PLN to add 5,000 MW new power capacity by 2010: Report

State-owned electricity firm PT Perusahaan Listrik Negara (PLN) is looking to add 5,000 megawatts (MW) of new generating capacity to Indonesia's power network by 2010.

This was disclosed by Ulysses Simanjuntak, a senior officer at PLN's commerce and finance division, to Dow Jones Newswires on Thursday in Singapore.

The plan is intended to bolster national electricity supplies and head off power shortages - improving economic growth in Indonesia is putting already over-stretched supplies under increasing strain. However, the issue of how this new capacity can be paid for still remains unclear.

Currently, PLN and its units own and operate about 4,766 generators, with total capacity of 23,203 MW. The core Java-Bali grid is the single largest interconnected system, with 18,467 MW in total generation capacity.

Independent power producers in Indonesia have a combined 4,000-5,000 MW in generating capacities, less than 20% of Indonesia's total capacity estimated at 28,000 MW, according to PLN.

Ulysses was speaking in Singapore at Asia Power conference on Wednesday.

The 5,000 MW of new generating capacity PLN is aiming to build amounts to just 42% of the 12,000 MW needed by 2010 to cope with Indonesia's power shortages, Ulysses said.

Indonesia is currently facing acute power shortages in 13 major load centers in the outer islands of Indonesia.

"Jakarta will face blackouts in two years' time, unless more capacity is added soon," one analyst told Dow Jones Newswires on the sidelines of the conference.

At an estimated cost of US$1 million for every megawatt capacity, Indonesia will need about $12 billion in power generation investment to 2010, according to rough PLN calculations.

PLN's hope to add 5,000 MW in new capacity calls for approximately US$5 billion, an investment critics say the Indonesian government can't afford to fund, given the funding needs of other public infrastructure projects.

"Ideally, the government would no longer fund the development of power plants except transmission and distribution, and would redefine its position only as the policy maker," according to a PLN presentation.

Substantial private investment will be needed, and although new investment since 1998 has been very limited, Asian investors are showing increasing signs of interest in Indonesia.

European and U.S. investors may have been notably absent in recent years, and some have withdrawn from some Indonesia power ventures.

However, interest from Asian investors ranging from "aggressive Chinese," to Malaysians, Koreans and Singapore companies has been encouraging, Ulysses said.

"Powergen UK Plc's exit from Paiton II (power plant) have seen Singapore entering Indonesia's power sector," he said of the new profile of foreign investors, who are coming from countries closer in geographical proximity to Indonesia.

Singapore's Keppel Corp.'s unit Keppel Energy Pte. Ltd., a joint venture with Japanese government-linked J Power, has agreed to pay US$142.6 million for Powergen UK Plc's 35% stake and loan stocks in PT Jawa Power and all of PT Powergen Jawa Timur.

PT Jawa Power, in which Germany's Siemens Power has a 50% stake, PowerGen, 35%, and local company, 15%, is the independent power producing firm behind 1,220 MW Paiton II power plant in East Java.

With ambitious investment plans which includes building a liquefied natural gas terminal in West Java, PLN knows it needs to improve on technical efficiencies in order to cut costs.

For starters, PLN is intent on cutting the electricity loss in transmission and distribution - to a maximum of 10% in 2004, from a 15% loss recorded for 2003, said Ulysses.

To restore its financial viability, PLN has been trying to push through financial restructuring programs since 1998, and is set to make a profit from 2005 onwards by earning a rate of return of 8%, according to a PLN presentation.

PLN has been suffering a negative rate of return from 1998 through 2002.

PLN is also taking steps ahead of the implementation of new government rules and regulations under Indonesia's new Electricity Act to face what will become a competitive electricity market, Ulysses added.

PLN has established a new unit, "IPP Trader" to handle renegotiations with independent power producers, an initiative launched ahead of the unbundling process awaiting PLN.

Also, PLN will split its generating, transmission and distributing functions into separate business units. (*)