Power Indonesia report 2012

1

IndonesiaPower reportJanuary 2013

2

Acknowledgements

Special thanks to Paul Ratumbanua from The Indonesian Electrical Power Society

(MKI) for all the support, information and contacts provided throughout the report.

To

Director General Jarman from the Directorate General of Electricity, Director

General Kardaya Warnika from the Directorate General of Renewable Energy, Stefan Koeberle from the World Bank and

Nur Pamudji from PLN for their contribution.

3

This report was prepared by Focus ReportsProject Director: Leonardo Barquero. Project Coordinator: Fleur Richard, Isabella Romeo Gomez. Contributors: Roslan Khasawneh, Cameron Rochette Project Publisher: Ines Nandin.

CopyrightAll rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports.While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.

CONTENTS

INTERVIEWS

2 ACKNOWLEDGEMENTS

5 POWER FOR THE ISLAND MOSAIC

6 GEARING UP TO POWER UP

8 FAST TRACK PERFORMANCE

10 THE POWER OF COAL

11 THE PHASE 1 PRECEDENT

12 STRENGTHENING INDONESIA’S GRID

14 THE PRO MISE OF PHASE 2 A RENEWABLE SALVATION

18 EXPERT OPINIONS ON INVESTING IN INDONESIA

20 LOCAL ENGINEERING RE-ENERGISED

22 INTERVIEW WITH: Jarman - Director General, of Electricity

24 INTERVIEW WITH: Ulysses Simandjuntak - Vice Chairman

26 INTERVIEW WITH: Supramu Santosa - CEO, Supreme Energy

28 INTERVIEW WITH: Fazil Alfitri - President Director, Medco Power

30 INTERVIEW WITH: Low Kian Min - President Director, Paiton Energy

32 INTERVIEW WITH: Takumi Sakabe - President Director, Fuji Electric

34 INTERVIEW WITH: Hans Peter Haesslein - CEO, Siemens Indonesia

For exclusive ITVs and more insights, log on to

energy.focusreports.net

5

www.PowerEngineeringInt.com 1Power Engineering International

This sponsored supplement was produced by Focus Reports. Project Director: Leonardo Barquero;

Project Coordinator: Fleur Richard, Isabella Romeo Gomez; Contributors: Roslan Khasawneh, Cameron Rochette;

Project Publisher: Ines Nandin.For exclusive interviews and more info, please visit energy.focusreports.net or write to [email protected]

Power for the IslanD MosaIC:

special Country report

INdoNEsIa’s uPhILL jouRNEy To

ELECTRIFy ITs PEoPLE

Courtesy of PLN

I t is 1 o’clock in the morning in jakarta.

The glow from the city lights illuminates

the hazy sky above with a permanent

yellowish-orange light that erases any

sight of a starlit sky. While the majority

of its 12 million inhabitants are asleep,

the city’s skyline displays its unnatural aura in

its full glory. From the pinnacle of Wisma 46,

jakarta’s tallest skyscraper at 250 metres, to the

hundreds of bare light bulbs of the street-food

vendors, there is an evident, if not wasteful,

abundance of electricity throughout the city.

upon questioning one out of the dozens

of fried rice hawkers on the street – “Where

do all of you get the electricity to keep your

lights on?” – a revealing truth is uncovered:

“We simply hook up to the electricity pole

over there”. Ignoring the safety hazards

related to his affirmation, the pervasive sense

that electricity is free around here becomes

increasingly clear. Nonetheless, this impression

is not endemic to illegal electricity tapping,

but rather is further replicated throughout all

levels of society. a clear example are the high-

class bars in jakarta’s financial heart that run

their air-conditioning units in open air terraces

to keep their wealthy patrons cool from the

stifling heat.

With such widespread behavior it comes

as no surprise that Indonesia’s government

will spend close to $ 9.5 billion in electricity

subsides this year. at the end of the day,

someone has to foot the bill.

With a population nearing 250 million,

an average annual economic growth of

6 per cent and a growing middle class today

estimated at 131 million, Indonesia is one of

the most attractive fast-growing markets in

asia, if not the world. Even in the midst of the

global financial crisis, the country remained

relatively impervious with a solid GdP growth

rate of 4.5 per cent in 2009.

The World Bank’s country director in

Indonesia, stefan Koeberle, conveys that

“Indonesia represents a country with a

very favourable growth outlook and has

been highly successful at attracting foreign

investment. also, it has been quite successful

at sustaining this growth rate for a number of

years. Essentially, this has been on the basis of

a booming commodities export industry and

the expanding domestic market.”

however, Indonesia’s enviable performance

of previous years is in jeopardy of not being

sustained because of an electricity crisis that

has been plaguing the country since 2008.

as the country’s economy has been steadily

6

climbing, electricity demand has been

outpacing supply with growth rates between

8–10 per cent every year. Furthermore, the

country’s unique geography spanning over

17,000 islands, out of which more than 7000

are inhabited, further exacerbates Indonesia’s

hardships to power its people. The grim

circumstances became more than apparent

in 2008 when the national electricity company,

Perusahaan Listrik Negara (PLN), began

executing rolling blackouts as a means to

manage peak electricity demand.

In 2009, the government began

implementing a series of policies dedicated

to boosting the national electrification rate.

“our main goal is that by 2020, we hope

[the] electrification rate [will] have reached

99 per cent. Today it is around 73 per cent, so

there is still 27 per cent to be developed. In

terms of numbers this represents 16.8 million

households [that] do not have access to

electricity and 50 million people (more than

two times the population of australia). Most of

these are located in remote areas and islands.

We hope that by 2020, almost everybody

will have access to electricity”, explains

Indonesia’s director general of Electricity,

jarman, who is responsible for the sector’s

regulation as a part of the Ministry of Energy

and Mineral Resources.

The reality is that the country’s rate

of electrification remains strikingly low

when compared to its neighbors, such as

Thailand, Malaysia and singapore, which

boast electrification rates of 99.3 per cent,

99.4 per cent and 100 per cent respectively.

Indeed, Indonesia’s figures are comparable to

some sub-saharan african countries.

Furthermore, given the country’s

abundance of virtually all energy resources,

including coal, oil & gas, geothermal,

hydropower, biomass, solar and wind, it is

difficult to understand why more than a

quarter of its population still has no access

to electricity. This raises the question as to

whether Indonesia’s electricity monopoly is

the appropriate power model to electrify its

people. Nonetheless, the last few years have

seen signs of positive change on behalf of

the government that promises an overhaul of

Indonesia’s power infrastructure.

under such plans it is estimated that

the country will require at least $6 billion of

annual investment in new power infrastructure,

including an additional 5000 MW on a yearly

basis for the next five years. It remains to be seen

whether these ambitions

are overzealous lip service

or a true reflection of

Indonesia’s latent potential

becoming a reality.

GearInG UP to Power UPTo understand the current

state of affairs there is a

need to grasp the political

history of this young

democracy that saw

the end of authoritarian

rule a mere 13 years ago. having ratified its

constitution in 1945 and officially gaining

its independence from the Netherlands in

1949, Indonesia decided that electricity was

a commodity that its entire population was

entitled to and that, by law, the government

should provide. under such a premise, in

1945 the government created the Bureau of

Electricity and Gas, and was the precursor

to today’s state-owned PLN, which holds a

monopoly on the transmission and distribution

of electricity throughout the country.

Essentially, anything related to power

generation must involve PLN as it is the sole

purchaser of electricity in the country. With

such a mammoth task at hand, PLN is currently

the second-largest state-owned enterprise

in Indonesia in terms of assets, which are

worth an estimated $53.5 billion across nine

subsidiaries, including some 28,500 MW of

installed generating capacity. Most would

argue that a company of this magnitude and

importance is bound to be inefficient when

managed by the government.

Certainly most of the figures augur with

that view considering that PLN’s average tariff

for electricity stands at $7.7 cents per kWh

compared to its average cost of production

estimated at $11.6 cents per kWh. some

explain such discrepancies as a result of

the company’s stunted plans to develop

a number of power plants in the 1990s

that were abruptly halted due to the asian

financial crisis. It took more than a decade

for PLN to recover from overwhelming losses

and get back on track to success. since

2009, PLN has been aggressively stepping

up the optimization of its business processes

to meet the needs of its customers and to

prove critics that it is capable of fulfilling

its mandate.

PLN’s current president director, Nur Pamudji,

took on his role as the head of the company

in late 2011 with the vision to transform it into

a world-class utility business. “It is my dream to

make PLN the largest utility company in asia.

We already count 46 million customers and

we only expect that this will grow considerably

over time. While India and China have massive

populations, their power is guaranteed by a

number of companies, which is why I believe

we have a solid chance at becoming #1 in the

region,” he confidently affirms.

2 Power Engineering International www.PowerEngineeringInt.com

Indonesia

Growing Electricity Demand

350

280

210

140

70

0

(in TWh)

2011 2013 2015 2017 2019

Java-Bali Outside Java-Bali

125

36

161

150

44

194

179

55

234

213

68

281

253

82

334

Jarman, director-general of Electricity.

Jero wacik, minister of Energy and Mineral Resources


Indonesia

“as a first priority, we have the aim to

improve our relations with customers and to

enhance the service that we provide to them.

We are doing this by implementing a pre-paid

metering system that provides us with better

information regarding our customers, so that

we can better tailor our services to them.

We are also in the process of implementing

our Enterprise Resource Planning (ERP)

programme and have already completed 70

per cent of it. overall, the vision is to become

a modern utility company that incorporates

information technology intensively in order to

provide the best service possible.”

The results to such initiatives have already

begun to pay off, as the pre-paid metering

system guarantees improved cash flows with

more efficient payment collection for PLN.

Pamudji notes that “our customers are greatly

satisfied with the pre-paid meters as it allows

them to monitor their usage of electricity on a

daily basis. Indirectly it also serves to sensitise

them about energy usage and conservation

because they see the direct relation between

their own consumption and how much they

have to pay.”

The additional cash in the bank is a

boon for PLN, particularly at this time when

intensive spending is being demanded of

the company. This is due to the fact that focus

on Indonesia’s energy and electricity policies

goes beyond the company’s individual plans.

In effect, energy is a determining factor in the

future economic performance of Indonesia,

and has therefore become a core priority for

President susilo Bambang yudhoyono, who

is perceived as the steward of the country’s

robust economic growth over the past

six years.

Coming to power in 2004 and being

reelected for another five-year term in 2009,

yudhoyono is generally well-regarded

because of his liberal economic and fiscally

conservative policies that have allowed

Indonesia to grow into a modern market

economy. his vision for the country’s electricity

sector is no different, with the introduction of a

new regulatory framework in 2009 commonly

referred to as the ‘2009 Electricity Law’. under

this law, power generation was fully opened to

the participation of private power producers,

known in Indonesia as independent power

producers (IPPs), which sell their electricity to

PLN for distribution.

Theoretically, even the transmission and

distribution of electricity can be undertaken

by a private party, as long as PLN has foregone

its option to do so. This new regulatory

framework was devised precisely to push for

the participation of private investments into

the power sector as it became clear that PLN

was incapable of meeting electricity demand

on its own. Even though private interests had

been allowed since 2002, their involvement

and direct investments into power generation

have been scarce.

Prior to the 2009 Electricity Law, yudhoyono

had already emphasized the urgent need

for power infrastructure by implementing

a two-phase fast-track programme aimed

at building 20,000 MW worth of new power

plants. The plan is divided into phases of

10,000 MW each, with the first focusing entirely

on the construction of coal-fired power plants,

mostly by PLN, from 2006–10. The second

initiative emphasizes the role of IPPs and the

development of cleaner energy sources,

particularly geothermal, propped up by the

Committed to Indonesia,we drive the country forward.

PT Pembangkitan Jawa-Bali Jl. Ketintang Baru No. 11 Surabaya 60231 Indonesia

T : (62-31) 8283180 (Hunting)F : (62-31) 8283183

[email protected]

www.ptbjb.com

7

climbing, electricity demand has been

outpacing supply with growth rates between

8–10 per cent every year. Furthermore, the

country’s unique geography spanning over

17,000 islands, out of which more than 7000

are inhabited, further exacerbates Indonesia’s

hardships to power its people. The grim

circumstances became more than apparent

in 2008 when the national electricity company,

Perusahaan Listrik Negara (PLN), began

executing rolling blackouts as a means to

manage peak electricity demand.

In 2009, the government began

implementing a series of policies dedicated

to boosting the national electrification rate.

“our main goal is that by 2020, we hope

[the] electrification rate [will] have reached

99 per cent. Today it is around 73 per cent, so

there is still 27 per cent to be developed. In

terms of numbers this represents 16.8 million

households [that] do not have access to

electricity and 50 million people (more than

two times the population of australia). Most of

these are located in remote areas and islands.

We hope that by 2020, almost everybody

will have access to electricity”, explains

Indonesia’s director general of Electricity,

jarman, who is responsible for the sector’s

regulation as a part of the Ministry of Energy

and Mineral Resources.

The reality is that the country’s rate

of electrification remains strikingly low

when compared to its neighbors, such as

Thailand, Malaysia and singapore, which

boast electrification rates of 99.3 per cent,

99.4 per cent and 100 per cent respectively.

Indeed, Indonesia’s figures are comparable to

some sub-saharan african countries.

Furthermore, given the country’s

abundance of virtually all energy resources,

including coal, oil & gas, geothermal,

hydropower, biomass, solar and wind, it is

difficult to understand why more than a

quarter of its population still has no access

to electricity. This raises the question as to

whether Indonesia’s electricity monopoly is

the appropriate power model to electrify its

people. Nonetheless, the last few years have

seen signs of positive change on behalf of

the government that promises an overhaul of

Indonesia’s power infrastructure.

under such plans it is estimated that

the country will require at least $6 billion of

annual investment in new power infrastructure,

including an additional 5000 MW on a yearly

basis for the next five years. It remains to be seen

whether these ambitions

are overzealous lip service

or a true reflection of

Indonesia’s latent potential

becoming a reality.

GearInG UP to Power UPTo understand the current

state of affairs there is a

need to grasp the political

history of this young

democracy that saw

the end of authoritarian

rule a mere 13 years ago. having ratified its

constitution in 1945 and officially gaining

its independence from the Netherlands in

1949, Indonesia decided that electricity was

a commodity that its entire population was

entitled to and that, by law, the government

should provide. under such a premise, in

1945 the government created the Bureau of

Electricity and Gas, and was the precursor

to today’s state-owned PLN, which holds a

monopoly on the transmission and distribution

of electricity throughout the country.

Essentially, anything related to power

generation must involve PLN as it is the sole

purchaser of electricity in the country. With

such a mammoth task at hand, PLN is currently

the second-largest state-owned enterprise

in Indonesia in terms of assets, which are

worth an estimated $53.5 billion across nine

subsidiaries, including some 28,500 MW of

installed generating capacity. Most would

argue that a company of this magnitude and

importance is bound to be inefficient when

managed by the government.

Certainly most of the figures augur with

that view considering that PLN’s average tariff

for electricity stands at $7.7 cents per kWh

compared to its average cost of production

estimated at $11.6 cents per kWh. some

explain such discrepancies as a result of

the company’s stunted plans to develop

a number of power plants in the 1990s

that were abruptly halted due to the asian

financial crisis. It took more than a decade

for PLN to recover from overwhelming losses

and get back on track to success. since

2009, PLN has been aggressively stepping

up the optimization of its business processes

to meet the needs of its customers and to

prove critics that it is capable of fulfilling

its mandate.

PLN’s current president director, Nur Pamudji,

took on his role as the head of the company

in late 2011 with the vision to transform it into

a world-class utility business. “It is my dream to

make PLN the largest utility company in asia.

We already count 46 million customers and

we only expect that this will grow considerably

over time. While India and China have massive

populations, their power is guaranteed by a

number of companies, which is why I believe

we have a solid chance at becoming #1 in the

region,” he confidently affirms.


Indonesia

Growing Electricity Demand

350

280

210

140

70

0

(in TWh)

2011 2013 2015 2017 2019

Java-Bali Outside Java-Bali

125

36

161

150

44

194

179

55

234

213

68

281

253

82

334

Jarman, director-general of Electricity.

Jero wacik, minister of Energy and Mineral Resources


Indonesia

“as a first priority, we have the aim to

improve our relations with customers and to

enhance the service that we provide to them.

We are doing this by implementing a pre-paid

metering system that provides us with better

information regarding our customers, so that

we can better tailor our services to them.

We are also in the process of implementing

our Enterprise Resource Planning (ERP)

programme and have already completed 70

per cent of it. overall, the vision is to become

a modern utility company that incorporates

information technology intensively in order to

provide the best service possible.”

The results to such initiatives have already

begun to pay off, as the pre-paid metering

system guarantees improved cash flows with

more efficient payment collection for PLN.

Pamudji notes that “our customers are greatly

satisfied with the pre-paid meters as it allows

them to monitor their usage of electricity on a

daily basis. Indirectly it also serves to sensitise

them about energy usage and conservation

because they see the direct relation between

their own consumption and how much they

have to pay.”

The additional cash in the bank is a

boon for PLN, particularly at this time when

intensive spending is being demanded of

the company. This is due to the fact that focus

on Indonesia’s energy and electricity policies

goes beyond the company’s individual plans.

In effect, energy is a determining factor in the

future economic performance of Indonesia,

and has therefore become a core priority for

President susilo Bambang yudhoyono, who

is perceived as the steward of the country’s

robust economic growth over the past

six years.

Coming to power in 2004 and being

reelected for another five-year term in 2009,

yudhoyono is generally well-regarded

because of his liberal economic and fiscally

conservative policies that have allowed

Indonesia to grow into a modern market

economy. his vision for the country’s electricity

sector is no different, with the introduction of a

new regulatory framework in 2009 commonly

referred to as the ‘2009 Electricity Law’. under

this law, power generation was fully opened to

the participation of private power producers,

known in Indonesia as independent power

producers (IPPs), which sell their electricity to

PLN for distribution.

Theoretically, even the transmission and

distribution of electricity can be undertaken

by a private party, as long as PLN has foregone

its option to do so. This new regulatory

framework was devised precisely to push for

the participation of private investments into

the power sector as it became clear that PLN

was incapable of meeting electricity demand

on its own. Even though private interests had

been allowed since 2002, their involvement

and direct investments into power generation

have been scarce.

Prior to the 2009 Electricity Law, yudhoyono

had already emphasized the urgent need

for power infrastructure by implementing

a two-phase fast-track programme aimed

at building 20,000 MW worth of new power

plants. The plan is divided into phases of

10,000 MW each, with the first focusing entirely

on the construction of coal-fired power plants,

mostly by PLN, from 2006–10. The second

initiative emphasizes the role of IPPs and the

development of cleaner energy sources,

particularly geothermal, propped up by the

Committed to Indonesia,we drive the country forward.

PT Pembangkitan Jawa-Bali Jl. Ketintang Baru No. 11 Surabaya 60231 Indonesia

T : (62-31) 8283180 (Hunting)F : (62-31) 8283183

[email protected]

www.ptbjb.com

8


2009 Electricity Law, which eased regulations

for private investors to finance new power

plants. The second phase is expected to be

completed by 2014.

These fast-track programmes make up the

backbone of the country’s plans to raise the

electrification rate and tap into new sources of

energy by attracting deep-pocketed investors

and companies with the appropriate know-

how and technologies. In essence, the fast-

track programme has become the promise of

a modern electricity sector with a diversified

energy mix.

fast traCK PerforManCeWhile Indonesia today struggles to satisfy its

own energy needs, the country was once a net

exporter of energy and a major oil-producing

member nation of oPEC up until 2008. It

was precisely this wealth of hydrocarbon

resources that shaped the country’s energy

policies from the 1950s onwards, and based

power generation on the use of oil as the

main fuel source. as oil reserves declined

and investments for exploration waned,

Indonesia was forced to begin importing oil

and subsidise its prices for

fuel domestically. subsidies

for electricity soon followed.

Currently, fuel subsidies

are more than double

those for electricity and

are estimated to reach $23

billion by the end of this

year because of global

oil prices. Together, fuel

and electricity subsidies

consume roughly 4 per

cent of the country’s

$845.7 billion GdP. This

situation has sent the government scrambling

for fast and efficient solutions to address

the increasing demand for power. Most

understand that both fuel and electricity

subsidies are not sustainable in the long

term, however, income levels for the majority

of the population are not high enough to

absorb the costs. This is particularly true

given that Indonesians take having access

to inexpensive fuel and electricity for granted.

Next year, the government is expecting that

energy subsidies will increase by a further 36

per cent, compared to a 15 per cent rise in

spending for infrastructure.

The World Bank’s Koeberle believes that

subsidies present a greater problem related to

“the uneven distribution of public resources in

the sense that these subsidies do not reach

the poorest populations. In other words, it

is seldom the rural populations who are

the consumers of fuel for transportation or

have access to electricity, and are therefore

not benefiting directly from these subsidies.

under the current state of affairs however, the

nur Pamudji, president director, PLN

stefan Koeberle, country director Indonesia, The World Bank

Indonesia


energy subsidies are only benefiting the richer

households as they represent the largest

segment of energy consumers.”

Nonetheless, when the government

attempted to raise fuel prices earlier this

year, it was forced to back down as people

took to the streets in peaceful protests and

demonstrations. With upcoming presidential

elections in 2014, politicians opted not to take

any risks that would make them unpopular.

The only other solution is to find alternative

fuel sources for power generation to replace

approximately 7000 MW of generating

capacity based on diesel generators.

While natural gas is abundant in

Indonesia, close to 70 per cent of gas

reserves are located in hard-to-reach offshore

locations and transportation infrastructure for

gas is rather limited. In light of this, regional

governments have been making their own

efforts to develop natural gas in their areas

rather than waiting for national oil company,

Pertamina, to do the job for them.

Petrogas jatim utama (Pju), is a prime

example of this trend as a state-owned-

company established by the government

of East java tasked with developing natural

gas infrastructure in the region. “our business

consists of upstream, downstream and

services covering the entire value chain.

Essentially, we are responsible for managing

infrastructure built by the local government

of East java in order to then distribute [the]

gas that we purchase from Lapindo Brantas.

Pju manages the main distribution station,

while private companies handle the smaller

satellite distribution centres. In managing this

gas infrastructure, our main aim is to reduce

gasoline consumption, as it’s very expensive”,

explains president director abdul Muid.

“at the moment we face a great deal

of competition in our sector, especially from

Pertamina that controls a significant portion

of the market. however, this is changing as

SumateraKalimantan

Java-Bali NTBNTT

Sulawesi

Maluku

Papua

PapuaDiesel 266MWHydro 4mmTotal 270MW

NTTDiesel 53MWGeothermal 4mmHydro 1mmTotal 58MW

NTBDiesel 141MWHydro 1mmTotal 142MW

Java-BaliHydro 2,399MWGeothermal 375MWSteamturbine 8,680MWCombined 6,786MWCycleGas turbine 2,114MWDiesel 120WIPP 3,997MWTotal 24,471MW

SumateraHydro 867MWGeothermal 0MWSteam-turbine 1,175MWCombined 858MWCycleGas-turbine 874MWDiesel 953WIPP 601MWTotal 5,3281MW

KalimantenHydro 32MWSteam-turbine 201MWCombined 60MWCycleGas-turbine 113MWDiesel 969WOthers 39MWIPP 45MWTotal 1,459MW

SulawesiHydro 220MWGeothermal 60MWSteam-turbine 55MWGas-turbine 123MWDiesel 567WIPP 300MWTotal 1,325MW

MalukuDiesel 198MWTotal 198MW

TotalHydro 3,523MWGeothermal 439MWSteam-turbine 10,111MWCombined 7,704MWcycleGas-turbine 3,224MWDiesel 3,268WOthers 39WIPP 4,943MWTotal 33,251MW

Map: Indonesian Power Geneation Network, june 2011

Indonesia

9


2009 Electricity Law, which eased regulations

for private investors to finance new power

plants. The second phase is expected to be

completed by 2014.

These fast-track programmes make up the

backbone of the country’s plans to raise the

electrification rate and tap into new sources of

energy by attracting deep-pocketed investors

and companies with the appropriate know-

how and technologies. In essence, the fast-

track programme has become the promise of

a modern electricity sector with a diversified

energy mix.

fast traCK PerforManCeWhile Indonesia today struggles to satisfy its

own energy needs, the country was once a net

exporter of energy and a major oil-producing

member nation of oPEC up until 2008. It

was precisely this wealth of hydrocarbon

resources that shaped the country’s energy

policies from the 1950s onwards, and based

power generation on the use of oil as the

main fuel source. as oil reserves declined

and investments for exploration waned,

Indonesia was forced to begin importing oil

and subsidise its prices for

fuel domestically. subsidies

for electricity soon followed.

Currently, fuel subsidies

are more than double

those for electricity and

are estimated to reach $23

billion by the end of this

year because of global

oil prices. Together, fuel

and electricity subsidies

consume roughly 4 per

cent of the country’s

$845.7 billion GdP. This

situation has sent the government scrambling

for fast and efficient solutions to address

the increasing demand for power. Most

understand that both fuel and electricity

subsidies are not sustainable in the long

term, however, income levels for the majority

of the population are not high enough to

absorb the costs. This is particularly true

given that Indonesians take having access

to inexpensive fuel and electricity for granted.

Next year, the government is expecting that

energy subsidies will increase by a further 36

per cent, compared to a 15 per cent rise in

spending for infrastructure.

The World Bank’s Koeberle believes that

subsidies present a greater problem related to

“the uneven distribution of public resources in

the sense that these subsidies do not reach

the poorest populations. In other words, it

is seldom the rural populations who are

the consumers of fuel for transportation or

have access to electricity, and are therefore

not benefiting directly from these subsidies.

under the current state of affairs however, the

nur Pamudji, president director, PLN

stefan Koeberle, country director Indonesia, The World Bank

Indonesia


energy subsidies are only benefiting the richer

households as they represent the largest

segment of energy consumers.”

Nonetheless, when the government

attempted to raise fuel prices earlier this

year, it was forced to back down as people

took to the streets in peaceful protests and

demonstrations. With upcoming presidential

elections in 2014, politicians opted not to take

any risks that would make them unpopular.

The only other solution is to find alternative

fuel sources for power generation to replace

approximately 7000 MW of generating

capacity based on diesel generators.

While natural gas is abundant in

Indonesia, close to 70 per cent of gas

reserves are located in hard-to-reach offshore

locations and transportation infrastructure for

gas is rather limited. In light of this, regional

governments have been making their own

efforts to develop natural gas in their areas

rather than waiting for national oil company,

Pertamina, to do the job for them.

Petrogas jatim utama (Pju), is a prime

example of this trend as a state-owned-

company established by the government

of East java tasked with developing natural

gas infrastructure in the region. “our business

consists of upstream, downstream and

services covering the entire value chain.

Essentially, we are responsible for managing

infrastructure built by the local government

of East java in order to then distribute [the]

gas that we purchase from Lapindo Brantas.

Pju manages the main distribution station,

while private companies handle the smaller

satellite distribution centres. In managing this

gas infrastructure, our main aim is to reduce

gasoline consumption, as it’s very expensive”,

explains president director abdul Muid.

“at the moment we face a great deal

of competition in our sector, especially from

Pertamina that controls a significant portion

of the market. however, this is changing as

SumateraKalimantan

Java-Bali NTBNTT

Sulawesi

Maluku

Papua

PapuaDiesel 266MWHydro 4mmTotal 270MW

NTTDiesel 53MWGeothermal 4mmHydro 1mmTotal 58MW

NTBDiesel 141MWHydro 1mmTotal 142MW

Java-BaliHydro 2,399MWGeothermal 375MWSteamturbine 8,680MWCombined 6,786MWCycleGas turbine 2,114MWDiesel 120WIPP 3,997MWTotal 24,471MW

SumateraHydro 867MWGeothermal 0MWSteam-turbine 1,175MWCombined 858MWCycleGas-turbine 874MWDiesel 953WIPP 601MWTotal 5,3281MW

KalimantenHydro 32MWSteam-turbine 201MWCombined 60MWCycleGas-turbine 113MWDiesel 969WOthers 39MWIPP 45MWTotal 1,459MW

SulawesiHydro 220MWGeothermal 60MWSteam-turbine 55MWGas-turbine 123MWDiesel 567WIPP 300MWTotal 1,325MW

MalukuDiesel 198MWTotal 198MW

TotalHydro 3,523MWGeothermal 439MWSteam-turbine 10,111MWCombined 7,704MWcycleGas-turbine 3,224MWDiesel 3,268WOthers 39WIPP 4,943MWTotal 33,251MW

Map: Indonesian Power Geneation Network, june 2011

Indonesia

10


the market is opening up, particularly with the

regional government structure that provides

greater autonomy to local governments. Finally,

being a state-owned enterprise, Pju also serves

a purpose of delivering value to the surrounding

community. For such reason, we have been

succesfully operating a city gas distribution

business in surabaya and sidoarjo using part

of the gas which we purchase from Lapindo

Brantas. This operation is currently serving close

to 7000 households,” concludes Muid.

While the example of Pju is commendable,

it is not viable on a national scale since most

regional government do not have the capital

or expertise for such projects. Furthermore,

while the country waits for gas infrastructure

to be installed, electricity demand steadily

keeps rising. and so was born Phase 1 of the

fast-track programme that focuses entirely on

coal for the generation of 10,000 MW.

director General jarman explains that

“in 2011, the energy mix in Indonesia relied

22 per cent on oil, and we are striving to bring

this number down to 13 per cent by the end of

2012, to 9 per cent by 2013 and to 4 per cent

by 2015, in line with oECd countries. We cannot

eliminate the oil

fuel for electricity

as it is still required

in remote areas

for generators,

but we can

definitely reduce

the dependency”.

Coal seems to be

the sure answer as

it already accounts

for 47 per cent of

power generation.

the Power of CoalIt is Indonesia’s fortune to be blessed with

extensive coal reserves that today make this

nation the world’s prime exporter of this raw

material. Earlier this year, estimated coal reserves

were raised to over 25 billion tonnes as more

mining companies provide the government

with higher quality data of their operations.

The challenge for the coal mining sector lies in

balancing export commitments and revenues

with an increased national demand for coal to

be used for power generation.

This year a 20 per cent export tax for

unprocessed coal was announced by

the government as a means to boost the

availability of resources for local consumption.

Mining companies have lashed out against

such protectionist measures. ultimately, they

argue that an export tax hinders economic

growth and the greater potential of Indonesia’s

economy. Bob Kamandanu, chairman of

the Indonesian Coal Mining association,

speaks of his responsibility to express “to the

government that they should let the market

decide the supply and demand of coal,

Maintaining Quality Services for Quality Customers

Wisma PSM, JL. Swadaya II No. 7, Tanjung Barat, Jagakarsa,

Jakarta Selatan 12530, IndonesiaPhone: +62-21-7803300; 7891481

Fax: +62-21-7801054; 7804070www.trubagroup.com

PT. TRUBA JAYA ENGINEERING

INDONESIA FUEL MIX 2010-2019400.000

350.000

300.000

250.000

200.000

150.000

100.000

50.000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 20192016 2017

Historical Projection

HSD MFO

LNG

GAS

COAL

Geothermal

Hydro

Indonesia


because there is tough competition around

the world and Indonesia could easily lose its

place as #1 if we start placing market barriers.

With such restrictions in place, we foresee that

Indonesia would lose its place as the leading

coal exporter within the next ten years.”

on the other hand, Indonesia’s coal

mining sector has been accused of

becoming excessive and careless in their

practises, which is why greater regulation is

necessary to maintain environmental and

safety standards.

With power-hungry customers such

as China and India in the region, mining

companies of all shapes and sizes have

rushed to make a buck out of Indonesia’s

natural wealth. Now that oil prices are on the

rise, Indonesia wants a piece of the pie for itself

as it looks to convert over 7700 MW of diesel

power generation into coal-fired power plants,

in addition to the 10,000 MW in new coal-fired

power stations allotted by the first phase of the

fast-track programme.

“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”,

explains ulysses R. simandjuntak, vice chairman

of the Indonesian Electrical Power society (MKI).

In parallel to the initial opening of the power

sector to private interests back in 2002, MKI

was created to represent 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. as the most respected

association in the country’s power sector, MKI

serves an advisory role to the government

in order to ensure that private interests are

considered in policy making.

In relation to the first stage of the fast-track

programme, those private interests have been

less than expected because of a number of

challenges that hinder the development of

new coal-fired power plants. according to

simandjuntak, a question worth asking is “how

to build these power plants given that most of

the coal reserves are in remote areas devoid

of infrastructural access”. This is particularly

challenging for Indonesia

given that a majority of the

country’s coal resources

are classified as low-rank

coal with high moisture

content that makes it very

heavy and expensive to

transport. Furthermore,

as most coal reserves

are located far from the

core java-Bali grid on

the islands of sumatra

and Kalimantan, the

government is rethinking its strategy as coal

feedstock becomes more difficult to source.

the Phase 1 Precedentalmost six years since the announcement

of the first fast-track programme, PLN’s

results to generate the desired 10,000 MW

by 2010 have been sluggish at best. The

company expects that by the end of 2012

they will have achieved 60 per cent of the

targeted installed capacity for Phase 1. Cited

setbacks to projects are as expected, and

include cumbersome bureaucracy and land

acquisition disputes, which are ultimately

linked to the decentralised regulation of power

projects that grants regional governments

the power to approve projects or not. often,

local authorities are ill-equipped to grasp the

technical details of the projects because of a

lack of qualified human resources.

Koeberle of The World Bank believes that

one of the greatest challenges for power

projects has been “the uncertainty of dealing

with the numerous different actors in the

development process, including the local

authorities. It is not just a capacity issue for

dealing with investors, but also the uncertainty

that comes from dealing with many different

actors who have authority and are often not

well coordinated.”

Paiton Energy, which owns and operates

Indonesia’s largest coal-fired power plant

and the first to use supercritical technology,

inaugurated its third gen eration unit on

5 june 2012 with a grand ceremony attended

by minister of Energy, jero Wacik. The 815 MW,

$1.5 billion project, which brought the total

plant’s capacity to 2035 MW, was completed

a month ahead of schedule and is widely

recognized as a model of success. Low Kian

Min, Paiton Energy’s president director, claims

that while there are indeed challenges

to Indonesia’s power sector, they are not

impossible to overcome.

“Indonesia can certainly be difficult to

understand at times, and I say this even

though I am asian myself. I think every country

has its own nuances as to how you have to

deal with people, and I don’t think Indonesia

is any different. The keys are to understand the

local culture and understand how people

work, what motivates them and what they

mean when they say ‘yes’. at the end of the

day the most important thing is to deliver your

end of the bargain and therefore obtaining the

respect and trust of the locals. This has been

fazil alfitri, president director, Medco Power

Fuel Cost Comparison

2,400

1,800

1,200

600

0

(Rp/kWh)

Natural Gas Coal Geothermal Fuel Oil

268 249

659

2,359

352 368560

1,368

374326602

1,610

2,072

325347

693

2008 2009 2010 1H 2011

erman suparno, president director, Truba jaya Engineering

Indonesia

11


the market is opening up, particularly with the

regional government structure that provides

greater autonomy to local governments. Finally,

being a state-owned enterprise, Pju also serves

a purpose of delivering value to the surrounding

community. For such reason, we have been

succesfully operating a city gas distribution

business in surabaya and sidoarjo using part

of the gas which we purchase from Lapindo

Brantas. This operation is currently serving close

to 7000 households,” concludes Muid.

While the example of Pju is commendable,

it is not viable on a national scale since most

regional government do not have the capital

or expertise for such projects. Furthermore,

while the country waits for gas infrastructure

to be installed, electricity demand steadily

keeps rising. and so was born Phase 1 of the

fast-track programme that focuses entirely on

coal for the generation of 10,000 MW.

director General jarman explains that

“in 2011, the energy mix in Indonesia relied

22 per cent on oil, and we are striving to bring

this number down to 13 per cent by the end of

2012, to 9 per cent by 2013 and to 4 per cent

by 2015, in line with oECd countries. We cannot

eliminate the oil

fuel for electricity

as it is still required

in remote areas

for generators,

but we can

definitely reduce

the dependency”.

Coal seems to be

the sure answer as

it already accounts

for 47 per cent of

power generation.

the Power of CoalIt is Indonesia’s fortune to be blessed with

extensive coal reserves that today make this

nation the world’s prime exporter of this raw

material. Earlier this year, estimated coal reserves

were raised to over 25 billion tonnes as more

mining companies provide the government

with higher quality data of their operations.

The challenge for the coal mining sector lies in

balancing export commitments and revenues

with an increased national demand for coal to

be used for power generation.

This year a 20 per cent export tax for

unprocessed coal was announced by

the government as a means to boost the

availability of resources for local consumption.

Mining companies have lashed out against

such protectionist measures. ultimately, they

argue that an export tax hinders economic

growth and the greater potential of Indonesia’s

economy. Bob Kamandanu, chairman of

the Indonesian Coal Mining association,

speaks of his responsibility to express “to the

government that they should let the market

decide the supply and demand of coal,

Maintaining Quality Services for Quality Customers

Wisma PSM, JL. Swadaya II No. 7, Tanjung Barat, Jagakarsa,

Jakarta Selatan 12530, IndonesiaPhone: +62-21-7803300; 7891481

Fax: +62-21-7801054; 7804070www.trubagroup.com

PT. TRUBA JAYA ENGINEERING

INDONESIA FUEL MIX 2010-2019400.000

350.000

300.000

250.000

200.000

150.000

100.000

50.000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 20192016 2017

Historical Projection

HSD MFO

LNG

GAS

COAL

Geothermal

Hydro

Indonesia


because there is tough competition around

the world and Indonesia could easily lose its

place as #1 if we start placing market barriers.

With such restrictions in place, we foresee that

Indonesia would lose its place as the leading

coal exporter within the next ten years.”

on the other hand, Indonesia’s coal

mining sector has been accused of

becoming excessive and careless in their

practises, which is why greater regulation is

necessary to maintain environmental and

safety standards.

With power-hungry customers such

as China and India in the region, mining

companies of all shapes and sizes have

rushed to make a buck out of Indonesia’s

natural wealth. Now that oil prices are on the

rise, Indonesia wants a piece of the pie for itself

as it looks to convert over 7700 MW of diesel

power generation into coal-fired power plants,

in addition to the 10,000 MW in new coal-fired

power stations allotted by the first phase of the

fast-track programme.

“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”,

explains ulysses R. simandjuntak, vice chairman

of the Indonesian Electrical Power society (MKI).

In parallel to the initial opening of the power

sector to private interests back in 2002, MKI

was created to represent 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. as the most respected

association in the country’s power sector, MKI

serves an advisory role to the government

in order to ensure that private interests are

considered in policy making.

In relation to the first stage of the fast-track

programme, those private interests have been

less than expected because of a number of

challenges that hinder the development of

new coal-fired power plants. according to

simandjuntak, a question worth asking is “how

to build these power plants given that most of

the coal reserves are in remote areas devoid

of infrastructural access”. This is particularly

challenging for Indonesia

given that a majority of the

country’s coal resources

are classified as low-rank

coal with high moisture

content that makes it very

heavy and expensive to

transport. Furthermore,

as most coal reserves

are located far from the

core java-Bali grid on

the islands of sumatra

and Kalimantan, the

government is rethinking its strategy as coal

feedstock becomes more difficult to source.

the Phase 1 Precedentalmost six years since the announcement

of the first fast-track programme, PLN’s

results to generate the desired 10,000 MW

by 2010 have been sluggish at best. The

company expects that by the end of 2012

they will have achieved 60 per cent of the

targeted installed capacity for Phase 1. Cited

setbacks to projects are as expected, and

include cumbersome bureaucracy and land

acquisition disputes, which are ultimately

linked to the decentralised regulation of power

projects that grants regional governments

the power to approve projects or not. often,

local authorities are ill-equipped to grasp the

technical details of the projects because of a

lack of qualified human resources.

Koeberle of The World Bank believes that

one of the greatest challenges for power

projects has been “the uncertainty of dealing

with the numerous different actors in the

development process, including the local

authorities. It is not just a capacity issue for

dealing with investors, but also the uncertainty

that comes from dealing with many different

actors who have authority and are often not

well coordinated.”

Paiton Energy, which owns and operates

Indonesia’s largest coal-fired power plant

and the first to use supercritical technology,

inaugurated its third gen eration unit on

5 june 2012 with a grand ceremony attended

by minister of Energy, jero Wacik. The 815 MW,

$1.5 billion project, which brought the total

plant’s capacity to 2035 MW, was completed

a month ahead of schedule and is widely

recognized as a model of success. Low Kian

Min, Paiton Energy’s president director, claims

that while there are indeed challenges

to Indonesia’s power sector, they are not

impossible to overcome.

“Indonesia can certainly be difficult to

understand at times, and I say this even

though I am asian myself. I think every country

has its own nuances as to how you have to

deal with people, and I don’t think Indonesia

is any different. The keys are to understand the

local culture and understand how people

work, what motivates them and what they

mean when they say ‘yes’. at the end of the

day the most important thing is to deliver your

end of the bargain and therefore obtaining the

respect and trust of the locals. This has been

fazil alfitri, president director, Medco Power

Fuel Cost Comparison

2,400

1,800

1,200

600

0

(Rp/kWh)

Natural Gas Coal Geothermal Fuel Oil

268 249

659

2,359

352 368560

1,368

374326602

1,610

2,072

325347

693

2008 2009 2010 1H 2011

erman suparno, president director, Truba jaya Engineering

Indonesia

12

exactly what we have

done with PLN, which

is why we have such a

positive and beneficial

relationship today.”

The same cannot

be said about most

of the projects

commissioned under

Phase 1 though. some

point to PLN’s bidding

process and criteria as

the main cause for the

delay of most power

plants under the fast-

track programme. In

its effort to be cost-

effective and hasty

in the development

of the projects, PLN

largely opted for

Chinese contractors

and equipment providers, accounting for almost 95 per cent of contracts,

which promised rock bottom prices and speedy delivery times.

In the end, many of those promises brought unwanted consequences,

including faulty equipment and imprecision that inevitably caused

delays in construction and greatly increased costs. Given that many

of the Chinese contractors were also involved in the financing of these

projects, the higher costs led to a shortage of capital and lengthy

renegotiations. Erman suparno, chief executive officer of PT Truba jaya

Engineering, asserts that this is why “we are working with European,

japanese and reputable overseas companies, given that their projects

are of high quality and it is easy for us to follow them in terms of the

cooperation since we follow the same values”.

his company is one of the most active Indonesian EPC contractors

in the power sector, not only with coal projects, but also for geothermal

and hydropower plants, as well as in the oil & gas sector. Counting

30 years of experience, Truba jaya will be providing its services for

approximately 7000 MW worth of projects commissioned under the

Phase 1 programme. “Foreign companies choose us for three major

reasons: setting, scheduling and quality. We are involved day by day

in our projects and are very concerned with the quality of our services

because we always want to provide the best. We plan to expand to other

international markets in order for Truba jaya to become a global player

in this field. We have started our operations in saudi arabia in 2004, so

we have a good track record in that country with manufacturing and

EPC companies,” concludes suparno. It is reputable local companies

like this that provide foreign investors with the local expertise to operate

successfully under the “Indonesian way”.

strengthening Indonesia’s GridBeyond the ramping up of power generation, Indonesia’s triumph

in electrifying its people will be dependent on the development of

a modern and integrated grid that can support its energy-hungry

economy and the development of new regions. The Indonesian

electricity network is composed of eight interconnected grids, with

the java-Madura-Bali (jMB) grid accounting for 29,077 kmc of

transmission lines out of a total 43,640 kmc in 2010, plus an additional

600 smaller stand-alone networks. as of 2010, the island of java

alone accounted for approximately 20,000 MW of the country’s total

28,000 MW generating capacity.

With a population of 140 million and host to Indonesia’s financial

and industrial base, java is by far the greatest consumer of electricity

in the country and home to the fastest growing demand. such a

concentrated network, however, is partly the reason for the country’s

unimpressive electrification rate. It goes without saying that linking

thousands of islands on a single power grid is logistically and

economically unfeasible. still, there is a need to integrate the major

islands of java, Bali, sumatra, Kalimantan and sulawesi to encourage

a full transformation of Indonesia’s

electricity matrix.

“We are in fact focusing our

transmission and distribution (T&d)

efforts outside of the java-Bali area. In

sumatra, for example, we are building

275 kV backbone transmission lines

from north to south and a 500 kV line

from south sumatra to Medan. The

west side of the island already has

a 275 kV transmission line that will

complement these other two projects

that we expect to finish over the next


Your indonesian partner of choice for:

ww

w.in

dopo

wer

inte

rnat

iona

l.co.

id

Combine CycleSteam Power

GeothernalSubstation

TransmissionGas Turbine

Hydro Power

Illustrative Photo: Paiton Project, courtesy of Truba jaya Engineering

susanto Purnomo, president director, PjB

Indonesia


Indonesia’s water injection expert providing reverse osmosis technology to convert sea water into fresh water

As PLN strives to modernise the transmission and distribution of electricity,

equipment providers have been reactive in adapting to new standards and

regulations. The local content quota has further coaxed manufacturers to design

their production sites according to Indonesia’s needs. Takashi Aso, president

director of Metbelosa, elaborates that “Indonesia’s GDP is comprised mostly

of local demand, close to 70 per cent, which is quite unique when compared

to other ASEAN countries. Any manufacturer in Indonesia has the advantage of

producing its products locally and having them consumed here as well.” Metbelosa

is a manufacturer of electrical meters, which has now moved to become a prime

supplier of PLN’s new pre-paid meters.

The company was set up as a joint-venture by Japanese Osaki and a

former state-owned company. “Our primary production facilities are designed to

manufacture mechanical meters, including single and multi-phase kWh meters.

The demand for these products has been quite high since the beginning, and

today there is a current demand of 2-3 million single-phase meters every year in

Indonesia. As one of the leading manufacturers of electrical meters, we have been

enjoying this high demand that is fueled by the country’s rapid economic growth,”

concludes Aso.

Furthermore, he is “counting that PLN’s shift to pre-payment and smart meters

will continue beyond a decade, and it is my aim to have Metbelosa supply this

shift. Our mission is to produce the largest quantity of meters as possible to meet

PLN’s demands and to compete with all the companies in the market. In response

to all these opportunities we are soon to complete our second factory here in

Indonesia, specifically designed to produce electric kWh meters only. As part of

the global trends, we are now moving to pay more attention to Smart Grids and

smart metering, which is something we wish to do here in Indonesia as well. We

have to newly develop products directly linked to the Smart Grid, which is why

Osaki recently just completed a merger with Singapore-based EDMI. EDMI is a

medium-sized electronic metering company that is very competitive in European

markets and especially in British Commonwealth countries.” Metbelosa finished

the construction of its second manufacturing site in late May this year and began

producing its meters a month later.

Lee Kwang Mong, managing director of EDMI, speaks of the merger between

the two companies as a guarantee for growth for both companies. “When you

consider the history of both our companies there are great complementarities

between the two that will make us a stronger entity in the future. On the one hand,

Osaki has a long legacy of manufacturing electro-mechanical meters and has only

recently begun to switch over to producing electronic single-phase meters. On the

other hand, EDMI specializes in high-end electronic three-phase meters that are

typically used by larger energy consumers. As a company we have always dedicated

ourselves to designing custom-made meters that have a capacity to accommodate

the closest possible relation to other electronic companies.” By joining forces both

companies look to tackle the fast-developing Indonesian market, as well as new

international targets.

Indonesia

ManUfaCtUrInG for eleCtrICIty DeManD

13

exactly what we have

done with PLN, which

is why we have such a

positive and beneficial

relationship today.”

The same cannot

be said about most

of the projects

commissioned under

Phase 1 though. some

point to PLN’s bidding

process and criteria as

the main cause for the

delay of most power

plants under the fast-

track programme. In

its effort to be cost-

effective and hasty

in the development

of the projects, PLN

largely opted for

Chinese contractors

and equipment providers, accounting for almost 95 per cent of contracts,

which promised rock bottom prices and speedy delivery times.

In the end, many of those promises brought unwanted consequences,

including faulty equipment and imprecision that inevitably caused

delays in construction and greatly increased costs. Given that many

of the Chinese contractors were also involved in the financing of these

projects, the higher costs led to a shortage of capital and lengthy

renegotiations. Erman suparno, chief executive officer of PT Truba jaya

Engineering, asserts that this is why “we are working with European,

japanese and reputable overseas companies, given that their projects

are of high quality and it is easy for us to follow them in terms of the

cooperation since we follow the same values”.

his company is one of the most active Indonesian EPC contractors

in the power sector, not only with coal projects, but also for geothermal

and hydropower plants, as well as in the oil & gas sector. Counting

30 years of experience, Truba jaya will be providing its services for

approximately 7000 MW worth of projects commissioned under the

Phase 1 programme. “Foreign companies choose us for three major

reasons: setting, scheduling and quality. We are involved day by day

in our projects and are very concerned with the quality of our services

because we always want to provide the best. We plan to expand to other

international markets in order for Truba jaya to become a global player

in this field. We have started our operations in saudi arabia in 2004, so

we have a good track record in that country with manufacturing and

EPC companies,” concludes suparno. It is reputable local companies

like this that provide foreign investors with the local expertise to operate

successfully under the “Indonesian way”.

strengthening Indonesia’s GridBeyond the ramping up of power generation, Indonesia’s triumph

in electrifying its people will be dependent on the development of

a modern and integrated grid that can support its energy-hungry

economy and the development of new regions. The Indonesian

electricity network is composed of eight interconnected grids, with

the java-Madura-Bali (jMB) grid accounting for 29,077 kmc of

transmission lines out of a total 43,640 kmc in 2010, plus an additional

600 smaller stand-alone networks. as of 2010, the island of java

alone accounted for approximately 20,000 MW of the country’s total

28,000 MW generating capacity.

With a population of 140 million and host to Indonesia’s financial

and industrial base, java is by far the greatest consumer of electricity

in the country and home to the fastest growing demand. such a

concentrated network, however, is partly the reason for the country’s

unimpressive electrification rate. It goes without saying that linking

thousands of islands on a single power grid is logistically and

economically unfeasible. still, there is a need to integrate the major

islands of java, Bali, sumatra, Kalimantan and sulawesi to encourage

a full transformation of Indonesia’s

electricity matrix.

“We are in fact focusing our

transmission and distribution (T&d)

efforts outside of the java-Bali area. In

sumatra, for example, we are building

275 kV backbone transmission lines

from north to south and a 500 kV line

from south sumatra to Medan. The

west side of the island already has

a 275 kV transmission line that will

complement these other two projects

that we expect to finish over the next


Your indonesian partner of choice for:

ww

w.in

dopo

wer

inte

rnat

iona

l.co.

id

Combine CycleSteam Power

GeothernalSubstation

TransmissionGas Turbine

Hydro Power

Illustrative Photo: Paiton Project, courtesy of Truba jaya Engineering

susanto Purnomo, president director, PjB

Indonesia


Indonesia’s water injection expert providing reverse osmosis technology to convert sea water into fresh water

As PLN strives to modernise the transmission and distribution of electricity,

equipment providers have been reactive in adapting to new standards and

regulations. The local content quota has further coaxed manufacturers to design

their production sites according to Indonesia’s needs. Takashi Aso, president

director of Metbelosa, elaborates that “Indonesia’s GDP is comprised mostly

of local demand, close to 70 per cent, which is quite unique when compared

to other ASEAN countries. Any manufacturer in Indonesia has the advantage of

producing its products locally and having them consumed here as well.” Metbelosa

is a manufacturer of electrical meters, which has now moved to become a prime

supplier of PLN’s new pre-paid meters.

The company was set up as a joint-venture by Japanese Osaki and a

former state-owned company. “Our primary production facilities are designed to

manufacture mechanical meters, including single and multi-phase kWh meters.

The demand for these products has been quite high since the beginning, and

today there is a current demand of 2-3 million single-phase meters every year in

Indonesia. As one of the leading manufacturers of electrical meters, we have been

enjoying this high demand that is fueled by the country’s rapid economic growth,”

concludes Aso.

Furthermore, he is “counting that PLN’s shift to pre-payment and smart meters

will continue beyond a decade, and it is my aim to have Metbelosa supply this

shift. Our mission is to produce the largest quantity of meters as possible to meet

PLN’s demands and to compete with all the companies in the market. In response

to all these opportunities we are soon to complete our second factory here in

Indonesia, specifically designed to produce electric kWh meters only. As part of

the global trends, we are now moving to pay more attention to Smart Grids and

smart metering, which is something we wish to do here in Indonesia as well. We

have to newly develop products directly linked to the Smart Grid, which is why

Osaki recently just completed a merger with Singapore-based EDMI. EDMI is a

medium-sized electronic metering company that is very competitive in European

markets and especially in British Commonwealth countries.” Metbelosa finished

the construction of its second manufacturing site in late May this year and began

producing its meters a month later.

Lee Kwang Mong, managing director of EDMI, speaks of the merger between

the two companies as a guarantee for growth for both companies. “When you

consider the history of both our companies there are great complementarities

between the two that will make us a stronger entity in the future. On the one hand,

Osaki has a long legacy of manufacturing electro-mechanical meters and has only

recently begun to switch over to producing electronic single-phase meters. On the

other hand, EDMI specializes in high-end electronic three-phase meters that are

typically used by larger energy consumers. As a company we have always dedicated

ourselves to designing custom-made meters that have a capacity to accommodate

the closest possible relation to other electronic companies.” By joining forces both

companies look to tackle the fast-developing Indonesian market, as well as new

international targets.

Indonesia

ManUfaCtUrInG for eleCtrICIty DeManD

14


two years. In sulawesi we are also developing

the grid by connecting East Kalimantan with

south Kalimantan and then south Kalimantan

with Central Kalimantan with a 150 kV line”,

recounts PLN’s Pamudji. “similarly, we are

extending the grid in sulawesi in order make

use of several power plants that are being

developed there.

“These projects will be financed directly

by the government who has committed

to provide us with $950 million for grid

development every year. In the future we

also expect that many power plants will be

built by private companies who will operate

nickel smelters that require large amounts of

electricity. By building a strong grid we will also

be assisting the development of such mining

activities and the operation of local smelters.”

This downstream expansion is being

supported by local and foreign companies

that have been anxiously waiting for this

moment. While traditional global electricity

giants, such as siemens, aBB, Emerson and

schneider Electric, were the leading providers

of T&d equipment, in recent years PLN has

been enforcing a mandatory 40 per cent local

content requirement for all power projects.

at times it is unclear as to what exactly can

be considered local content. In any case,

foreign companies have been heeding

to local industry demands by localising

manufacturing in the country. The direct effect

is a vibrant local industry, which manufactures

everything from cables and transformers, to

switchboards and electrical meters.

aside from the installation of backbone

T&d infrastructure in the major islands, there

are also plans to integrate the sumatra and

java grids to transmit electricity generated

from sumatra’s coal and geothermal sites to

java. surely this will increase the attractiveness

of power generation projects in sumatra and

lure IPPs to that region. such plans bode well

with the ambitions of PLN’s second phase of

its fast-track programme, which has been in

development since 2010.

unlike the first stage, Phase 2 focuses

on the construction of power plants from

renewable sources, such as geothermal

(40 per cent) and hydropower (12 per cent),

as well as the role of IPPs. Benefitting from the

lessons learned in Phase 1 and an expanded

national grid, there are hopes that by 2014

Indonesia will be well on its way to satisfy its

electricity needs.

the ProMIse of Phase 2

a renewable salvationdespite the fact that Phase 1 of the fast-

track programme had achieved less than

40 per cent of its target goal by 2010, the

urgent need for electricity and foreign

investment ensured that Phase 2 went

ahead as planned. as part of the trend to

reduce hydrocarbon consumption for power

generation and to ‘green’ the country’s

energy mix, Indonesia’s Ministry of Energy

and Mineral Resources established the

directorate General for Renewable Energy

and Energy Conservation in august 2010. The

aim of the directorate General is to promote

and regulate the development of renewable

resources by enhancing both their regulatory

frameworks and investment potential.

director general, Warnika Kardaya,

boasts that 40 per cent of the world’s proven

geothermal reserves. however, I believe this

Indonesia

figure underestimates the full potential of

Indonesia’s geothermal power since it does

not consider the offshore reserves, which

account for about 70 per cent of Indonesia’s

territory. In addition to this, Indonesia is also rich

in biomass, hydro, solar, tidal and wind energy.

“Therefore, we need to allocate and

optimise our resources towards developing

and harnessing these renewable sources. First

and foremost, we recognize that one of the

main drivers of investment relates to the tariff

levels, and ultimately the profit margins, offered

to developers. Therefore, in order to address this

issue, we have recently made some progress

in this area by increasing the tariff levels in

the geothermal and biomass sectors by

50 per cent. We have set an ambitious target

for ourselves to establish an energy mix of

25 per cent renewable energy by 2025. This is

what we like to call our 25–25 vision.

“To be more specific, based on the current

projects in the pipeline, we expect that by

2015, the biomass fuel industry will have grown

from a current level of 400,000 barrels of oil

equivalent (BoE) to 12,000,000 BoE, whereas

the biomass power industry will have grown

from a mere 20 MW to

690 MW. In the geothermal

sector, we expect to

achieve 4400 MW by

2015 compared to today’s

1226 MW.” hydropower has

also become a priority

for the government, as it

provides a reliable source

of power generation

in those islands that

do not have mineral or

geothermal resources. The

onus has been placed on

developing mini and micro-

hydropower projects due to the fact that

Indonesia has few large rivers suitable for larger

dam projects. For example, PLN is obliged to

purchase electricity from projects under 10

MW without the negotiation and signing of a

power purchase agreement (PPa). however,

even mid and large-size hydropower projects

are rapidly being developed, including the

1000 MW, $800 million pumped-storage upper

Cisokan hydropower plant financed by The

World Bank.

The hype is so powerful that foreign

investors have been rushing to be a part of the

renewable frenzy in Indonesia. Chung-yul Choi,

president director of Wampu Electric, speaks

of the first Korean consortium that invested in

Indonesia’s hydropower sector by building a

3x15 MW power plant. “The Wampu

hydroelectric project involves the construction

of a dam to collect run-off water that will be used

to generate 3x15 MW of electricity for the supply

of the electric grid in sumatra. In charge of

developing this project is a consortium of three


Indonesia

takashi aso, president director, Metbelosa

harun al rosyid, president director,

Indopower International

15


two years. In sulawesi we are also developing

the grid by connecting East Kalimantan with

south Kalimantan and then south Kalimantan

with Central Kalimantan with a 150 kV line”,

recounts PLN’s Pamudji. “similarly, we are

extending the grid in sulawesi in order make

use of several power plants that are being

developed there.

“These projects will be financed directly

by the government who has committed

to provide us with $950 million for grid

development every year. In the future we

also expect that many power plants will be

built by private companies who will operate

nickel smelters that require large amounts of

electricity. By building a strong grid we will also

be assisting the development of such mining

activities and the operation of local smelters.”

This downstream expansion is being

supported by local and foreign companies

that have been anxiously waiting for this

moment. While traditional global electricity

giants, such as siemens, aBB, Emerson and

schneider Electric, were the leading providers

of T&d equipment, in recent years PLN has

been enforcing a mandatory 40 per cent local

content requirement for all power projects.

at times it is unclear as to what exactly can

be considered local content. In any case,

foreign companies have been heeding

to local industry demands by localising

manufacturing in the country. The direct effect

is a vibrant local industry, which manufactures

everything from cables and transformers, to

switchboards and electrical meters.

aside from the installation of backbone

T&d infrastructure in the major islands, there

are also plans to integrate the sumatra and

java grids to transmit electricity generated

from sumatra’s coal and geothermal sites to

java. surely this will increase the attractiveness

of power generation projects in sumatra and

lure IPPs to that region. such plans bode well

with the ambitions of PLN’s second phase of

its fast-track programme, which has been in

development since 2010.

unlike the first stage, Phase 2 focuses

on the construction of power plants from

renewable sources, such as geothermal

(40 per cent) and hydropower (12 per cent),

as well as the role of IPPs. Benefitting from the

lessons learned in Phase 1 and an expanded

national grid, there are hopes that by 2014

Indonesia will be well on its way to satisfy its

electricity needs.

the ProMIse of Phase 2

a renewable salvationdespite the fact that Phase 1 of the fast-

track programme had achieved less than

40 per cent of its target goal by 2010, the

urgent need for electricity and foreign

investment ensured that Phase 2 went

ahead as planned. as part of the trend to

reduce hydrocarbon consumption for power

generation and to ‘green’ the country’s

energy mix, Indonesia’s Ministry of Energy

and Mineral Resources established the

directorate General for Renewable Energy

and Energy Conservation in august 2010. The

aim of the directorate General is to promote

and regulate the development of renewable

resources by enhancing both their regulatory

frameworks and investment potential.

director general, Warnika Kardaya,

boasts that 40 per cent of the world’s proven

geothermal reserves. however, I believe this

Indonesia

figure underestimates the full potential of

Indonesia’s geothermal power since it does

not consider the offshore reserves, which

account for about 70 per cent of Indonesia’s

territory. In addition to this, Indonesia is also rich

in biomass, hydro, solar, tidal and wind energy.

“Therefore, we need to allocate and

optimise our resources towards developing

and harnessing these renewable sources. First

and foremost, we recognize that one of the

main drivers of investment relates to the tariff

levels, and ultimately the profit margins, offered

to developers. Therefore, in order to address this

issue, we have recently made some progress

in this area by increasing the tariff levels in

the geothermal and biomass sectors by

50 per cent. We have set an ambitious target

for ourselves to establish an energy mix of

25 per cent renewable energy by 2025. This is

what we like to call our 25–25 vision.

“To be more specific, based on the current

projects in the pipeline, we expect that by

2015, the biomass fuel industry will have grown

from a current level of 400,000 barrels of oil

equivalent (BoE) to 12,000,000 BoE, whereas

the biomass power industry will have grown

from a mere 20 MW to

690 MW. In the geothermal

sector, we expect to

achieve 4400 MW by

2015 compared to today’s

1226 MW.” hydropower has

also become a priority

for the government, as it

provides a reliable source

of power generation

in those islands that

do not have mineral or

geothermal resources. The

onus has been placed on

developing mini and micro-

hydropower projects due to the fact that

Indonesia has few large rivers suitable for larger

dam projects. For example, PLN is obliged to

purchase electricity from projects under 10

MW without the negotiation and signing of a

power purchase agreement (PPa). however,

even mid and large-size hydropower projects

are rapidly being developed, including the

1000 MW, $800 million pumped-storage upper

Cisokan hydropower plant financed by The

World Bank.

The hype is so powerful that foreign

investors have been rushing to be a part of the

renewable frenzy in Indonesia. Chung-yul Choi,

president director of Wampu Electric, speaks

of the first Korean consortium that invested in

Indonesia’s hydropower sector by building a

3x15 MW power plant. “The Wampu

hydroelectric project involves the construction

of a dam to collect run-off water that will be used

to generate 3x15 MW of electricity for the supply

of the electric grid in sumatra. In charge of

developing this project is a consortium of three


Indonesia

takashi aso, president director, Metbelosa

harun al rosyid, president director,

Indopower International

16


Korean companies, namely KoMIPo, PosCo

Engineering and MPM, which have great

expertise in developing hydropower plants

in Korea. The concession of this project was

assigned to us through a direct appointment

rather than through a bidding process, and this

was in response to our proposal put forth to PLN

through their request for proposals (RFP).”

The power plant is expected to be

completed by october 2014. “PLN has

agreed to buy our electricity at a price of

$7.3 cents per kWh for the next 30 years,

which is substantially higher than the average

$4 cents per kWh. our project is a model of

sustainable and clean energy, and given

the Indonesian’s government ambitions to

increase power generation from these kinds of

sources, we had a lot of leverage in negotiating

the terms of our PPa with PLN,” concludes Choi.

While much headway has been witnessed

in hydropower and biomass developments,

geothermal is unquestionably the golden child

of Indonesia’s renewable undertaking. Touting

the world’s largest geothermal capacity

estimated at 28,000 MW, the government

has been itching to jumpstart this sector and

attract foreign investors. Particularly with model

success stories in the region, such as the

Philippines and New Zealand, Indonesia’s lack

of expertise, technology and financial might

have stunted its geothermal sector.

“The Philippines has been very successful

in its geothermal sector because the country

has no other choice to satisfy its electricity

demand because it does not count on

extensive natural resources, like coal and

gas, the way Indonesia does. Geothermal

is the most abundant energy source in that

country and therefore the government had

to do everything possible to tap into it. The

difference between their country and ours is

that the Philippines allowed for fully liberalized

Indonesia

The hype over Indonesia’s geothermal potential has brought to light the difficulties that

lie ahead to tap into this vast renewable resource that sits beneath the ground’s surface.

From conflicting regulatory laws and high exploration risks to a lack of capacitated human

capital, the country’s challenges to develop its geothermal resources are numerous and

evident. The upside is that the government has prioritised building geothermal power

plants through the second phase of the fast-track programme, with plans to generate

4000 MW over the next three years.

This is in contrast to the current 1200 MW generated from geothermal, which has

taken approximately 30 years to incorporate into Indonesia’s electricity grid. Whether

this ambitious target is feasible will depend on how quickly Indonesian authorities

heed to the needs of foreign investors that widely call for greater incentives – regulatory,

fiscal and financial – in order to counterbalance the high stakes inherent in geothermal

power development.

Takumi Sakabe, director of Fuji Electric in Indonesia, explains that “geothermal power

development is time-consuming by nature, normally requiring more than seven years

from the initial survey and feasibility study until the start of power generation. During

such period, developers are exposed to high risk especially during exploration stage, yet

continue to invest. After successful exploration, the power plant becomes a critical asset

to realise developer’s revenue over a long period of time. We can contribute to support

developers in such an important stage through our technology.”

Fuji Electric is one of the world’s leading geothermal equipment providers, offering

not only turbine generators but comprehensive plant construction solutions covering

everything from plant system design through engineering and construction, installation,

and trial operation. The company has been active in geothermal since the 1960s,

and since then the company has learned to identify the most promising geothermal

opportunities, now betting that Indonesia will finally transform itself into the geothermal

hotspot it promises to be.

Even though Fuji Electric had been present in Indonesia for more than three decades,

it was only in October 2011 that the

company established a sales and

marketing subsidiary in order to

augment its position in the power

generation sector. “Indonesia is

one of countries with enormous

potential which started to

accelerate industrialisation, being

fully supported by a population

structure and stable politics over

those years. We recognized it was

high time for us to spread our solid

roots also in Indonesia as [as part

of a ]series of globalising activity,”

concludes Sakabe.

This is in line with the wider

trend of Japanese companies

and financial institutions

supportinggIndonesia’s power

generation objectives, as long-time

partners to the country’s social and economic development. Specific to the geothermal

sector, Indonesia could not ask for a finer collaborator considering that Japanese

geothermal technology leads the field globally, with three Japanese companies

accounting for close to 70 per cent of the global geothermal equipment market.

Such dominance is attributed to the unmatched quality and reliability of Japanese

technology, which in the long run is essential to maintaining the cost competitiveness

of a power plant. Fuji Electric, for example, is currently working on geothermal binary

generation, in addition to conventional flash-cycle technology, which makes low-

temperature resource generation possible. Given the high costs and hurdles associated

with developing geothermal power plants in Indonesia, there is no question that such

world-class technology will add an extra push to decisively tap into the country’s resources.

Up to now, Fuji Electric has provided nine power generating units to Indonesia and is

now considering opportunities beyond simply selling and providing equipment. Sakabe

elaborates that “though we were a downstream player in the series of such development,

we have been seamlessly involved in supporting this industry over 40 years, with the

equipment and EPC capability as well. EPC/turnkey solutions are normally required by

plant owners for the plant construction stage. We are capable of managing such turnkey

jobs with our core products. Nevertheless, it goes without saying, that we cannot do

everything on our own. This is why it will be important for us to collaborate with capable

and reliable partners, especially with local partners, for success.”

Even beyond EPC, Fuji Electric has recently donned the investor and owner hat with

a geothermal project in the US and, based on that power plant’s success, will explore

additional investment opportunities. “Of course, Indonesia will be one of potential targets

for such an approach”, confirms Sakabe. Luckily for Indonesia, this can only mean good

news for the country’s desire to become the world’s leading geothermal player and to

‘green’ its energy mix. As for Fuji Electric, expanding its geothermal business in Indonesia

is not solely for the sake of increasing profits, but rather it is also a means to practise its

values of contributing to the creation of a safe, serene and sustainable society.

JaPanese InGenUIty DrIvInG GeotherMal

Wayang Windu geothermal power plant

steam turbine

17


Korean companies, namely KoMIPo, PosCo

Engineering and MPM, which have great

expertise in developing hydropower plants

in Korea. The concession of this project was

assigned to us through a direct appointment

rather than through a bidding process, and this

was in response to our proposal put forth to PLN

through their request for proposals (RFP).”

The power plant is expected to be

completed by october 2014. “PLN has

agreed to buy our electricity at a price of

$7.3 cents per kWh for the next 30 years,

which is substantially higher than the average

$4 cents per kWh. our project is a model of

sustainable and clean energy, and given

the Indonesian’s government ambitions to

increase power generation from these kinds of

sources, we had a lot of leverage in negotiating

the terms of our PPa with PLN,” concludes Choi.

While much headway has been witnessed

in hydropower and biomass developments,

geothermal is unquestionably the golden child

of Indonesia’s renewable undertaking. Touting

the world’s largest geothermal capacity

estimated at 28,000 MW, the government

has been itching to jumpstart this sector and

attract foreign investors. Particularly with model

success stories in the region, such as the

Philippines and New Zealand, Indonesia’s lack

of expertise, technology and financial might

have stunted its geothermal sector.

“The Philippines has been very successful

in its geothermal sector because the country

has no other choice to satisfy its electricity

demand because it does not count on

extensive natural resources, like coal and

gas, the way Indonesia does. Geothermal

is the most abundant energy source in that

country and therefore the government had

to do everything possible to tap into it. The

difference between their country and ours is

that the Philippines allowed for fully liberalized

Indonesia

The hype over Indonesia’s geothermal potential has brought to light the difficulties that

lie ahead to tap into this vast renewable resource that sits beneath the ground’s surface.

From conflicting regulatory laws and high exploration risks to a lack of capacitated human

capital, the country’s challenges to develop its geothermal resources are numerous and

evident. The upside is that the government has prioritised building geothermal power

plants through the second phase of the fast-track programme, with plans to generate

4000 MW over the next three years.

This is in contrast to the current 1200 MW generated from geothermal, which has

taken approximately 30 years to incorporate into Indonesia’s electricity grid. Whether

this ambitious target is feasible will depend on how quickly Indonesian authorities

heed to the needs of foreign investors that widely call for greater incentives – regulatory,

fiscal and financial – in order to counterbalance the high stakes inherent in geothermal

power development.

Takumi Sakabe, director of Fuji Electric in Indonesia, explains that “geothermal power

development is time-consuming by nature, normally requiring more than seven years

from the initial survey and feasibility study until the start of power generation. During

such period, developers are exposed to high risk especially during exploration stage, yet

continue to invest. After successful exploration, the power plant becomes a critical asset

to realise developer’s revenue over a long period of time. We can contribute to support

developers in such an important stage through our technology.”

Fuji Electric is one of the world’s leading geothermal equipment providers, offering

not only turbine generators but comprehensive plant construction solutions covering

everything from plant system design through engineering and construction, installation,

and trial operation. The company has been active in geothermal since the 1960s,

and since then the company has learned to identify the most promising geothermal

opportunities, now betting that Indonesia will finally transform itself into the geothermal

hotspot it promises to be.

Even though Fuji Electric had been present in Indonesia for more than three decades,

it was only in October 2011 that the

company established a sales and

marketing subsidiary in order to

augment its position in the power

generation sector. “Indonesia is

one of countries with enormous

potential which started to

accelerate industrialisation, being

fully supported by a population

structure and stable politics over

those years. We recognized it was

high time for us to spread our solid

roots also in Indonesia as [as part

of a ]series of globalising activity,”

concludes Sakabe.

This is in line with the wider

trend of Japanese companies

and financial institutions

supportinggIndonesia’s power

generation objectives, as long-time

partners to the country’s social and economic development. Specific to the geothermal

sector, Indonesia could not ask for a finer collaborator considering that Japanese

geothermal technology leads the field globally, with three Japanese companies

accounting for close to 70 per cent of the global geothermal equipment market.

Such dominance is attributed to the unmatched quality and reliability of Japanese

technology, which in the long run is essential to maintaining the cost competitiveness

of a power plant. Fuji Electric, for example, is currently working on geothermal binary

generation, in addition to conventional flash-cycle technology, which makes low-

temperature resource generation possible. Given the high costs and hurdles associated

with developing geothermal power plants in Indonesia, there is no question that such

world-class technology will add an extra push to decisively tap into the country’s resources.

Up to now, Fuji Electric has provided nine power generating units to Indonesia and is

now considering opportunities beyond simply selling and providing equipment. Sakabe

elaborates that “though we were a downstream player in the series of such development,

we have been seamlessly involved in supporting this industry over 40 years, with the

equipment and EPC capability as well. EPC/turnkey solutions are normally required by

plant owners for the plant construction stage. We are capable of managing such turnkey

jobs with our core products. Nevertheless, it goes without saying, that we cannot do

everything on our own. This is why it will be important for us to collaborate with capable

and reliable partners, especially with local partners, for success.”

Even beyond EPC, Fuji Electric has recently donned the investor and owner hat with

a geothermal project in the US and, based on that power plant’s success, will explore

additional investment opportunities. “Of course, Indonesia will be one of potential targets

for such an approach”, confirms Sakabe. Luckily for Indonesia, this can only mean good

news for the country’s desire to become the world’s leading geothermal player and to

‘green’ its energy mix. As for Fuji Electric, expanding its geothermal business in Indonesia

is not solely for the sake of increasing profits, but rather it is also a means to practise its

values of contributing to the creation of a safe, serene and sustainable society.

JaPanese InGenUIty DrIvInG GeotherMal

Wayang Windu geothermal power plant

steam turbine

18


Indonesia

eXPert oPInIons on InvestInG In InDonesIa

Ali Herman, president director, Bakrie PowerUp to 2009 there were very little incentives for IPPs to

develop power plants in Indonesia, because the tariff

to sell to PLN was fixed at $4.5 cents per kWh, which

did not allow the projects to be profitable enough for

investors to take an interest. It is counterproductive

for the government to set such a low tariff when it

has realised the need to quickly increase generating

capacity and is actively calling for IPPs to develop new power plant projects.

Furthermore, the government must establish government guarantees that will

mitigate the risk for private investors who decide to build a new power plant. There

are already some funds that have been created for this purpose under the Ministry of

Finance, however, there are still too many procedures required for approval and this

ends up discouraging companies.

Ultimately we would like to see more incentives from the government that will

demonstrate its true commitment to IPPs as essential partners in developing the

country’s power infrastructure. This will require that we establish partnerships with

international companies and experts that can provide us with the right technology

and equipment to develop all of our energy resources. Overall, Indonesia has a

tremendous need to develop its infrastructure, and this can only be accomplished

with the adequate tools and conditions and through the efforts of IPPs.

On Geothermal:

Kerry Parker, managing director, Panax Geothermal Indonesia has enormous geothermal potential, the government has a desire to see

this developed and consequently there is a real wave of development. Many of

the earlier geothermal projects had unfavourable tariffs but this is now improving.

There is a $9.7 cents per kWh minimum price which may be increased. The main

opportunities outside of Java and Sulawesi lie in small geothermal stations

designed to supply energy to small populations or for industry.

Tjahjo Sasmojo, president director, PLN GeothermalThe most effective way to get the sector producing

would be to have the government assign the task

of exploration to PLN within a set timeline, and then

tendering these ready-to-start projects out to the private

investors. Under such a model PLN Geothermal’s role

in the sector would also be enhanced, as we would

be the ones responsible for the feasibility studies and

exploration of geothermal sites before they are handed over to private companies.

The reality is that geothermal requires large upfront investment and this is the part

that investors are sceptical about. If PLN and the Indonesian government were to

take on this responsibility, then the rest would come much quicker and smoother.

On Transmission and Distribution:

Fazil Alfitri, president director, Medco PowerEventually this is a possibility we will explore, and it is a trend that we are witnessing

in neighboring markets, such as the Philippines, Singapore and Australia. If the

Philippines, also being an archipelago, can develop its transmission business

through the private sector then Indonesian will soon have to follow the same

example. I also believe that once there is competition in this sector, it will force

PLN to become a lot more efficient, in the same way that happened with Pertamina

and their downstream business. It is a necessary step that Indonesia must take in

the near future. Perhaps one way to go about it is to have PLN handle transmission

exclusively, while having private companies dealing with the distribution of

electricity to end users.

So far we have already seen a number of success stories coming from regions

that independently developed their power sectors, such as Batam, and I think

similar models can be implemented in places like Bali, Jakarta and North Sumatra.

This would definitely fuel faster development and greater business opportunities.

Supramu Santosa, founder and president director, Supreme EnergyAs we all know, PLN has been around for a very long time and all the T&D

networks in Indonesia are controlled by it. Ideally the T&D sector would be

liberalized, but this will take a very long time and will only happen once the

government removes electricity subsidies. As long as those subsidies are still

there, then PLN will continue to have control over the distribution of electricity

and we will be dealing with a distorted market. I believe that a subsidy of any

kind only serves as a distortion in supply and demand. PLN’s infrastructure is

massive, and it will have to be a gradual process before the T&D sector can be

liberalized and PLN is replaced, but I do believe that it will have to happen in

the future.

model through which investors could develop

geothermal plans and negotiate electricity

prices according to market demand.

Considering that Indonesia’s power model

relies on PLN for the entire transmission and

distribution of electricity, such a model is not

viable,” explains udibowo Ciptomulyono,

president commissioner of PLN Geothermal.

PLN Geothermal (PLN-G) is PLN’s subsidiary

dedicated to developing geothermal power

plants. “so far PLN-G has three concessions

and has just concluded the exploration and

drilling in one of them, namely Tuleho, and we

expect to have this well operating within the

next 2–3 years,” confirms Ciptomulyono.

Even the biggest IPP players in Indonesia

have shifted their attention to the geothermal

sector given its promise of considerable

revenues. Earlier this year the government set

a feed-in tariff rate of $9.7 cents per kWh for

geothermal projects, which is well above the

average tariffs of between $6–7 cents per kWh.

ali herman, president director of Bakrie Power,

confirms that his company “is now shifting its

focus to the geothermal sector and is working

on three projects in partnership with australian-

based Panax. The Ngebel project consists of

three 55 MW geothermal stations, with a total

capacity of 165 MW, that will be used to feed

the java-Bali grid. Next, the sokoria power

plant will generate a total of 30 MW with the

capacity to expand up to 145 MW.”

he justifies this strategy with his assurances

that “the geothermal sector will become a

lot more attractive than coal or any other

thermal fuel source, mainly because of the

government’s pledge to have 25 per cent

of its energy mix originating from renewable

resources by 2025. Personally, I believe that

renewable energy sources are more attractive,

not only in the business-sense but also in

their long-term benefits of environmental

conservation and safety.”

Medco Power, one of Indonesia’s leading

IPPs, which is focusing on developing power

projects between 50–100 MW on islands other

than java, is also opting for the renewable

route. Fazil alfitri, president director of Medco,

speaks of his innovative financing strategies to

ensure that its geothermal project materialises.

“The largest project we are currently

developing is the sarulla geothermal


JalanWijaya I no. 61 KebayoranBaru, Jakarta 12170

Phone : +62 21 7210 450Fax : + 62 21 7210 170

www.plngeo.com

The leading partner for the development and/or operation of new

geothermal fields and power plants

Operation & maintenance activitiesUpstream Activity/ies

Indonesia

supramu santosa, founder and president director, supreme Energy

Djani sutedja, president director, Capital Turbines

abdul Muid, president director, Petrogas jatim utama

19


Indonesia

eXPert oPInIons on InvestInG In InDonesIa

Ali Herman, president director, Bakrie PowerUp to 2009 there were very little incentives for IPPs to

develop power plants in Indonesia, because the tariff

to sell to PLN was fixed at $4.5 cents per kWh, which

did not allow the projects to be profitable enough for

investors to take an interest. It is counterproductive

for the government to set such a low tariff when it

has realised the need to quickly increase generating

capacity and is actively calling for IPPs to develop new power plant projects.

Furthermore, the government must establish government guarantees that will

mitigate the risk for private investors who decide to build a new power plant. There

are already some funds that have been created for this purpose under the Ministry of

Finance, however, there are still too many procedures required for approval and this

ends up discouraging companies.

Ultimately we would like to see more incentives from the government that will

demonstrate its true commitment to IPPs as essential partners in developing the

country’s power infrastructure. This will require that we establish partnerships with

international companies and experts that can provide us with the right technology

and equipment to develop all of our energy resources. Overall, Indonesia has a

tremendous need to develop its infrastructure, and this can only be accomplished

with the adequate tools and conditions and through the efforts of IPPs.

On Geothermal:

Kerry Parker, managing director, Panax Geothermal Indonesia has enormous geothermal potential, the government has a desire to see

this developed and consequently there is a real wave of development. Many of

the earlier geothermal projects had unfavourable tariffs but this is now improving.

There is a $9.7 cents per kWh minimum price which may be increased. The main

opportunities outside of Java and Sulawesi lie in small geothermal stations

designed to supply energy to small populations or for industry.

Tjahjo Sasmojo, president director, PLN GeothermalThe most effective way to get the sector producing

would be to have the government assign the task

of exploration to PLN within a set timeline, and then

tendering these ready-to-start projects out to the private

investors. Under such a model PLN Geothermal’s role

in the sector would also be enhanced, as we would

be the ones responsible for the feasibility studies and

exploration of geothermal sites before they are handed over to private companies.

The reality is that geothermal requires large upfront investment and this is the part

that investors are sceptical about. If PLN and the Indonesian government were to

take on this responsibility, then the rest would come much quicker and smoother.

On Transmission and Distribution:

Fazil Alfitri, president director, Medco PowerEventually this is a possibility we will explore, and it is a trend that we are witnessing

in neighboring markets, such as the Philippines, Singapore and Australia. If the

Philippines, also being an archipelago, can develop its transmission business

through the private sector then Indonesian will soon have to follow the same

example. I also believe that once there is competition in this sector, it will force

PLN to become a lot more efficient, in the same way that happened with Pertamina

and their downstream business. It is a necessary step that Indonesia must take in

the near future. Perhaps one way to go about it is to have PLN handle transmission

exclusively, while having private companies dealing with the distribution of

electricity to end users.

So far we have already seen a number of success stories coming from regions

that independently developed their power sectors, such as Batam, and I think

similar models can be implemented in places like Bali, Jakarta and North Sumatra.

This would definitely fuel faster development and greater business opportunities.

Supramu Santosa, founder and president director, Supreme EnergyAs we all know, PLN has been around for a very long time and all the T&D

networks in Indonesia are controlled by it. Ideally the T&D sector would be

liberalized, but this will take a very long time and will only happen once the

government removes electricity subsidies. As long as those subsidies are still

there, then PLN will continue to have control over the distribution of electricity

and we will be dealing with a distorted market. I believe that a subsidy of any

kind only serves as a distortion in supply and demand. PLN’s infrastructure is

massive, and it will have to be a gradual process before the T&D sector can be

liberalized and PLN is replaced, but I do believe that it will have to happen in

the future.

model through which investors could develop

geothermal plans and negotiate electricity

prices according to market demand.

Considering that Indonesia’s power model

relies on PLN for the entire transmission and

distribution of electricity, such a model is not

viable,” explains udibowo Ciptomulyono,

president commissioner of PLN Geothermal.

PLN Geothermal (PLN-G) is PLN’s subsidiary

dedicated to developing geothermal power

plants. “so far PLN-G has three concessions

and has just concluded the exploration and

drilling in one of them, namely Tuleho, and we

expect to have this well operating within the

next 2–3 years,” confirms Ciptomulyono.

Even the biggest IPP players in Indonesia

have shifted their attention to the geothermal

sector given its promise of considerable

revenues. Earlier this year the government set

a feed-in tariff rate of $9.7 cents per kWh for

geothermal projects, which is well above the

average tariffs of between $6–7 cents per kWh.

ali herman, president director of Bakrie Power,

confirms that his company “is now shifting its

focus to the geothermal sector and is working

on three projects in partnership with australian-

based Panax. The Ngebel project consists of

three 55 MW geothermal stations, with a total

capacity of 165 MW, that will be used to feed

the java-Bali grid. Next, the sokoria power

plant will generate a total of 30 MW with the

capacity to expand up to 145 MW.”

he justifies this strategy with his assurances

that “the geothermal sector will become a

lot more attractive than coal or any other

thermal fuel source, mainly because of the

government’s pledge to have 25 per cent

of its energy mix originating from renewable

resources by 2025. Personally, I believe that

renewable energy sources are more attractive,

not only in the business-sense but also in

their long-term benefits of environmental

conservation and safety.”

Medco Power, one of Indonesia’s leading

IPPs, which is focusing on developing power

projects between 50–100 MW on islands other

than java, is also opting for the renewable

route. Fazil alfitri, president director of Medco,

speaks of his innovative financing strategies to

ensure that its geothermal project materialises.

“The largest project we are currently

developing is the sarulla geothermal


JalanWijaya I no. 61 KebayoranBaru, Jakarta 12170

Phone : +62 21 7210 450Fax : + 62 21 7210 170

www.plngeo.com

The leading partner for the development and/or operation of new

geothermal fields and power plants

Operation & maintenance activitiesUpstream Activity/ies

Indonesia

supramu santosa, founder and president director, supreme Energy

Djani sutedja, president director, Capital Turbines

abdul Muid, president director, Petrogas jatim utama

20


plant with a capacity of 330 MW. sarulla is

unique in that we are developing it through

a project financing model rather than an

equity financing model, which is what most

geothermal companies have been doing

in Indonesia so far. The difference in the two

models lies in the legalistic definition of how

one treats the asset, because, according

to the old geothermal law, a geothermal

plant will always belong to the people of

Indonesia. Today the law permits that such

assets be assigned to private entities for the

duration of their loan, therefore allowing them

to collateralise those assets with the banks.

ultimately, it has been this legal shift that has

allowed the development of geothermal

projects under a project financing model and

will create a smoother regulatory path for the

development of future geothermal projects.”

local engineering re-energisedWhile progress made on the fast-track

programme has not been optimal, there have

been indirect benefits to the rest of the industry,

particularly for EPC contractors, which have

been scuttling to become preferred partners

of IPPs and PLN. susanto Purnomo, president

director of PT Pembangkitan jawa-Bali (PjB),

explains how as a subsidiary of PLN his

company has been forced to step up its game

to be a part of new power plant projects. “as

a company, we are responsible for about

a 20 per cent market share of the country’s

total power generation capacity, compared

to Indonesia Power that holds 40 per cent of

total production. Private IPPs today account

for about 20 per cent of the total with the

remaining 30 per cent being owned by PLN.”

PjB is considered to be the country’s o&M

specialist and has even participated in a few

international projects, including in Malaysia

and saudi arabia, because of its reputation for

customised services and incomparable quality.

Purnomo is proud to assert that “PjB is known as

the best power company in Indonesia. Many

companies within the PLN family and even

in the private sector come to us to learn how

we achieve such successful o&M of power

plants. We have even developed a power

plant academy that operates as a corporate

university for the training of new engineers in

the power generation sector.”

To keep up with the pace of the industry

and its parent company PLN, PjB is moving

to improve its asset management and obtain

Pas 55 certification, which is now under

evaluation. Furthermore, it is undergoing a

full integration of business processes under

Iso 9000, 14000 and 18000 standards. The

company has also established partnerships

as a core part of its strategy. “Partnerships

allow us to be more quick and efficient in the

development of projects because the private

*

Empowering Indonesia

www.Bakrie-Brothers.comwww.Bakrie-Brothers.com

PT. Bakrie Power, Bakrie Tower 34th Floor,

Rasuna Epicentrum, Jm. HR Rasuna

Said Jakarta 12940 Indonesia.

phone: +62 21 2991 206

fax: +62 21 2991 2070

Bersama Wujudkan Cita-cita*Bersama Wujudkan Cita-cita*Together, we make dreams come true

* For the country

*

Indonesia

PLN Geothermal - Maintenance activity


*






phone: +62 21 2991 206

fax: +62 21 2991 2070


* For the country

*

Indonesia

interests tend to move faster than state-owned

enterprises. as a state company we have

some limitations, which is why we look for

private partners that are accountable for the

speedy development of projects. our interest

is to establish service and maintenance

contracts from these partnerships as this

is where most of our revenues come from,”

says Purnomo.

The effects of Indonesia’s power boom are

perhaps most striking with stories of small start-

up companies that are created by individual

engineers. such is the case of Indopower

International, which was created by a group

of retired PLN engineers who were not quite

ready for a tranquil life on a sandy beach

in Bali. Indopower International president

director, harun al Rosyid, describes how the

company “began working with thermal and

hydro power plant projects, for example

with coal-fired power plant and micro-

hydro power plants that have become very

profitable in recent years. My core business is

mainly in power plant engineering, including

preparing feasibility studies (Fs), basic design,

tender document preparation according

to international standards, detailed design,

design review, construction supervision and

also participation in the tender process, for

PLN, IPP and EPC clients.

“Furthermore, we have a portfolio of heat

exchanger design and manufacturing that

we supply to our EPC contractors, and this is

an area in which we would like to become

stronger.” Literally built from scratch in 1996,

the company today conducts its activities

“under the highest international standards,

including Iso standards. aside from our

jakarta office, we have a number of other

offices around the country that support our

active projects in their respective regions,”

concludes al Rosyid.

other engineers have grown beyond their

roots to become full-fledged IPPs as a means

to assist the country in the establishment

of a modern power sector. djani sutedja,

president director of Capital Turbines speaks

of his vision to start the company as his own

personal contribution to his country. “We

started as a small company involved in the

power sector selling electricity to PLN from

diesel generators. after this, we became

involved in the maintenance process of

power plants, especially in coal, after which

we moved to combined-cycle plants. Now

our focus has shifted to steam coal-fired

power plants to participate in Indonesia’s

growth. our share in the whole process may

not be that big but we excel in what we do

and at the end of the day we are helping

our country develop its power sector, which is

very much in need right now.

“The population needs hope, especially in

the East, I was in Papua a few years ago to

try and find the sources for the coal and the

people need to know that the situation will

change. In the next five [years] expect around

four or five more projects of about 300 MW

each, so we will be slowly moving into larger

projects. We have very ambitious plans to

grow quickly since the demand is very high.

Indonesia needs this, so we have to enlarge

our capability.”

such examples provide hope that

Indonesia can indeed achieve its target

electrification rate of 91 per cent by 2019.

Today, the rolling blackouts have mostly

vanished, but will this last?

21


*






phone: +62 21 2991 206

fax: +62 21 2991 2070


* For the country

*

Indonesia

interests tend to move faster than state-owned

enterprises. as a state company we have

some limitations, which is why we look for

private partners that are accountable for the

speedy development of projects. our interest

is to establish service and maintenance

contracts from these partnerships as this

is where most of our revenues come from,”

says Purnomo.

The effects of Indonesia’s power boom are

perhaps most striking with stories of small start-

up companies that are created by individual

engineers. such is the case of Indopower

International, which was created by a group

of retired PLN engineers who were not quite

ready for a tranquil life on a sandy beach

in Bali. Indopower International president

director, harun al Rosyid, describes how the

company “began working with thermal and

hydro power plant projects, for example

with coal-fired power plant and micro-

hydro power plants that have become very

profitable in recent years. My core business is

mainly in power plant engineering, including

preparing feasibility studies (Fs), basic design,

tender document preparation according

to international standards, detailed design,

design review, construction supervision and

also participation in the tender process, for

PLN, IPP and EPC clients.

“Furthermore, we have a portfolio of heat

exchanger design and manufacturing that

we supply to our EPC contractors, and this is

an area in which we would like to become

stronger.” Literally built from scratch in 1996,

the company today conducts its activities

“under the highest international standards,

including Iso standards. aside from our

jakarta office, we have a number of other

offices around the country that support our

active projects in their respective regions,”

concludes al Rosyid.

other engineers have grown beyond their

roots to become full-fledged IPPs as a means

to assist the country in the establishment

of a modern power sector. djani sutedja,

president director of Capital Turbines speaks

of his vision to start the company as his own

personal contribution to his country. “We

started as a small company involved in the

power sector selling electricity to PLN from

diesel generators. after this, we became

involved in the maintenance process of

power plants, especially in coal, after which

we moved to combined-cycle plants. Now

our focus has shifted to steam coal-fired

power plants to participate in Indonesia’s

growth. our share in the whole process may

not be that big but we excel in what we do

and at the end of the day we are helping

our country develop its power sector, which is

very much in need right now.

“The population needs hope, especially in

the East, I was in Papua a few years ago to

try and find the sources for the coal and the

people need to know that the situation will

change. In the next five [years] expect around

four or five more projects of about 300 MW

each, so we will be slowly moving into larger

projects. We have very ambitious plans to

grow quickly since the demand is very high.

Indonesia needs this, so we have to enlarge

our capability.”

such examples provide hope that

Indonesia can indeed achieve its target

electrification rate of 91 per cent by 2019.

Today, the rolling blackouts have mostly

vanished, but will this last?

22

Jarman - Director General, OF ELECTRICITY

Interview with: Jarman - Director General, of Electricity

INTERVIEW WITH:

Jarman - Director General, of Electricity

Focus Reports: It’s been a year since you have taken the lead of the Directorate General of Electricity, what was your mandate when you took on this role?JARMAN: Our main goal is that by 2020, we hope electrification rate to have reached 99%. Today it is around 73%, so there is still 27% to be devel-oped. In terms of numbers this represents 16.8 million households who do not have access to electricity and 50 million people. Most of these are located in remote areas and islands. We hope that by 2020, almost everybody will have access to electricity.

Our second mission is to improve the coun-try’s energy mix. In 2011, the energy mix in Indo-nesia relied 22% on oil, and we are striving to bring this number down to 13% by the end of 2012, to 9% by 2013 and to 4% by 2015, in line with OECD countries. We cannot eliminate the oil fuel for electricity as it is still required in remote areas for generators, but we can definitely reduce the dependency.

FR: Of course Indonesia has great potential in nat-ural resources which is why renewable sources of energy are becoming the new standard. What is your position on renewable sources of energy?JARMAN: We will definitely encourage renewable energy. I believe that our electricity will be mostly fuelled by coal, secondly by renewable sources, such as geothermal and hydro, and finally by gas. As you know, to operate generators during peak demand, we require diesel which is very costly. Alternatively we can us hydro pump-storage plants, but so far there is only one such plant under development.

By mid 2012, we will be able to stop using oil for power generation in Java, which is why we believe we can reduce our dependency on oil to 9% by 2013.

FR: Earlier you spoke about bringing electricity to remote areas. What initiatives is the Directorate General of Electricity implementing to make sure that this will happen?JARMAN: It is difficult to build power plants in such remote areas and it is also too expensive to construct diesel power plants. Therefore we use communal solar systems to electrify certain households. The idea is to develop independent solar generation sources in each of the villages to provide them with at least the most essential electricity needs. Over time when transmission lines finally reach these areas, the solar networks will be incorporated in to the grid and these vil-lages will operate under a hybrid energy model.

FR: In terms of the distribution and transmission of electricity to these regions, what sort of efforts are you collaborating with PLN in order to increase the grid and the transmission network to reach further islands and further remote areas? JARMAN: For big islands like Sumatera, we are con-structing high voltage transmission lines (i.e 275 KW and 500KW) just to transmit the power from the power plant to remote areas. The challenge is the interconnections, which is why we are plan-ning on interconnecting Sumatera and Java. We also want to install cables between the islands since it is too expensive for us to construct diesel powered power plants for some regions. There-fore, we use the energy from one big power plant and distribute that electricity to the more remote areas via a cable.

FR: We often hear that the fragmentation of Indo-nesia is one of the biggest challenges. What other challenges are you experiencing today in terms of insuring that you achieve your goal of 99% elec-trification rate by 2020?JARMAN: As you know, electricity is meant to sup-port economic growth. Without it, we cannot

23

sustain our economic growth. The problem is that today, the percentage of demand for electricity is around 9% which requires infrastructure and a lot of investment. Although the government has already allocated huge amounts of money for the infrastructure, we highly welcome the invest-ment of foreign IPPs.

For the time being, the percentage of the gen-eration by IPPs is around 23% including PPU and we would like to increase this number to 50%. As you know with increasing electricity demand, we require over 5000MW per year not including investment and projects needed in transmission and distribution.

IPPs are becoming increasingly important. Indeed, last year we generated over 5000MW and this year 5000MW and half of this electricity was generated by IPPs.

FR: What sort of initiatives does the Directorate General have in terms of energy conservation and the better utilization of electricity? JARMAN: We encourage people to use LED lighting as this is a lot more energy efficient. The govern-ment already issued a regulation whereby big companies that consume more than the equiva-lent of 6,000 tons of oil, need to audit and report their energy consumption to the government. The government has already planned a program to conserve not only oil for vehicles but also elec-tricity in households and offices. It is for example stated that the temperature for air conditioning should be set at 24°C and should be shut down after office hours. We hope that this program will reduce electricity consumption by 20%.

It is true that our electricity tariffs are so low that the population has rarely had the incentive to save electricity, which is why we want to edu-cate our people and reduce wasteful use of energy.

FR: One way to conserve energy is to implement a smart grid and new technologies. What efforts is Indonesia doing in order to move in this direction? JARMAN: We already have a pilot project for smart grids here in Java. Smart grids can only be imple-mented if the system is already mature, and this is what we are trying to achieve in Java first. As for the future, to speed up electricity generation we will use communal solar cells that will be incorporated into the grid. We hope that once the economy of those areas increases we will be able

to use smart grid to make electricity generation more efficient. Indeed, we hope that power gen-eration will not only come from solar but also from hydro sources as well. We will also have to educate the people to use the smart grid which takes time. This is why we are starting with a pilot project and will then roll out a national program based on the lessons we learn here in Java.

FR: If we look into the future, as Director General, what would you like to be achieved in the upcom-ing 5 years?JARMAN: 5 years from now, we hope that the fuel electricity mix will be less dependent on oil and that we will manage to bring the dependency down to no more than 4%, like it is the case in OECD countries. We also hope that renewable sources of energy will be more utilized and rep-resent a big proportion of our power generation along with coal which is inevitably our biggest power generation source. We have 28,000MW potential in geothermal and over 75,000MW potential in hydro which would be a good way of reaching remote areas. We have the “25-25” objective which aims to have 25% of power gen-eration from renewable sources by 2025. Finally, we hope that by 2017, electrification rate will have surpassed 85%.

FR: Do you have a final message to the readers?JARMAN: As you know, Indonesia is one of the countries with the highest economic growths and therefore the highest growing demands of elec-tricity but this growth requires infrastructure. We hope we will find the foreign investors to come to Indonesia not only to construct IPPs but also to manufacture electricity equipment. Schneider and GE have plans to expand their operations in Indonesia for example. We also want the input of foreigners to understand what is needed to be done by the government to fur-ther attract foreign investment and bring the right incentives.

By mid 2012, we will be able to stop using oil for power generation in Java, which is why we believe we can reduce our dependency on oil to 9% by 2013.

24

Ulysses Simandjuntak - Vice Chairman, MKI

Interview with: Ulysses Simandjuntak - Vice Chairman, MKI

Focus Reports: Please describe to our readers the main purpose behind MKI and an overview of the work that you do?ULYSSES SIMANDJUNTAK: 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 gov-ernment issued a law that opened up the sector to private companies to move away from the PLN monopoly model.

FR: What are the main issues on MKI’s agenda today?ULYSSES SIMANDJUNTAK: We are currently address-ing 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 sky-rock-eting. 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 geo-thermal.

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.

FR: 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?ULYSSES SIMANDJUNTAK: One of the main chal-lenges at the moment is related to the develop-ment 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 we build the power plants directly at the mouth of the mine because transporting this coal is too expen-sive and cost-inefficient.

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. 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.

FR: 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?

INTERVIEW WITH:

Ulysses Simandjuntak - Vice Chairman, MKI

25

ULYSSES SIMANDJUNTAK: 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.

MKI is also actively pushing for the develop-ment of geothermal power plants which are very peculiar in their development because this is a site-specific energy source that cannot be trans-ported. Indonesia counts with the largest geo-thermal 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. Fur-thermore, due to the high costs and risks involved in developing geothermal projects, we feel that there need to be greater incentives and guaran-tees 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. 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.

FR: You mention the need to create greater incen-tives in order to attract investors and companies with the appropriate expertise. What specific pol-icies need to be implemented in order to achieve this?ULYSSES SIMANDJUNTAK: 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. Under this model, 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 they still have a lot to learn before it becomes a standard policy.

FR: Realistically, what would MKI like to have achieved over the next five years?ULYSSES SIMANDJUNTAK: Our first step must be to further develop our organization in building closer ties to the government to establish a con-stant dialogue with them. Ideally, the govern-ment 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 viewed 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 pos-sible while still remaining independent.

What advice would you give to international investors looking to come to Indonesia?ULYSSES SIMANDJUNTAK: Indonesia today repre-sents 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 gov-ernmental authorities and local players. MKI wel-comes 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 gov-ernment alone, which is why we need interna-tional partners and investors to assist in the pro-cess of driving this country’s growth forward.

Indonesia today represents a prime investment market based on its political stability and economic success

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Supramu Santosa - CEO, SUPREME ENERGY

Interview with: Supramu Santosa - CEO, Supreme Energy

INTERVIEW WITH:

Supramu Santosa - CEO, Supreme Energy

Focus Reports: After a stellar career in the oil & gas sector with over 25 years of experience, in 2007 you decided to create Supreme Energy, as a com-pany entirely dedicated to geothermal energy. What about geothermal energy attracted you so much that you chose to devote yourself fully to it?SUPRAMU SANTOSA: The first and most important reason is the opportunity cost that geothermal energy represents in Indonesia. Geothermal energy has immense potential in this country, and at the time when I founded Supreme Energy, Indo-nesia was in the midst of an energy crisis that required new solutions. Until today the energy matrix relies heavily on oil and fossil fuels for power generation and with the increasing price of oil on a global scale, such an energy matrix will soon become unsustainable. The problem is fur-ther exacerbated by the billions of dollars paid in fuel subsidies by the Indonesian government every year. Until recently, this meant that renew-able energy could not compete with fossil fuels, because the cost to develop such energy sources was too costly compared to subsidized alterna-tives.

From the perspective of a businessman, I also see geothermal as a practical alternative to oil & gas, which is becoming increasingly difficult to explore and extract. The trend has been that to make significant discoveries in oil & gas, compa-nies are forced to move into more remote and higher risk areas, such as frontier locations and deepwater. Inevitably this means higher costs, which today could drive the exploration costs of a well close to US$200 million with a 10% success rate.

Otherwise you are limited to small exploration work onshore, which is not what I envision for myself and my company. It has always been my intention to build a monumental company and this is why I chose geothermal energy. When I cre-ated Supreme Energy there were very few players in the geothermal sector and I was lucky enough to have a group of young, experienced and tal-ented geologists working for me.

FR: Supreme Energy is currently exploring 3 work-ing areas. What is the current progress of these areas and when do you expect to become opera-tional?SUPRAMU SANTOSA: We have one area in West Suma-tra, called Liki Pinangawan Muara Laboh, from which we are expecting to develop 2 x 110 MW in partnership with Sumitomo and International Power-GDF Suez. Our second field is located in South Sumatra and is known as Rantau Dedap, from which we expect to develop 2 x 110 0MW in collaboration with International Power-GDF Suez and Marubeni. The final concession, located in Lampung, Sumatra, is known as Rajabasa and this one is also in partnership with Sumitomo and International Power GDF Suez we expect to obtain 220MW from it. Overall, all three projects will grant us almost 700MW of energy, which will make us a significant player in Indonesia’s energy matrix and one of the largest independent power producers (IPP). To conduct all three projects simultaneously is an extremely ambitious task that is requiring ± US$ 2.1 billion worth of invest-ment, but we are dedicated to making it happen. Currently, we are still in the exploratory phase with all three projects, and we are looking to begin operating before the end of 2016.

FR: What are the greatest hurdles that you are experiencing in the geothermal sector?SUPRAMU SANTOSA: With any investment in Indo-nesia, you must be extremely determined and patient to continue pushing forward. For geother-mal, I believe the greatest challenge lies in the lack of coordination amongst the different govern-ment entities that are regulating or involved in the sector’s development. We do see clear political will on behalf of the government to drive forward essential policies, such as the increase of the feed-in tariffs and the provision of financial guaran-tees, but this is not shared across all the minis-tries. The commitment is there on a macro level, but once you get down to the bureaucratic and smaller departments, then you will find that it

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isn’t there because they have not realized the urgency of the country’s energy situation.

Over the past four years I have been deter-mined to push all of these elements and policies forward in collaboration with the Indonesian Geo-thermal Association. Every day along the way I was knocking on people’s doors to communicate the importance and urgency of developing the geothermal sector by implementing the necessary policies.

FR: In light of the upcoming presidential elections in 2014, some have indicated that the government is no longer willing to take risks in regards to implementing new energy policies. Do you expect that we will see a lull in the development of geo-thermal due to this politicization?SUPRAMU SANTOSA: I don’t think the development of the sector will be affected by the upcoming presidential elections. The most important regu-lations that were needed to make the sector attractive have already been implemented. Now it is just a matter of moving the bureaucrats at the same pace as the industry, and this will require all of our commitment to do so. The reality is that renewable energy is a matter of survival for Indo-nesia; it is not simply a trend and no longer optional. The country’s growing demand in energy requires that we develop these resources particu-larly in the face of declining oil resources. Pur-chasing energy from other countries is also a lim-ited option, and given the wealth of our own natural resources, it only makes sense that we focus on developing these resources. It is esti-mated that every year Indonesia needs to develop 5,000MW of power generation in order to meet its energy demands - or 25,000MW by 2020. This will require huge investments and a solid dedica-tion from the government, but I am confident that we can achieve it. We see other countries around the world rising to meet similar and even greater energy challenges, such as Brazil for example; therefore we should be able to do the same. Brazil has become an energy superpower and has been successful in developing all its renewable energy resources that today make up close to 80% of the country’s energy mix. They have mobilized every possible energy source, from oil & gas and hydro-power, to wind, nuclear and even biofuels. Brazil truly serves as an example for us to strive for.

Some would say that the biggest hindrance to developing Indonesia’s energy sector is the coun-try’s own power model that revolves a single pur-chaser of electricity. Is such a monopoly model viable in the long-term?

As we all know, PLN has been around for a very long time and all the transmission and dis-tribution (T&D) networks in Indonesia as con-trolled by them. Ideally the T&D sector would be liberalized, but this will take a very long time and will only happen once the government removes electricity subsidies. As long as those subsidies are still there, then PLN will continue to have con-trol over the distribution of electricity and we will be dealing with a distorted market.

PLN’s infrastructure is massive, and it will have to be a gradual process before the T&D sec-tor can be liberalized and PLN is replaced, but I do believe that it will have to happen in the future. Currently the pricing of energy is one of the big-gest challenges for the sector as a whole, and due to subsidies PLN will always try to squeeze the lowest purchasing price possible out of any agree-ment. If the price were right, then investors would flock to Indonesia without a question, no matter how difficult the project or how high the risk. What is currently lacking is an adequate price and certainty that commitments to buy electricity will be met.

FR: Can we then expect that electricity subsidies will soon be eliminated?SUPRAMU SANTOSA: As we all know, this is a highly political issue and with upcoming presidential elections, I am doubtful that anyone will want to touch it any time soon. Even though it is entirely logical to remove subsidies, more real-istically I think this could only happen after the elections take place. Nonetheless, the reality is that the country cannot survive spending almost 25% of its revenue on energy subsidies. This affects the development of other key sectors, such as education and road infrastructure. Fur-thermore, the problem with subsidies is that everyone benefits from them, both rich and poor alike, which is clearly unfair. In this case the debate might not be whether we need to remove subsidies as a whole and raise the price of oil across the board, but rather how to make sure that those who have no need for the subsidies are not benefitting from them.

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Fazil Alfitri - President Director, MEDCO POWER

Interview with: Fazil Alfitri - President Director, Medco Power

INTERVIEW WITH:

Fazil Alfitri - President Director, Medco Power

Focus Reports: You have been at the head of Medco Power since the company was created in 2004. What was your vision for the company at its incep-tion and how has this evolved over time?FAZIL ALFITRI: From the outset my idea was to develop a world-class power company with a strong focus on small- and medium-sized projects. If we were to develop large-scale power plants we would be restricted by our capacity to fund such projects, which at that time was very difficult in Indonesia because local investors were very skep-tical to fund infrastructure projects ever since the Asian financial crisis of 1998.

Furthermore, we also decided to concentrate our efforts on areas outside of Java because most power companies were always looking to develop power plants in Java where there is the highest demand for electricity and the most developed power grid. Ultimately our target projects were defined as 50-100MW power plants at the munic-ipal level, because projects of this size allow us to raise capital quite quickly at the local level.

Considering that we were looking at smaller-sized projects, it did not make sense for us to build these power plants from scratch, but rather we determined that our best strategy was to acquire projects that were in distress and had stagnated for one reason or another.

FR: You mentioned that your projects are financed with Indonesian capital, however, local banks are notorious for being risk-averse. What is your per-ception on the willingness of Indonesian investors to spend their capital on local power projects?FAZIL ALFITRI: Back in 2004 I would have definitely agreed that Indonesian banks were unwilling to invest in local power projects, but I feel that the situation has changed with time. Right now is the time to come to Indonesia because perceptions about the country are changing and this is where the opportunities are. In the past, local banks focused mostly on retail banking and avoided investing in capital-intensive infrastructure proj-ects. This was mostly due to the fact that they did

not understand enough about project financing processes.

FR: Considering that Medco Power is relying entirely on a strategy of acquisitions for its expan-sion, how are you generating enough revenues in the short-term to back all these expenditures?FAZIL ALFITRI: In creating a differentiated power company, I always thought that Medco Power should focus on having a large portfolio of projects and services in order to have a balance between our different activities. Our investments in power projects are long-term investments that will only pay off after the plants are operating for a few years. This is why our company would not be able to survive in the short-term without the provision of services, which is where our O&M and EPC ser-vices come into play. We are one of the largest O&M operators in Indonesia with a total of 1,500MW of assets under our supervision.

When Medco Power was first created in 2004 we had a total capital of US$ 400 thousand and today we count on more than US$ 170 million due to the growth in our provision of services. Late last year Medco Power was acquired by Saratoga Capital, which has given us a new push in our growth and development. In this new phase of our expansion we are seeking to quadruple our gen-erating capacity by 2015.

FR: What projects do you have in your pipeline in order to achieve a fourfold expansion of your power generating capacity?FAZIL ALFITRI: The largest project we are currently developing is the Sarulla geothermal plant with a capacity of 330MW. Sarulla is unique in that we are developing it through a project financing

We believe that there is great potential in Indonesia for mini-hydro run of river power plants

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model rather than an equity financing model, which is what most geothermal companies have been doing in Indonesia so far. Today the law per-mits that such assets be assigned to private enti-ties for the duration of their loan, therefore allow-ing them to collateralize those assets with the banks.

At the same time we are looking to develop a mini-hydro power plant that will not require extensive feasibility and environmental impact studies. We believe that there is great potential in Indonesia for mini-hydro run of river power plants because there are many rivers throughout the country with potential for this kind of power gen-eration model. Currently we are looking at 17 dif-ferent projects, all consisting of less than 10MW, which will generate a total of 120MW.

FR: How has your strategy paid off so far in terms of your financial performance?FAZIL ALFITRI: We have stretched our targets for this year to achieve US$150 million revenue by the end of year, which represents a 40% increase from last year. In order to attain this goal we need to close several of our acquisitions and begin con-struction of the projects. For our mini-hydro proj-ects, for example, we are looking to build 30MW every year until 2015 for a total of 120 MW.

FR: What advice do you have to give to someone entering Indonesia’s power sector today and to the regulatory authorities?FAZIL ALFITRI: The key for success in Indonesia is knowing how to navigate the regulatory environ-ment. Perhaps one area in which the government can bring some positive changes is in setting higher feed-in tariffs that will make investments a lot more attractive. I also believe that Indonesia would benefit from further regionalization of feed-in tariffs, so that each region of the country is free to set the prices according to their needs and their vision for the development of their communities. Such a move would also help to reduce government subsidies of electricity, which are extremely costly and inefficient.

FR: Is Medco Power considering entering the trans-mission and distribution business to complement the rest of your operations?FAZIL ALFITRI: Eventually this is a possibility we will explore, and it is a trend that we are witness-

ing in neighboring markets, such as the Philip-pines, Singapore and Australia. If the Philippines, also being an archipelago, can develop its trans-mission business through the private sector then Indonesian will soon have to follow the same example. I also believe that once there is competi-tion in this sector, it will force PLN to become a lot more efficient, in the same way that happened with Pertamina and their downstream business. It is a necessary step that Indonesia must take in the near future. Perhaps one way to go about it is to have PLN handle transmission exclusively while having private companies dealing with the distri-bution of electricity to end-users.

FR: Beyond your business operations, Medco Power is also well-known for its CSR initiatives and its commitment to the communities where you oper-ate. FAZIL ALFITRI: Medco as a whole incorporates the value of improving the lives of people into all of their business activities. The idea is that this is not only that CSR is the right thing to do, but by sup-porting the communities around us this also ensures the continuity of our projects. It’s a mutu-ally beneficial endeavor with both sides supporting each other to grow in parallel. Furthermore, we do not believe in simply handing out charity, but rather we like to support self-sustainable projects that will continue to flourish in the future without our financial support.

FR: Having started this company from scratch and moving it to its current success, where do you envi-sion Medco Power in the near future?FAZIL ALFITRI: I hope that within the next five years Medco Power will have become a US$1 billion com-pany. This is a goal we have set for ourselves and it is my job to bring the company to US$1.4 billion by 2016. The hardest part is to crack the first bil-lion. Once you have achieved this, then the rest comes a lot easier. We first need to reach a critical mass of 100MW more than where we stand today and this will then regularize our costs and increase our revenues.

The key for success in Indonesia is knowing how to navigate the regulatory environment

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Low Kian Min - President Director, PAITON ENERGY

Interview with: Low Kian Min - President Director, Paiton Energy

INTERVIEW WITH:

Low Kian Min - President Director, Paiton Energy

Focus Reports: On June 5th Paiton Energy inaugu-rated its Unit 3 power plant, which experienced numerous setbacks and challenges over the years. What was the evolution of the project until its full operation and how did you manage to finally make it operational?LOW KIAN MIN: Paiton 3 was first bid out by PLN in 2007 as a power plant meant to be built on the Paiton generation complex located 140km east of Surabaya, Java. The complex was initially designed to house 4000MW of generation capac-ity, meaning that the plans for unit 3 have been there since the initial conception of the complex in the mid 1990s. Given the structure of the com-plex and the companies already running power plants there, namely Jawa Power, PJB and our-selves, it only made sense for these players to bid on the Unit 3 tender to share the existing facili-ties. Ultimately, only Jawa Power and Paiton Energy bid on the tender and it was awarded to us in July 2007. Immediately after, we began negotiations on the PPA with PLN, which took us just about a year until it was finally signed in August 2008. It was at this point that the project began to experience its greatest challenges, mostly due to the overall economic situation around the world and the severe global financial crisis.

As banks starting falling out and raising fees, we were faced with a tough situation in which our PPA had just been signed and therefore our costs and revenue projections were fixed according to those - tolerating cost increases was extremely difficult. We eventually managed to find the cap-ital and reached financial closing in March 2010. Our legal obligation to PLN was then to deliver electricity 42 months after financial close, taking us into 2014 to reach this goal. Instead of that, we agreed with PLN that we would deliver power by the summer of 2012, which required our spon-sors to put equity upfront prior to financing. All of the sponsors believed that the project would be financed over time, so the remaining uncer-

tainty was simply related to the timing rather than the ability to do so. Nevertheless, it was still quite a challenge to convince our sponsors to take that risk. To their credit, they did make that leap of faith, and here we are today with a successful project having been completed ahead of schedule.

Paiton Unit 3 is today the largest single-gen-erating unit in Indonesia, and it is also the first to be using supercritical water technology, which makes it the most efficient coal-fired power plant. Furthermore, taking into account our previously existing 1220MW generating capacity, we are now the largest IPP in Indonesia generating a total of 2035MW. This is of course until the next player comes along...

FR: How did you manage to convince your finan-ciers to take the risk that they did? Are the oppor-tunities of the Indonesia power sector that grand?LOW KIAN MIN: It’s been a long process and an excit-ing journey throughout, and today we are quite happy with what we have achieved. There has been one institution, the Japanese Bank for Inter-national Cooperation (JBIC), which has sup-ported us throughout the entire project and has been absolutely critical to making Paiton 3 a real-ity. Overall, JBIC has been very supportive of Indonesia, and specifically for our project they have stood behind it and always tried to bring all the other stakeholders along. It was certainly a difficult process to get everybody on board, but JBIC was willing to provide political risk coverage to the other banks, which they had listed as a

I am certain that the government understands what its challenges are, with the main one being the issue of subsidies.

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precondition to financing the project. In the future, if banks begin to take on the risk of proj-ects without political risk coverage, then this will open up a significant amount of cash for the financing of new infrastructure projects.

FR: What can be done to further reassure foreign investors about the stability of the country and the great returns that can be generated here?In terms of the energy sector, I am certain that the government understands what its challenges are, with the main one being the issue of subsi-dies. Electricity subsidies today represent US$10 billion every year, which is a massive amount of cash being misdirected. Until the government allows PLN to raise its tariffs in order to generate cash that will cover its costs, foreign banks will be unwilling to finance projects without govern-ment guarantees or political risk coverage. Fur-thermore, the government has also understood that subsidies are not well-targeted and that the people who benefit most from them are the larg-est consumers, meaning businesses and the upper classes of society. This situation calls for the need to redistribute wealth in a more precise manner, and this is one of the greatest challenges for Indo-nesia. The country is facing a similar situation with fuel prices and their subsidies, and we saw protests earlier this year when the government attempted to raise fuel prices.

FR: Are these protests a sign that the country’s social and political stability is fragile?LOW KIAN MIN: The protests we witnessed in rela-tion to the fuel price debate were very small and limited. These are not the same kind of protests that you would find in Indonesia in the late 90s and early 2000s. I am convinced that if the gov-ernment had the political will and if their coali-tion partners had the same vision, they could have certainly pushed a fuel price increase without any major consequences. The reason why the price increase did not follow through is more related to internal politics of the government rather than the possibility of any social unrest. This is further exacerbated by the impending presidential elec-tions in 2014. If people manage to set aside poli-tics and start thinking rationally, then this issue will certainly be resolved, and the reality is that it absolutely must be resolved because spending close to US$30 billion on fuel and energy subsidies

every year is entirely unsustainable. Now is the time to make such a change, because once you reach a crisis point and the government is forced to make the changes rather than doing it volun-tarily and in a planned manner, then that is when social unrest will be most likely.

FR: As a foreign manager in Indonesia, what has been key to your success in this country that is often mentioned as difficult to understand?LOW KIAN MIN: Indonesia can certainly be difficult to understand at times, and I say this even though I am Asian myself. I think every country has its own nuances as to how you have to deal with peo-ple, and I don’t think Indonesia is any different. The keys are to understand the local culture and understand how people work, what motivates them and what they mean when they say “yes”. At the end of the day the most important thing is to deliver your end of the bargain and therefore obtaining the respect and trust of the locals. This has been exactly what we have done with PLN, which is why we have such a positive and benefi-cial relationship today. In any agreement, the flex-ibility of parties is always crucial and in Indonesia this is especially important.

FR: What is your final message regarding the poten-tial of Indonesia’s power generation sector and Paiton’s commitment to it?LOW KIAN MIN: Indonesia is a good news story and will definitely continue to be so for the next 5-10 years at least. Its growth will surpass most of its peers in the region, if not the world, despite the challenges in implementing some of its desired policies. If those policies are successfully put into place, then we might even see its growth increase beyond what we see today. I am confident that the country will rise to meet its challenges, because it can only continue moving forward.

Indonesia is a good news story and will definitely continue to be so for the next 5-10 years at least. Its growth will surpass most of its peers in the region, if not the world.

32Interview with: Takumi Sakabe - President Director, Fuji Electric

INTERVIEW WITH:

Takumi Sakabe - President Director, Fuji Electric

Focus Reports: It’s been less than a year since Fuji Electric decided to set up a formal sales and mar-keting office in Indonesia in October 2011. What were the objectives of this expansion and what do you plan to achieve with your increased presence?TAKUMI SAKABE: We are a Japanese manufacturer and solution provider with equipment, devices, apparatus and system related to electricity and electronics and the range of product is quite broad; from power transistors to power plant equipment including steam turbines and gener-ators for thermal and geothermal. Also, our com-pany has the long history with almost 90 years. Our business for Indonesian market started more than 40 years ago but most of our business was mainly done through exporting from Japan. However, we have to say it was just intermittent approaches except for a part of our various busi-ness segments and we tended to prioritize domestic market in our home country, Japan.

Currently, we are focusing on our energy-related business with value added solution and then we are in the process to enhance our busi-ness and increase our presence so that we can become one of leading players in the world. In general point of view, Indonesia is one of coun-tries with enormous potential which started to accelerate motorization, being fully supported by population structure and stable politics over those years. We recognized it was high time for us to spread our solid roots also in Indonesia as series of globalizing activity, accordingly.

FR: Now that you have an established presence in Indonesia, how do you foresee your growth in this sector and what role will you be playing to develop this country’s power sector?TAKUMI SAKABE: Indonesia has vast potential in power generation, which will be further driven by expected economic growth based on its popu-lation and supported by richness in natural resources such as oil, gas, coal, CBM and also renewable resource such as geothermal, hydro, solar, biomass, ocean power, supported by a geo-

graphical advantage. Annual power generation capability is expected to be increased by more than 5000 MW for 10 years to cover growing power demand.

The government of Indonesia is also paying high attention to global warming, in parallel to need for continued economic growth. Mean-while, it is said that Indonesia has big potential in geothermal resources equivalent to 29000 MWe, which is 40% of world potential for the time being.

The government is now committed to devel-oping geothermal power projects under the sec-ond phase of their fast-track program, so called crash program, to increase power generation by 10,000MW for five years starting from year of 2010. The first phase of the two-phase program focused on developing coal-fired power plants, and now there is a greater focus on renewable sources of energy such as geothermal. Addition-ally, the government is working on reviewing related regulatory framework and laws to foster such development. A geothermal power develop-ment is time-taking in characteristics which nor-mally requires more than seven years from the initial survey and feasibility study until the start of power generation. During such period, devel-opers are exposed to high risk especially during exploration stage, yet continue to invest. After successful exploration, power plant is the critical assets to realize developer’s revenue for long time. So, power plant’s component and system should be proven technology with highest level reliability against corrosive and/or erosive nature of resources, however, pursuing cost competitive-ness to fully support developer’s effort before and after plant operation. Though we were a down-stream player in the series of such development, we have been seamlessly involved in supporting this industry over forty years with the equip-ment and EPC capability as well. Our accumu-lated know-how and reliable technology will con-tinue to contribute to developers.

Meanwhile, EPC/Turnkey solutions are nor-

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mally required by plant owners for the plant con-struction stage. We are capable to manage such turnkey jobs with our core products. In such sense, it will also be one of important factors to collaborate with capable and reliable partner, especially with local partner, for success.

In addition, for geothermal, participating in the ownership side will be more proactive approach for the downstream player like us, which will work on increasing own presence in the industry and also on learning many things for better solution in terms of equipment tech-nology and quality of maintenance service. We recently started with this activity in the US. Of course, Indonesia will be one of potential targets for such approach.

FR: As you just mentioned, Indonesia still faces some challenges to fully develop its power sector. What would you say the main challenges are for Fuji Electric in Indonesia today?TAKUMI SAKABE: Given Indonesia is currently paid high attention as a promising country by all over the world, I think our biggest challenges will be, firstly, to accelerate developing broad network to penetrate in this market by increasing both cus-tomers and partners. Secondly, it is to cope with the tough competition, not only with global big businesses who have been active for a long time with local operations, but also with players from emerging countries such as China. It will be get-ting more important for us to differentiate our added value from others.

FR: Beyond your participation in the development of Indonesia’s geothermal capacity, what advan-tages do Fuji Electric’s products offer in terms of energy efficiency and reducing the wasteful usage of electricity?TAKUMI SAKABE: In addition to energy-creating technology I referred to, we have earned good reputation from valued customers for drive con-trol, energy saving such as inverters, UPS, energy management system.

In Indonesia, for the time being, the average electrification ratio through the country reached, and is now more than 67.5% according to PLN. However, even the capital city of Jakarta area with electrification close to 100%, reliability of power supply is expected to be further improved. To avoid power outage is the critical issue for

industry, especially for the manufacturing sector and IT sector.

One of the issues for the government of Indo-nesia in terms of their energy scheme is energy conservation. Not only developing a new power supply, but also increasing efficiency is important to cope with rapidly growing power demands. The government issued more specific regulation inMay this year for such energy conservation, where an entity consuming 6000 oil ton/year is required to realize energy saving.

In the meantime, Indonesia is composed of more than 17,000 islands and remote islands are lacking power supply, where renewable energy such as solar and wind power work is expected to work to reduce burden of fuel cost of diesel power stations.

In light of those situations, there will also be huge opportunity for us to be of good help for such issues with power stabilization technology and converting technologies such as inverter, power conditioners and micro-grid technology.

FR: Thinking about the future of Fuji Electric in Indonesia, what would you like to have achieved in five years’ time?TAKUMI SAKABE: As a whole, Fuji Electric has ambi-tious goals for our global operation in the coming years. In 2011 total company sales were equiva-lent to US$8.7 billion and our objective is to increase this to US$12.5 billion by 2015, where the international sales is designed to increase from 25% of the total revenue of 2011 to 40% of that of 2015. This represents the international sales are expected to grow more than two times by 2015. In this context, Indonesia must become an important contributor to our growth. To real-ize this, the Indonesian operation will take major role and become the center to enhance the drive control, electrical distribution, energy saving and stabilization business mainly for industrial seg-ment, while the operation will be basically in the supportive position for our head-quarter’s activ-ities for the power generation segments.

Not only developing a new power supply, but also increasing efficiency is important to cope with rapidly growing power demands.

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Hans Peter Haesslein - CEO, SIEMENS INDONESIA

Interview with: Hans Peter Haesslein - CEO, Siemens Indonesia

INTERVIEW WITH:

Hans Peter Haesslein - CEO, Siemens Indonesia

Focus Reports: Siemens has been a committed part-ner for Indonesia’s economic development over the years, having invested in numerous areas including local manufacturing and power plants. What are your objectives for Siemens in Indonesia today?HANS PETER HAESSLEIN: Siemens has been in Indo-nesia since 1855 when the company performed its first installation for telecommunications. What do we do in Indonesia today? Firstly, I would like to point out that this is an exciting and important market, even though there are countries around the world that are deserving of similar attention. If you look at the demograph-ics, the electrification rate, the economic growth, the fact that it has a relatively stable democracy and the need for improvement in the infrastruc-ture sector in general - then Indonesia is a very exciting market. The question is: are the inter-national financing and investor communities prepared to move along at the same speed that the Indonesian government desires? The reality is that the President’s Master Plan (MP3EII) can-not be financed unless this happens. We have to attract investors. We must do this through pro-motions that will complement the master plan. The MP3EII’s targets are very ambitious and in the past, particularly in regards to electrification, previous targets have only partially been met. It is for this reason that Siemens is deeply commit-ted to the Indonesia market by providing our full portfolio of products, services and solutions.

FR: What is lacking in Indonesia to convince inves-tors that Indonesia is the place to be?HANS PETER HAESSLEIN: The country’s economy has been growing steadily over the years. I think sta-bility and predictability are extremely important to reassure investors on the opportunities that this country has to offer. I simply hope that the upcoming election for governor of Jakarta will bring investors to Indonesia and that the upcom-ing election for the presidency in 2014, regardless of who wins, does not bring any major changes.

FR: How has Siemens achieved double-digit growth and overarching success in this environ-ment that you identify as being so challenging?HANS PETER HAESSLEIN: There are two elements. One is that the investment environment is rela-tively healthy, which means people are bringing money into the country. Secondly, we have to understand that in some areas we are an investor - where we build a factory for the local market for example - and on the other side we are sup-porting the investors. This means that if indus-tries like steel, cement, pulp, paper or mining are investing then we will consequently also see an increase in business. So if the environment, polit-ical climate and stability bring investment, then it helps us boost our portfolio. We are successful because we have a portfolio - products, services, solutions - which is covering basically every need of any of those industries I mentioned, as well as others. Furthermore, our clients value our prod-ucts and services because we are highly efficient, modern, state-of-the-art, reliable, and afford-able.

FR: Speaking specifically about Indonesia’s power sector, some would argue that maintaining a monopoly for electricity transmission and distri-bution is unsustainable. Would you agree with this vision? HANS PETER HAESSLEIN: The problem as I see it is that we have PLN as a state-owned-enterprise and a monopoly of power distribution. Simulta-neously, by law or decree, you have a subsidized

The biggest problem that I see is the situation between what you can pay someone who is generating energy and what you can charge for it.

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electricity rate, which makes things difficult for investors to obtain attractive power purchase agreements. To create that interest for a big inves-tor, he needs a relatively high price, which at the moment of course leads to a higher subsidy from the government.

Ultimately the government must make a deci-sion to either decrease the subsidy, which is dif-ficult to do for everyone, because there still many poor and isolated people that could simply not afford electricity at higher rates. This is one of the changes or solutions that is more political than technical in nature. In terms of technical requirements, we have the ability to continuously build power plants of different types. The biggest problem that I see is the situation between what you can pay someone who is generating energy and what can you charge for it.

FR: How is Siemens assisting the government in addressing the problem of distributing energy across 17,000 islands?HANS PETER HAESSLEIN: The issue begins with the fact that small diesel-powered generators provide the majority of electrical energy to remote areas. On a positive note, the country has understood that this is unsustainable and that these genera-tors will have to be reduced over time due to the high cost of fuel. How soon this will happen is hard to say.

As you mentioned, there are 17,000 islands - let’s say half of them are inhabited. I believe that, for a long time, we will see areas where there is only a diesel power plant because the demand is very small with only basic power necessities like a TV, refrigerator, and lighting for residents. Now, in the areas where there is a bigger demand, and there are small industries, but there is no regu-lated energy, one would have to think about more permanent solutions, such as a small coal-fired power plant. Solar energy is also possible, although I do not see that happening for a long time because it is so expensive. What we are anticipating is a switch from diesel to other means. Just recently, we have started the produc-tion of small steam turbines in Indonesia, spe-cifically for, what I call, decentralized generation requirement. We have started that deliberately to, in the first place, serve the local market, and secondly, to have technology transfer into the country.

FR: What opportunities do you identify for Indo-nesia with regards to the international trade of electricity to neighboring countries?HANS PETER HAESSLEIN: I am convinced that we have the best technologies in this area and that puts us in a very good position. Of course, price is always an issue. Quality does have its price. Siemens is not and will not be a low cost or low quality producer. That is not what we have done over the past 165 years and not what we shall do.

Now, if we take the technology that we have as well as the reliability factor, the efficiency and availability into consideration - then I believe we are very well positioned as soon as the projects break. The problem comes back to power genera-tion. You still need a power plant to get the energy somewhere. However, we are very confident that at some point these projects that are currently under discussion will go ahead.

FR: Do you understand the responsibility that Sie-mens has in affecting the development of this country? And if so what is the vision you have for the country?HANS PETER HAESSLEIN: The future is bright. If we only fulfill part of the requirements of the MP3EII, it will still prosper and Indonesia will become one of the biggest and most rewarding markets we have seen for a long time. As I men-tioned before, political stability as well as predict-ability is paramount.

In my opinion, it’s also important to find a political solution to some of the major problems, such as subsidies for electricity and petrol. That is creating some sort of a problem because there is gas on one side, and there is oil on the other side here, and both are subsidized. This year, I believe we are going to be a net importer and that is not necessarily good.

If you are not only looking at the energy mar-ket, we have 11 or 12 cities - over one million people in this country - and not one of them has a modern mass transportation system. There is already a big demand, which will hopefully come to the market soon. The bottom line is that social and economic development brings opportunities for infrastructure. At the same time, almost all these things need electrical energy, meaning that there will be huge opportunities.

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Company index

Bakrie Power .............................. 20,21

Capital Turbines ................................18

Directorate General of Electricity .. 22

Directorate General of Renewable Energy .............................................. 14

EDMI ................................................ 15

Fuji Electric .................................. 17,32

Indonesian Coal Mining Association .......................................10

Indonesian Electrical Power Society (MKI) ................................................ 24

Indopower International ................ 12

Medco Power ............................... 8,28

Metbelosa ........................................ 14

Paiton Energy .................................. 30

Panax Geothermal ......................18,19

Pembangkitan Jawa-Bali (PJB) ....... 7

Perusahaan Listrik Negara (PLN) ..... 5

Petrogas Jatim Utama ................... 13

PLN Geothermal ..............................19

Siemens Indonesia ......................... 34

Supreme Energy ............................. 26

The World Bank .................. 5, 8, 11, 15

Truba Jaya Engineering ...................10

Wampu Electric ............................... 15

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Documents

Power Indonesia report 2012