Flip-flop on electricity tariff

January 13, 2010, Kompas.com published an article titled "Pemerintah pastikan harga BBM dan TDL tidak akan naik" (government assures fuel and electricity tariff won't be raised) this year, quoting Hatta Rajasa, coordinating minister for the economy. Today, finance minister Sri Mulyani said "electricity tariff will raise by 15% in the second half." Which government we should trust in?

Here's the statement from Hatta less than two months ago: With higher electricity subsidy, the state-owned PLN can be empowered without necessarily raise the basic electricity tariff (TDL).

In the revised 2010 Budget proposed by government, electricity subsidy would increase 44.2% this year to Rp54.5 trillion. "TDL will increase 15% as of July 2010," Sri Mulyani said today.

Well, probably the government in January is different with government today (because of the Century case investigation).

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PQ for Senipah gas-fired power plant

State-owned electricity provider PT Perusahaan Listrik Negara (PLN) kicks off pre-qualification for Senipah gas-fired power plant project in East Kalimantan.

The gas-fired power plant will have 2x40 MW capacity as an independent power producer (IPP) project where investor will develop, finance, construct, and operate it on a build-own-operate (BOO) basis pursuant to a long-term power purchase agreement (PPA) up to 30 years.

Investors is also required to finance and construct the associated 150 kV transmission line, which will be transferred to PLN as a special facility.

Late last month, PT Total E&P Indonesia and Inpex Corporation signed gas sales agreement (GSA) with Perusahaan Kelistrikan dan Sumber Daya Energi (PKSDE), a company owned by Kutai Kartanegara administration to supply 20 MMSCFD of gas for 20 years. PKSDE and PT Toba Sejahtera are partners in the plan to build Senipah gas-fired power plant.

According to the GSA, buyer will pay US$3.5/MMBTU plus 3% raise every year for the period of 2011-2017, while for the period of 2018-2031, gas price will be US$4.5/MMBTU plus 3% raise per year and 30% of any electricity price hike to charged to PLN.

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PLN rebids Bali power plant

PT Perusahaan Listrik Negara (PLN) will rebid the development of Bali Timur coal-fired power plants (2x100 MW) due to lack of interest. 

PLN director Bambang Praptono told reporters yesterday that the project attracted only two bidders, fell short of minimum requirement of three bidders. 

PLN invited bids for Bali Timur, an IPP, in March. Construction of the power plant will cost around US$200 million. PLN initially expected the power plant will commence in 2013. But with the rebid, commercial operation will be delayed significantly. PLN plans to rebid the project this month.

PLN also plans to rebid coal-fired power plant projects in Papua and Maluku under the 10,000 MW program. Papua will have 2x7 MW capacity, while Maluku with 2x15 MW. These projects are part of 35 power plants planned under the 10,000 MW program.

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PLN opens low-rank coal tender

State-owned electricity provider PT Perusahaan Listrik Negara (PLN) kicks off open tender for up to 3.26 million tons per year supply of low-rank coal for its new power plants.

Total volume of the contracts would be 65.2 million tons for 20 years of supply. Eligible participants are those with experience to supply over 200,000 tons per year and have minimum mineable resources of 20 million tons. 

PLN needs to secure long-term supply for Teluk Naga and Pelabuhanratu power plants with coal CV 4000-4500 Kcal/Kg, while for Nagan Raya, Pesisir, Bangka, Belitung, Bengkalis, and Tarahan Baru for coal with CV 3900-4700 Kcal/Kg, and Pangkalan Susu, Asam Asam, Selat Panjang, and Tanjung Balai Karimum for coal with CV 4000-4700 Kcal/Kg.

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BNI leads Lahat power financing

State-owned bank BNI has been appointed as leader of a syndication to finance coal-fired power plant project developed by PT Priamanaya Energi in Lahat, South Sumatra. 

BNI will arrange a US$230 million financing for the 2x125 MW power plant to be built at a Lahat mine mouth. The power plant is scheduled for commercial operation in 2012. According to director general for electricity, J. Purwono, the project is part of the second 10,000 MW power program.

PT Priamanaya Energi is a subsidiary of PT Priamanaya Djan International, a company controlled by businessman and politician Djan Faridz. Faridz is an elected member of Regional Representative Council (DPD) to be a representative of Jakarta people in DPD. Member of DPD is also a member of People's Consultative Assembly (MPR), the highest legislation body in Indonesia.

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Areva-Medco Euro120 million PLN contract

The consortium formed by Areva's Transmission and Distribution division and PT Multifabrindo Gemilang, a subsidiary of Medco Group, has been awarded 120 million Euro contract by PT Perusahaan Listrik Negara (PLN), the state-owned power utility company.

Through this contract, Areva-Medco will modernize the Indonesian network in line with the 10,000 MW program launched in 2006. This turnkey contract includes delivery of several high voltage substations as well as underground electrical cables, in order to distribute power to the main Java cities (Jakarta, Bandung and Surabaya).

Multifabrindo is Medco's subsidiary in construction and fabrication. Established in 1983, the company operates production facility over 3 hectares of land in Krakatau Industrial Estate, Cilegon, Banten province.

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Bosowa secures suppliers credit from Chengda

Chengda Engineering, EPC contractor for 2x100 MW coal-fired power plant project in Jeneponto, South Sulawesi agrees to provide US$140 million suppliers' credit to Bosowa, the owner of the project. 

Bosowa Corporation CEO Erwin Aksa said the credit bears interest rate of 6% per annum and will mature in seven years. With the financing, Bosowa expects construction of the power plant could start next month and will be accomplished by 2011.

The announced amount is less than Bosowa's statement last September when Aksa said it had secured US$170 million from several Chinese banks.

Construction has been seriously delayed due to financing issues. The project needs US$200 million, of which state-owned bank Bank Rakyat Indonesia (BRI) has provided US$60 million.

EPC contract between Bosowa and Chengda Engineering was signed in November 2006 for a total consideration of US$180 million. 

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How Japan outsmart China in Indonesia's electricity business

"You may think that China swept most of new power generating projects in Indonesia. But don't ever underestimate the Japanese. They managed to block China with the postponement of IPP projects and at the same time ask Mitsui and Sumitomo to expand their existing facilities in Paiton and Tanjung Jati B respectively so there will be no more rooms for new IPPs in Java," one China-backed investor said over the weekend. But how they did it?

"Well, first of all, Japan use ADB to lobby government to conduct a study on IPPs first before proceeding with the bidding. The study would take one year at least. Government agreed to postpone the IPPs and only proceed the 10,000 MW crash program. In the meantime, Japan asked Mitsui & Sumitomo to expand their existing power plants," he explained.

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Cost recovery claims & US$2.5bn state loss

The Supreme Audit Agency (BPK) found potential loss to the state of US$2.5 billion of cost recovery claimed by five oil and gas contractors, Tempointeraktif.com reported.

BPK has just audited five of the contractors. They are Chevron Pacific Indonesia, ConocoPhilips Grissik, PetroChina Jabung, Medco Rimau and Pertamina-BSP. BPK blamed on Upstream Oil and Gas Regulatory Body (BPMigas) for the potential losses as the agency is seen non decisive enough. BPK also asked government to review the production sharing contracts (PSCs) to have them clearly state what costs could be recovered.

Details are as follows:
Charges on interest recovery:
- Chevron: USD4.95 million
- Conoco: USD170.4 million
- PetroChina: USD23.98 million
Third party contracts:
- GSEA contract between Conoco & Chevron: USD5.46 million
- Electricity supply contract between BOB Pertamina & Chevron: USD20.04 million
- Electricity supply contract between Chevron & MCTN: USD210 million & USD1.23 billion
- Duri oil-gas exchange between Chevron & Conoco: USD4.2 million

OTHERS:
- Collection station modification at Chevron: USD33.979 million
- Investment credit charges for gas operation at Conoco: USD379.5 million (no legal grounds)
- First Tranche Petroleum at Conoco: USD442.19 million during 1997-99 & 2000-2004 (no legal grounds)

Unfortunately none of the companies audited clarified the findings so far. Considering the amount that big, if they're true, so much at stake for these oil giants, especially Chevron & Conoco, both listed in the world's stock exchanges. The scope of audit, I think, has been limited to certain operation of these giants and that would potentially lead to another major findings. It's interesting to see what will be their responds.
BPMigas, as reported by Tempointeraktif.com, simply said it would follow-up the findings and cross-check them with the contracts.
To my surprise, even BPMigas admitted, donations from these oil/gas contractors made to tsunami victims could be charged as cost recovery item as long as it's stated in the contract. Such donation could be considered the company's corporate responsibility & community development program and it's reimbursed.
To me, it isn't fair at all. These companies got so much publication when they gave the donation, perceived as good citizens, and have led people to think how generous they are while actually it's the state/people who pay for it through cost recovery scheme.

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10,000 MW Transmission headache for PLN

The ambitious and looks-good 10,000 MW power generating project would likely worsen further state-owned electricity PT PLN's long-term financial capability as the company is yet to anticipate the transmission and distribution parts.

It took 15 years for PLN to build transmission & distribution network for 10,000 MW. Even for the best case scenario, it would take a decade or so to absorb the additional 10,000 MW. The problem, if all of these projects would be accomplished as scheduled (before 2010), PLN is tied to pay no matter PLN actually takes the power produced or not.
Even a three-year time-lag would cost PLN a lot. For power investors, as long as they have the take-or-pay clause with PLN, they would be secured. "That's gonna be a mess for PLN," one internal source at the company said.
By law, only PLN is allowed to operate transmission and distribution of electricity in the country. "I just can't understand why nobody cares about transmission. This is a huge challenge, more difficult to implement than build up 10,000 MW of power generating units. Sometimes you need more than two years only to accomplish land acquisitions. Not to mention the environmental and social struggles along the way," said one observer.
Even at PLN, there are several projects heavily delayed even though the funding is available already
He sensed massive rent-seeking in the 10,000 MW for political purpose, especially the 2009 presidential election. "The fees could go up to hundreds of million dollars," he said.

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Muara Enim power project: Chicken-and-egg situation

Reporters from major newspapers covering president Susilo Bambang Yudhoyono's visit to Shanghai, China wrote that China Huadian has eventually entered into a JV agreement with Indonesian partners to build the US$2.1 billion coal-fired power plant in Muara Enim, South Sumatra. A significant step forward, but the project is still in a chicken-and-egg situation.

Why? Because the 2,400 MW power plant would only sensible to be built if state-owned electricity PT Perusahaan Listrik Negara (PLN) also start to install Sumatra-Java power grid. So far, we never heard of PLN's plan.
Actually, early this month, director general for electricity, J Purwono, rejected US investor's plan to build 1,200 MW coal-fired power plant in Musi Rawas, South Sumatra arguing it's too big-too dangerous. The investor, AES Asia & Middle East would work with Japan's Sojitz and local partner, to build the power plant.
Mr Purwono was quoted by Detik.com saying Sumatra is not suitable for power plants with generating capacity of more than 600 MW. "Sumatra only good for 100-200 MW capacity, " he said. (Strange if we consider the regular blackouts in the island)
I would say the real reason behind the rejection is not the size of the power plants, but the availability of reliable power grid linking Sumatra and Java. By law, only PLN is allowed to operate electricity transmission & distribution in the country.

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Chevron in Indonesia: A Wakeup Call (2)

I'm so glad to read an article written by Orin Basuki, reporter of Kompas, the largest newspaper in Indonesia, under the title...chasing the truth to San Ramon. The article is basically based on an audit report completed by Supreme Audit Agency (BPK) on PT Chevron Pacific Indonesia, a subsidiary of Chevron Corp, USA.

The article is centered on cost recovery, a term in oil and gas business in which contractors such as Chevron claim the costs to government/state.
BPK found the following irregularities at Chevron:
1) Caltex polytechnic Riau: Cost recovery claimed US$6.56 million. (So the education & training facility is not a donation of Chevron, it's a state-funded institution)
2) School cost: Cost recovery claimed US$6.29 million for 2004 & 2005. (Again, this is no corporate social responsibility/CSR, it's a state-sponsored)
3) Donation to international school: Cost recovery claimed US$5.94 million. (This isn't a CSR for God sake)
4) Community development & community relationship: Cost recovery claimed US$1.5 million and US$1.47 million respectively. (Not CSR, state-funded activity)
5) Interest recovery: US$4.97 million (this should not be charged as cost recovery item)
6) Modification of collecting stations US$33.98 million: No benefits for the operation.
7) Materials worth US$18.92 million, no gain, charged as cost recovery.
8) Electricity and steam supplied by PT Mandau Cipta Tenaga Nusantara have been doubted the fairness and would cost the government US$210 million and loss to the state at US$1.23 billion.
BPK auditors admit there should be a long list of items that deserved cost recovery, but government's position in most contracts is so weak that contractors tend to mark up cost recovery and charge everything in the mechanism. "Even they charged the cost to pay foreign teachers for expatriate's children or scholarship for children of local staffs. In the end, cost recovery is about the same with all the company's operational costs," Arief Handoko, BPK auditor told Kompas.
Worse, as explained by J Widodo Mumpuni, chief auditor on Chevron, government's position in the contracts is so weak that it coudn't blame contractors for the markups even though they put the country at huge financial losses.
This is what I mentioned in my previous article Chevron in Indonesia: A Wakeup Call.
I hope Kompas would continue the publication of other audit results over oil contractors such as ExxonMobil, ConocoPhillips, Petrochina, CNOOC, Medco Energi, Energi Mega Persada, Pacific Oil & Gas, Santos, Star Energy, Pertamina, Petronas, etc.
Not just that we're aware of how these contractors made lots of money from the country's resources, but we know how careless our government officers (including BP Migas) in performing their role as regulator and supervisor. With that, we know what we should fix right now.

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Workers union urge SBY to kick out Sugiharto

State-Ownes Enterprise Workers Union Federation (FSP-BUMN)urge president SBY to kick out Minister Sugiharto for poor performance, Detik.com reported. This would heat-up the internal conflict at the ministry, already divided with competing political groups/motives.

FSP-BUMN said the conclusion was made based on a survey with 10,000 SOE workers as respondents. Go to detik.com story for a complete report.
FSP-BUMN is in legal battle with Sugiharto's camp after Lendo Novo, one of his right-hand men, filed lawsuit against the organization which claimed to have 8 million supporters for defamation. Lendo filed the lawsuit on FSP-BUMN's statement that Lendo's ad hoc team to investigate corruption at SOEs have squeezed BODs and have been selective in eradicating corruption at SOEs.
At the same time, some groups reported MSOE's secretary M. Said Didu for alleged corruption. Didu's supporters consider this move as part of Sugiharto's camp campaign to kick Didu out of the ministry.
In another not-so-unrelated development, yesterday, members of Geram (Anti-Corruption Student Activists Movement) three rotten eggs to Hendarman Supandji, deputy attorney general for special crime. Geram mad at Supandji because he was believed to be the one who set free Eddie Widiono, state-owned electricity company PLN CEO. Widiono, detained for few months, was in a meeting with VP Jusuf Kalla at PLN's headquarter discussing 'crash program' on development of 10,000 MW power plants when Geram throwing the rotten eggs to Supandji.
Supandji himself is under the spotlight following the accusation of Rusdi Tahir, former Jakarta Attorney Chief, that the former regularly intervene the prosecution of corruption cases.

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The Richest Indonesians & The Ironies

What a coincidence! Out there, Dow Jones quoted Forbes Asia's rich list, naming Sukanto Tanoto (owner of Raja Garuda Mas/RGM) as its Indonesia richest. At home, newspapers quoted SOE Minister Sugiharto pledge his support for state bank PT Bank Mandiri Tbk to take legal action toward recalcitrant debtors. Mandiri had named RGM as one of the debtors with no good faith.

While it's difficult to verify the exact figures, Sukanto's wealth according to Forbes reached US$2.8 billion, well above Putera Sampoerna (2.1), Eka Tjipta Widjaja (2), Rahman Halim (1.8) or R. Budi Hartono (1.4) and Aburizal Bakrie (1.2). In the previous list, Forbes named Halim as Indonesia's wealthiest while Sukanto was not even in the top five list. Wondering how the Forbes list has changed so significantly in the last few months.
Detik.com reported Sukanto is still in the police's fugitive list. But I'm not sure whether he is listed there still.
It's true that Sukanto once named a fugitive. His name also linked closely with Unibank which was closed down in 2001 but none held responsible for third party liabilities in the bank. The case isn't closed yet.
Sukanto's wealth mainly derived from palm oil business. He has pulp & paper empire, and recently oil and gas as well.
Surprisingly, no Sjamsul Nursalim in the top 10 list. Riady family, Tommy Winata, and Mum'in Ali Gunawan are out of top 10 as well. Riady family is partnering with Forbes for Indonesian edition, scheduled early next year.
Like it or not, agree or disagree, Forbes list could help Indonesia's tax officers chasing their tax payments or Bank Mandiri's bargaining position on bad loans. The list also useful for politicians, regent, governor candidates, or hopeful president candidates.
If you follow years of Forbes’ rich list, there is no significant change on the names of Indonesian richest. The difference is only on the amount of wealth & the rankings. The wealthy Indonesians could be categorized in several groups based on how they got their fortunes.
First, cigarette groups. We have Sampoerna family (even though they sold out the cigarette business to Phillip Morris), Wonowijoyo (Gudang Garam), Hartono (Djarum), and Peter Sondakh (Bentoel).
Second, forestry & plantation groups. We have Eka Tjipta Wijaya family (Sinar Mas Group), Sukanto Tanoto (Raja Garuda Mas), & Prajogo Pangestu (Barito).
Third, consumer goods. We have Salim and Wings Group.
Fourth, energy & engineering groups. We have Bakrie family, Panigoro (Medco), Kris Wiluan (Citra).
Fifth, property group. In this group we have Tan Kian (Dua Mutiara), Haliman Trihatma (Podomoro), Tommy Winata-Sugianto Kusuma (Artha Graha), Riady Family (Lippo).
Sixth, manufacturing. In this group we have Nursalim (Gajah Tunggal) for example.
So, mainly they got the fortunes from Indonesia’s rich & cheap resources (natural & human).
While most of these groups have expanded overseas (mainly China, India, or Brazil), Indonesian operations are still their main source of wealth. Most of these conglomerates were hurt by financial crisis, with the exception of cigarette groups.
But they have recovered in the last few years, thanks to the generosity of Indonesian people, the taxpayers. The state bailed out their bad debts. Some surrendered assets, but others managed to escape the financial responsibility easily.
Salim Group, for example, surrendered assets in 107 companies to pay around Rp56 trillion (US$6 billion) debt following the turmoil at Bank Central Asia (BCA). Government sold almost all the pledged assets with recovery rate of around 35%. Nursalim also did the same to pay his Rp28 trillion (US$3 billion) debt, with lower recovery rate.
Government also spent almost US$2 billion to bail out Bank International Indonesia (previously owned by Eka Tjipta’s Sinar Mas, currently controlled by Temasek).
That’s why there is almost no significant change in names listed in Forbes, the latest edition and in 1990s. The fact that Sukanto & Eka Tjipta are listed as number one and third in the ranking sparked criticism about how they created the wealth.
Both Sukanto & Eka Tjipta have strong pulp/paper & plantation (mainly crude palm oil) businesses through APRIL (RGM) Holdings & Asia Pulp & Paper (APP) respectively. Both groups have been the subject of continues allegation of environmental groups over massive deforestation in Sumatra Island.
WWF report few months ago said that APRIL and Asia Pulp & Paper (APP), the Indonesian paper producers, are accelerating the deforestation of Sumatra's jungles in spite of a bid to portray themselves as green.
According to the report, APP has been responsible for about 80,000 hectares of natural forest loss every year, equivalent to roughly one-half of the Indonesia province of Riau's annual forest loss since 2002. As of 2005, the company controlled nearly one-fifth, or 520,000 hectares, of the natural forests left on Riau's mainland. All these forests are under threat, as are any additional forests that APP acquires in its quest to fill its wood supply gap and expand pulp production.
WWF didn't publish the same press release on APRIL. But WWF Monitoring Brief June 2006 elaborated the organization's analysis on APRIL's activities.
Jikalahari (Riau NGO alliance) investigators have found evidence that APRIL's mills accepted wood from legally questionable third party source as late as May 2006. WWF admitted in the report that it calls APRIL to stop sourcing timber from this area until completion of the government legal verification process.
One NGO leader wrote cynically in Indonesian media recently that if you want to be rich, do the forestry business in Indonesia like Sukanto & Eka Tjipta. Other names listed in the Forbes report also have been regularly accused of various illegal practices such as fraud on reforestation funds or involvement in drugs & narcotics trading, gambling operation, or fishy deals with government and the military. But none of them convicted or worse various interest groups make huge chunk of money from the allegations on these richest men.

/Named a Suspect/
Apart of environmental concerns, the Forbes report has also been responded by Indonesia’s largest lender (by asset), Bank Mandiri, which happens to be the largest lender to Sukanto’s RGM. The bank has, several times, classified RGM as the debtor without good faith in settlement of almost US$500 million debts. Mandiri demands an increase in debt installment following the huge jump in pulp prices worldwide.
The day Forbes announced the rich-list, Indonesian minister for state-owned enterprises (Mandiri’s shareholder) pledged his support for Mandiri’s plan to take legal action against recalcitrant debtors, especially RGM. RGM denied all the charges arguing it follows the debt restructuring agreed upon few years ago.
A director at Mandiri was quoted by Indonesian newspapers saying, “You may rich, but pay your debts,” responding the list.
But it’s the police who surprised many when it announced the plan to reopen the investigation on Sukanto, not for the alleged environmental crime or his debts at Mandiri, but on a suspected banking crime that almost untouched in five years.
Just days after Forbes published the list, Indonesian police announced that it has resumed the investigation on Sukanto, named a suspect in a banking crime few years ago. Police declared that the case, involving Unibank---a bank initially owned/controlled by Sukanto and his wife Tinah Bingei, has been reopened after five years of almost no significant progress in investigation despite the fact that Sukanto had been named a suspect.
Unibank was closed down in 2001 leaving the state paying all third party liabilities (Rp3.9 trillion, almost US$400 million) with no shareholders held responsible. Sukanto was named a suspect on irregularities of export L/C worth US$230 million.
"Based on a meeting between Police Chief and Attorney General in August 2006, Sukanto's case has to be reopened and his status is still as suspect. The case is being handled by police team for corruption crime (Tipikor)," Paulus Purwoko, chief of public relations division at National Police Headquarter as reported by Indonesian media.
The sudden announcement failed to surprise the media at the time of eroding trust on the country’s campaign to fight corruption. Many raised the question, would the police be serious this time? Why the police reopen the case after so long? Could this be just part of ‘political’ game?
"Whatever the results might be, the reopening of the case has made Sukanto, well-known for his generosity overseas, shivering," a journalist from respected magazine commented the move. So far, police has not confirmed yet on when they would summon Sukanto for investigation.
The fellow journalist mentioned about Singapore-INSEAD's Tanoto Library or Carnegie Mellon's Tanoto Professorship. The owner of Raja Garuda Mas (RGM) also established Tanoto Foundation, which provide scholarships.
It’s not about his donations that make people doubt the investigation, but mainly the power politics in the country’s corrupt-legal system. Police might finalize the investigation, but state prosecutors may drop the case like what’s happened with the recent corruption allegation on Eddie Widiono (state-owned electricity company PLN).
Other intriguing issue is the unavailability of legal cooperation between Indonesia and Singapore. While Sukanto normally come to Indonesia, he stays in Singapore. “The problem, we have no bilateral agreement on this,” sighed the deputy attorney general Basrief Arief, who is also the Chief of Corruptors Hunting Team.
Besides, the five-year time lag since the Unibank’s closure in October 2001 is critical especially when it comes to witnesses. That’s why Attorney General’s Office said they would start the investigation all over again. This is clearly a big test for the country’s tattered image on corruption eradication campaign. Without serious efforts to end bad governance in Indonesian business, we can’t expect a cleaner sheet in the future rich lists.

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Indonesia 2007 Budget

Below are the key economic targets for the state budget 2007 proposed to Indonesian parliament.

Key 2007 targets:
- Exchange reserves: US$43.58 billion (US$39.5 billion in 2006)
- Govt bond issuance: Rp34.2 trillion (US$3.76 billion)
- Budget deficit: 0.9% (1.2% in 2006)
- Economic growth : 6.3% (5.9% in 2006 target)
- Total State Revenue: Rp713 trillion
- Total State Expenses: Rp746.5 trillion
- Rupiah against USD: 9,300 (against 9,000 in 2006)
- Oil price assumption: USD65/barrel
- Tax ratio: 14.3% (13.7% in 2006)
- Fuel subsidy: Rp68.6 trillion
- Electricity subsidy: Rp25.8 trillion
You're free to analyze, put notes and share views about the state budget 2007 in this blog.

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Sumatra power cuts: The Big Irony

Sumatra Island is home to vast energy resources. Natural gas, crude oil, coal, geothermal, tidal energy, you name it. So it's a big irony that the island has been suffered regular power cuts in many years. What's wrong?

Let's start with Aceh in the northern tip of the island. It sits over depleting natural gas, after three decades of massive extraction at ExxonMobil's gas fields to produce liquefied natural gas (LNG) for power generating companies in North East Asia, mainly Japan. Two gas-fed ammonia and urea plants (AAF is being liquidated and one of PIM's plants) have been dormant for many years on unavailability of natural gas supply.
Down to North Sumatra, there are some hydropower plants, but decreasing water debit had cost lower generating capacity for almost a decade as the surrounding natural forests have been destroyed significantly to supply the pulp plants nearby.
The area's electricity demand is somewhere between 1,300-1,500 MW, with Belawan gas-fired as the largest supplier (1,036 MW) and some small hydropower plants. Asahan Hydropower has 600 MW capacity, but mainly absorbed by Inalum (aluminium smelter) and suffered significant drop of water level. Some projects, including Bukaka's Asahan hydropower and Medco's Sarulla will take few years to come to light.
In West Sumatra, almost all hydropower plants have been suffered major drop of water
level and underdeveloped geothermal resources.
At the heart of the island, pipelines have transported natural gas to Singapore. Two pipeline projects are underway to transport more natural gas to Java island. Riau in central Sumatra is home to the largest crude oil production site which contributes more than 40% of the national output. Yet, Pekanbaru, the capital city of Riau recorded power cuts many times a day.
Down to South Sumatra is the home of natural gas, oil and coal production centers. But Palembang and its neighbour city Bandar Lampung have experienced similar power cuts with Pekanbaru.
On top of these, Sumatra would be the future source of what we call green energy or biofuel as most of crude palm oil (CPO) plantations are located in the island. The problem, we give so little attention to boost power generating capacities in this island. Our focus is clearly too much on Java island, an area heavily rely on Sumatra for energy sources and at the same time we neglect the island's demand for energy. As a result, Sumatra recorded power cuts in 78 days last year. It's decreased from 349 days in 2002. But it's still too often, isn't it?
To add people's missery, there are 10 power plants are inactive, mainly gas-fired, and most hydropower plants only operates at 60% of their installed capacity.
This week, Medco starts to supply additional 55 MW gas-fired capacity in Batam Island, but that would not be enough. Efforts to build coal-fired plants in the island have been slow on poor government responds. Well, how could we promote redistribution of economic growth and wealth if we keep neglecting this island?

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Syarifuddin Temenggung released on bail

Jakarta Prosecution Office had released former IBRA Chairman Syafruddin Temenggung on bail after almost sevent months live behind the bars on an alleged involvement in a corruption case, Detik.com reported.

It's not clear the reasons behind Syafruddin's release. But he is released on bail (Rp250 million) paid to South Jakarta District Court on Thursday. No progress has been made in the last few months on the case after his arrest in February.
Read my previous posts for background:
1) Syafruddin named a suspect

2) News roundup

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Indonesia economy: Ain't no sunshine!

The economy expects a boost from Central Bank's decision to cut its benchmark rate by 50 basis point at the time Jakarta awarded third winner as the most polluted city in the world, many parts of Sumatra Island suffer regular power cut and haze, Lapindo disaster to cost US$3 billion, increasing number of avian flu death toll, widening oil deficit, and minimum progress in cutting the hefty bureaucrazy & infrastructure costs.

We have to wait few more months to see whether the banks and other domestic financial institutions would cut lending rates. And even if so, there is no guarantee that lending would increase and subsequently drive the economic growth. It is true that high interest rate has been halted some investment projects and cut significantly business margins (the bottom line), but expecting the growth merely on rate cut is a mistake.
Some argues that BI should cut further its benchmark rate to at least 10% to boost lending. But even an interest rate below 10% wouldn't help as we have experienced before. If we look at first half financial report of listed companies, most of them recorded lower operating profit (before interest expenses). While most of these companies recorded higher sales, their costs (direct & operating) increased even higher, reflecting a worsening efficiency. Why?
The country needs to seriously tackle more fundamental issues such as bureaucracy and hidden (under the table) costs. Investment Coordinating Board (BKPM) recently claimed that it had cut the time-frame needed to get the license from three months average to less than a month. But investors need hundreds of papers/licenses on top of the investment license such as land acquisition etc that could take months if not years to get.
Infrastructure costs are clearly high on a scarcity of supply. Electricity, for example, is expensive not because of its tariff but mainly on its reliability and security of supply. If you happen to be in Sumatra, almost all big cities are suffering power cuts. I visited the island over the weekend and stay in some big cities for few nights and experienced the electricity problem.
Telecommunication costs are also considered among the highest in South East Asia simply because we half-heartedly promote competition in the sector and maintain the incumbent player's profitability in the name of higher dividend to stakeholders (especially the MSOE's dividend target for the state budget). Transportation costs, seaport handling charges already the highest in Asia. Congesty in the city add the transportation costs as well simply because we've been too slow in providing mass rapid transport system.
Legal certainty is also expensive and getting more complicated due to overlapping authority between central and regional administrations over the autonomy issue.
We spend too much time discussing macro-economy, in fact we have too many experts in the field, but we are careless on the micro-economy.

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Biofuel politiconomics

Indonesia is in the mood of everything related to biofuel, biodiesel, or bioenergy. And it's not just a respond to sky-high fossil fuel price. It's about politics for 2009 election.

Energy Minister Purnomo Yusgiantoro told the press today that a limited cabinet meeting chaired by president Susilo Bambang Yudhoyono in Malang, East Java over the weekend set the target of 2010 for a mass consumption of biofuel in the country that has been struggling to keep up fossil oil production with increasing demand.
As reported by Detik.com in Sunday, Purnomo said by 2010 biofuel could save 10% the consumption of traditional diesel oil and gasoline, plus 50% of the country's electricity. Ambitious plan. Late last year, research ministry announced that by 2015, up to 10% of the nation's oil consumption could be met with biofuel.
Biofuel, according to the cabinet meeting, supports three basic policies: Pro-Growth, Pro-Poor, and Pro-Jobs. Pro-Growth means biofuel would support a higher economic growth, pro-poor means significant cut in fossil fuel subsidy, and pro-jobs means creating new jobs in the biofuel industry right from its upstream (plantation and the such) to downstreams (biodiesel plants and distribution).
President's spokesperson Andi Malarangeng claimed the program would create jobs for 3.5 million people.
Several raw materials were mentioned in the roadmap to biofuel. They're palm oil, molasses, casava, jatropha etc. Industry Minister Fahmi Idris came quickly with government's plan to build eight biofuel plants with jatropha as the raw materials.
In fact, companies have jumped into the business in a frenzy way in the last few months. Life science company DuPont, for example, announced its innitiative to produce biofuel based on corn in Indonesia in a cooperation with Beyond Petroleum (BP). Some state-owned and local private companies have also announced innitiatives to produce biodiesel based on palm oil. Big palm oil companies like Astra Agro, Bakrie Sumatra Plantations, for example, have announced their respective plans to build biodiesel plants. Wilmar Trading, the largest CPO trader in Asia, is reportedly drops a plan to build biodiesel plant in Singapore and relocate that to Indonesia. Others plans to build ethanol plants based on molasses in various parts of the country.
But the country, just like others, is facing the dilemma. Excessive land usage, for example, could raise the environmental problem in itself. Government claimed there are 50 million hectares of land in Indonesia that suitable for jatropha plantation.
To be continued........

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Lapindo Brantas spillover Energy-Bumi merger

Minister for environmental affairs Rachmat Witoelar threathened to terminate the operation of Lapindo Brantas in East Java for its failure to apply prudent operating measures that led to massive pollution from an East Java gas well.

Blame games at play, as usual. Lapindo's shareholder PT Medco E & P Brantas, a unit of the listed PT Medco Energi Internasional Tbk, said in a letter to Lapindo that it had reminded the firm on May 18 to set casing at a depth of 8,500 feet, as agreed in the drilling program, The Jakarta Post wrote today.
Lapindo Brantas Inc is a subsidiary of listed PT Energi Mega Persada Tbk (closely linked to Bakrie Family). This company is the designated operator of the Brantas PSC and it owns a 50% participating interest. Other shareholders at Brantas PSC are Medco (32%) and Australian Santos (18%).
Having purchased its participating interest in the mid-1990's, EMP built the Brantas PSC to be the single largest supplier of gas to the East Java PGN distribution network by 2004 from the Wunut Field.
According to Energi's annual report 2005, last year Brantas PSC produced average of 51 MMSCFD of natural gas and 14 barrel oil per day, almost half of Energi's total gas production.
Brantas PSC has up to 7 oil and gas prospects with contingent resources of up to 66 bcf under a contract mature in 2020. With prospective oil reserves of 244 million barrel and 1.35 BCF of natural gas, Brantas PSC is one of EMP's important source of income.
Oil production from the discovery in Tanggulangin field at Brantas PSC is expected to reach over 3,000 bopd by 2007.
With such significance, the question is whether Witoelar is serious enough to close down Lapindo Brantas operation. But as quoted by The Jakarta Post, Witoelar said his ministry has no authority to order Lapindo to halt its operations, asides from giving a recommendation to do so to the Energy and Mineral Resources Ministry and the Oil and Gas Regulatory Body (BP Migas) which issued the exploration license.
Closing down the company's operation may create another problem, gas scarcity for electricity generating company PLN. Punishments should be strong enough to push this company implement stringent measures in its future operation.
Whatever the government decision might be, the catastrophe potentially will influence the planned merger of Energi with PT Bumi Resources Tbk. The rehabilitation might take few months and not to mention potential litigation toward the company.

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