Transcript Switch On/Switch Off: Lesson Learn from the Reform Indonesia

Switch On/Switch Off:
Lesson Learn from the Reform Indonesia Power Sector
Fabby Tumiwa
Institute for Essential Services Reform
Presented at
International Conference on “Establishing Dialogue on Fuel and Energy
Sector Transparency Initiative”
Bishkek, 26-27 September 2011
INDONESIA
Indonesia Electricity Sector at Glance (1)
• 13,466 islands, 1.9 mil sq
meter
• Population: 237.6 million
(2010)
• GNI/capita: $ 2500 (2010)
• Poverty headcount ratio:
13.3% (2010)
• CO2 emission/capita: 1.7
(2007)
• Electrification ratio: 65% (est,
2010)
Indonesia Electricity Sector at Glance (2)
• Electric Power Law in 2009 marked
the change of power industry
structure, end the special status of
the state-owned company - PLN.
– Further liberalize the power sector.
– New industrial structure, mix of vertical
integrated and unbundled monopoly
model.
– Shared responsibility and decentralized
authority to local government (district
and provincial level).
– Regional electricity tariff as alternative
to the uniformed national electricity
tariff.
Indonesia Electricity Sector at Glance (3)
• PLN dominates electricity
sector
– National-wide coverage
– Vertically integrated
company: generation,
transmission & distribution
– 40,000 employee
– 27,000 MW Installed capacity
(as 2010) + Purchasing energy
from IPP (~ 3000 MW)
– 40 million customers
– 170 GWh total energy
production, and 147 GWh
energy sold
– Annual expenditure: ~US$ 18
billion
Governance Challenges
• Electricity Industry is political
subject.
– Indonesia constitution regard
electricity as vital and strategic to
the state
– Regulated and controlled by the
state.
• “Regulated Model” prone to
corruption, and utility become
target of political interest.
– Political, social, economic interest
vs. Commercial interest;
– Governance of the management is
seriously compromised.
Historical Development of Power Sector in
Indonesia
• 1882 – 1942: Dutch electricity companies set-up and provide electricity
services to consumers in some major cities
• 1945: Dutch LWB’s was taking over and establishment of Ministry of
Public Work and Power of Republic of Indonesia
• 1945 – 1956: Nationalization of foreign gas and power utilities
• 1965: gas and power utilities were separated, creation electric power
utility company (Perum PLN) and natural gas company.
• 1972: PLN has given task to electrify the entire country, with
“monopolist” status.
Historical Development of Power Sector in
Indonesia
• 1985: New Electricity Law, starting deregulation and
liberalization of Indonesia power sector, open-up for
IPPs (“first reform”)
• 1990-1997: the emerging of IPPs, PLN act as single
buyer.
• 1995: Corporatization of PLN, separating asset and unit
under a vertical-integrated structure: generation,
transmission, distribution (“second reform”);
• 1998 – 2002: Power Sector Reform, intend to do full
liberalization, privatization develop competitive market
for electricity, enactment of new law on electricity (No.
20/2002) (“third reform”)
• 2004: the annulment of the Electricity Law No. 20/2002
by the Constitutional Court.
• 2006 – 2009: development of new electricity law,
enacted in 2009 (Law No. 30/2009).
Electricity Sector Reform (ESR) in Indonesia (1)
• ESR evolves since 1980s.
• A major structural ESR designed since early 1990s by World
Bank and development donor agencies (such USAID).
– Driving by larger industrial deregulation attempt in 1980s
– Main objective to end the monopoly of state-owned electric utility,
introducing market-oriented industrial structure, creation of
electricity market, facilitation for private investment.
• ESR getting more momentum after the economic crisis in 1997
– economic stabilization loans from WB and IMF string attached to
the conditionality to do reform (deregulation and privatization) of
electricity and oil and gas sector.
– Asian Development Bank (ADB) and USAID assisted the policy
formulation for the Power Sector Reform (PSR) and drafted the draft
of the law.
Electricity Sector Reform (ESR) in Indonesia (2)
• Element of Proposed Reform (1998 White Paper and Electricity Law
No. 20/2002):
– Separation of PLN’s asset in Java-Bali and non-Java Bali.
• Java & Bali system accounted of 75% of energy sold by PLN and more mature
infrastructure.
– Unbundling of the PLN into generation, transmission and distribution
companies;
• Later, privatization of unbundled companies.
– Separation of Government policy-making and regulatory function for
electricity sector.
• Establishment of electricity market regulatory body.
– Establishment of electricity market (power pool) in Java-Bali system.
– Rationalization of Independent Power Producers (IPP).
• Estimated cost to complete the overall reform program was
estimated around US$ 4-5 billion.
Electricity Sector Reform (ESR) in Indonesia (3)
• Civil Society Organization and Labor Union
took the 2002 Electricity Law to the
Constitutional Court in 2003.
– The Electricity Law were revoked by the
Constitutional Court in 2004, practically ending
the “Electricity Sector Restructuring” Program.
Why Civil Society opposing the 2002 Power
Sector Reform (PSR)?
• Externally driven by IFIs and Western Donor Institutions that
is seen as the instrument to serve “capitalist interests.”
• The Reform package perceived as a program that only
promote and facilitate private interest and very narrow to
the financial issue of the sector, instead of taking into
account a wider public interest.
• The reform package missed to address the need to secure
the electricity service provision for the people that is
affordable and reliable.
– “State responsibility vs. Private profit”
Why Civil Society opposing the 2002 Power
Sector Reform (PSR)?
• The design of PSR and the formulation of 2002 Law were lack with civil
society and consumer participation in the first place.
– Process did not well communicate, information and document were
hard to obtain;
– Impact of reform did not well assessed and properly addressed in the
proposed electricity law.
Failing Reform
• Government failed to define and implement PSR the
electricity law revoked by the Constitutional Court:
– The Electricity Law is passed without sufficient public
consultation or taking into account public concern.
– Doubt over the implementation of the electricity law to address
concern over electricity supply.
– Failed to establish independent regulatory body to oversight
PLN and private utilities.
– Electricity subsidy remaining high in the last 5 years ( average
about $ 6 to 8 billion/year).
– Despite the Electricity Law intends to stripped PLN’s monopoly
power, in practice PLN has given more role (i.e. purchase
renewable electricity from small-hydro and geothermal).
Lesson Learn of Designing and Implementing the
Electricity Sector Reform (1)
• Electricity sector reform is a complex matter.
– Require wider institutional reform before overall electricity
reform take place.
• Defining the definition and scope of Electricity Sector
Reform
– Citizen-oriented electricity sector reform
– Reform should not always ended up in privatization and
increasing in electricity tariff.
– Reform shall be contextualized in the situation of countries
(political, economic development, state of electricity
industry, etc).
– Assessing impact, cost, and unintended consequences
Lesson Learn of Designing and Implementing the
Electricity Sector Reform (2)
• Address civil society and consumer
concerns/issues since the beginning while
developing the reform agenda.
– Creating platform and process for public
participation and mechanism for consultation.
– Require strong and knowledgeable civil society
organizations to be participated effectively.
Conclusion
• Power sector is critical and important in
developing countries context and subject to
political struggle.
• Indonesia PSR failure caused by many factors, in
addition to the complexity of the reform itself.
• Power Sector Reform requires wide-range reform
in energy sector and public sector.
• Creating a platform for dialogue, clear and
transparent mechanism for public consultation is
a prerequisite condition toward a “citizenoriented power sector reform.“
[email protected] website: www.iesr-indonesia.org
THANK YOU