coal Price Increase in Generating Cost

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

Coal Prices Differentials Sumber: Handbook Statistics Energy Economics Indonesia 2006

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

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

Implikasi Governance terhadap Energy Security dan Sustainability Isu GovernanceIsu Ketahanan EnergiIsu Keberlanjutan Keputusan yang bersifat ad hoc Perubahan kondisi mendadak karena external shock (harga minyak dunia tinggi, ketergantungan terhadap BBM, beban subsidi) Implikasi jangka panjang dari emisi GRK dan limbah lain yang dihasilkan Pembangunan pembangkit tanpa kejelasan sumber dan skema pendanaan Meningkatnya liabilitas Pembangunan pembangkit tidak diikuti dengan kesiapan pasokan batubara Persoalan LULUCF dan green mining Transparansi dan prinsip keadilan dalam proses tender Pemilihan teknologi yang terkonsentrasi, pemasok, dan sumber pendanaan Meningkatkan ketergantungan kemngkinan keandalan yang rendah di bandingkan dengan best pactice Meningkatnya ketidak pastian sistem penyediaan Pengaturan InstitusiKetidakpastian rantai pasok dari hulu sampai hilir - Sinkronisasi kerangka hukum Gangguan terhadap ketersediaan energi, menghambat investasi, aksesibilitas (menghambat akses terhadap sumber daya;tambang diatas lahan hutan lindung) Menghambat pertumbuhan ekonomi - Jangka waktu penugasanKeandalan Meningkatnya liabilitas - Kurangnya partisipasi publikKurangnya dukungan publik, rendahnya aksesibilitas - Akuntabilitas Siapa yang akan bertanggung jawab jika: Program gagal dijalankan Menurunnya kinerja sistem Kinerja finansial PLN melemah

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