49787 v2 ELECTRICITY FOR ALL: Options for Increasing Access in Indonesia Energy and Mining Sector Unit Infrastructure Department East Asia and Pacific Region ELECTRICITY FOR ALL: Options for Increasing Access in Indonesia Energy and Mining Unit Infrastructure Department Electricity for All Options for Increasing Access in Indonesia iv FOREWORD Electricity for All: Options for Increasing Access in Indonesia Junhui Wu Andrew Steer Energy and Mining Unit The World Bank v Electricity for All Options for Increasing Access in Indonesia ACKNOWLEDGEMENT on Electricity for All: Options for Increasing Access in Indonesia vi GLOSSARY OF TERMS Enterprises MW MWe MoU Memorandum of Understanding PP PPA PT Program HPP IDA IPP of Indonesia The World Bank vii Electricity for All Options for Increasing Access in Indonesia TABLE OF CONTENTS FOREWORD 6. ENHANCED ELECTRIFICATION MODELS ACKNOWLEDGEMENT GLOSSARY OF TERMS TABLE OF CONTENTS EXECUTIVE SUMMARY 1. INTRODUCTION 7. CONCLUSION AND WAY FORWARD 2. PREVAILING CONDITIONS FOR ELECTRIFICATION IN INDONESIA ANNEX 1 ANNEX 2 ANNEX 3 ANNEX 4 ANNEX 5 ANNEX 6 ANNEX 7 BIBLIOGRAPHY 3. BARRIERS THAT IMPEDE PROGRESS LIST OF TABLES Indonesia 4. FRAMEWORK FOR SOLUTIONS 5. COMMON SOLUTIONS APPLICABLE TO ENHANCED ELECTRIFICATION MODELS viii Across Indonesia Indonesia LIST OF BOXES LIST OF FIGURES Target Action The World Bank ix Electricity for All Options for Increasing Access in Indonesia x EXECUTIVE SUMMARY Over 70 million Indonesians are estimated to be Outside of Java-Bali, the current universal tariff structure (TDL) When the PLN does not invest in Java-Bali The majority of new connections needed are outside of Java-Bali one The World Bank xi Electricity for All Options for Increasing Access in Indonesia PROPOSED SOLUTIONS AnEnhancedUtilityOption(PLNSubsidiaryModel) While the current institutional framework is not ideal Indonesian law does not allow xii THE WAY FORWARD electricityforallinIndonesia. The World Bank xiii Electricity for All Options for Increasing Access in Indonesia Barrier Enhanced Utility (PLN) Model (BUMD/BLU) Model National tariff does A consumer not cover costs of service in un- Y PLN has limited VER incentive to further performance by encouraging innovate and cut costs RECO COST Absence of a reliable and effective subsidy mechanism Lack of access to · FINANCING · to new entrants Limited entry into LEADERSHIP todiscrimination towards embedded Absence of SECTOR standard institutional PUBLIC Weakinstitutional assistance level xiv Chapter 1 Introduction The World Bank 1 Electricity for All Options for Increasing Access in Indonesia Table 1.1 Electrification Rate by Major Island (2004) Figure 1.1 Achieving the 2020 Access Target 86 218 245 59 48 28 61 15 6 33 54 22 1 Table 1.2 Electricity Access in Indonesia 2 Chapter 1 Introduction · · Box 1.1 What is the True Electrification Rate in Indonesia? · · * Governance and Decentralization Survey, The World Bank, 2004. ** The results in some regions were extrapolated due to a lack of data. The World Bank 3 Electricity for All Options for Increasing Access in Indonesia 4 Chapter 2 Prevailing Conditions for Electrification in Indonesia The World Bank 5 Electricity for All Options for Increasing Access in Indonesia LEGAL AND REGULATORY Figure 2.1 Related Electricity Laws and Regulations in Indonesia FRAMEWORK The legal and regulatory framework that governs the electricity sector in Indonesia is presently in 2 Electricity Business Authority (PKUK)3 6 Chapter 2 Prevailing Conditions for Electrification in Indonesia Electricity Business License for Self Provision ElectricityBusinessLicenseforPublicProvision (IUKKS) (IUKKU) Box 2.1 The Electricity Law is Annulled! Table 2.1 Authority for Granting Licenses and Setting Tariffs INSTITUTIONAL SET-UP FOR ELECTRIFICATION facilitate the numerous actors and stakeholders needed for effective service provision The World Bank 7 Electricity for All Options for Increasing Access in Indonesia TheGovernment The Government currently plays a major role through policy formulation, planning, and regulation 4 8 5 6 9 TheElectricityBusinessAuthority-PLN PLN remains the largest electricity service provider in Indonesia, a fact that must be taken 8 Chapter 2 Prevailing Conditions for Electrification in Indonesia Rural areas do pose an added challenge for target,especiallyoutsideJava-Baliduetoamoney losing operation 11 Figure 2.2 PLN Rural Electrification Expansion Table 2.2 PLN Expansion of Connections Source: PLN Statistic, 1999-2002 ThePrivateSector The private sector plays several important roles in supporting electricity provision in Indonesia Source: PLN Statistics 2001, 2002, 2003; PLN RPTL 2004 11 The World Bank 9 Electricity for All Options for Increasing Access in Indonesia 16 ELECTRICITY PRICING & TARIFFS transmission network and PLN are not subject to the universal tariff The Government applies a universal tariff (TDL) structure irrespective of the varying cost associated with providing electricity in different regions of the country 12 18 Figure 2.3 PLN's Sales Revenues and Costs of Supply by Region (in US cents) Java 6.72 13 6.69 Bali 7.63 6.71 7.28 North Sumatra 6.92 West Sumatra 6.86 7.5 Riau 7.46 14 9.09 Batam 8.65 8.59 Southern Sumatra 7.37 7.99 Lampung 7.38 7.53 7.48 West Kalimantan 13.45 7.14 South & Central Kalimantan 8.92 7.2 East Kalimantan 9.33 7.68 North & Central Sulawesi 10.72 7.3 South Southeast Sulawesi 8.39 West Nusa Tenggara 6.93 11.48 7.83 East Nusa Tenggara 15.28 Maluku 7.53 17.27 Papua 8.07 15.82 Revenue includes electricity sales revenue, and subsidy, consumer connection fee 15 and other operating revenue Cost consists of fuel, power purchase, personnel, depreciation and other operating expenses 10 Chapter 2 Prevailing Conditions for Electrification in Indonesia The cost of obtaining an electricity connection access, especially in poorer areas Table 2.4 Estimated Need for Public and Private Financing FINANCING NEEDS AND SOURCES target is substantial and a combination of is expected to be less than 15%. An optimistic scenario assumes a concessions in the more well-to-do rural areas may net up to 25% private capital ** Based on likely private participation SUBSIDIES THAT IMPACT THE ELECTRICITY SECTOR Subsidies that impact the electricity sector can be better targeted to help the poor and enhanced to leverage additional investments in service coverage Table 2.3 Funding Need for Increasing Electricity Access ** estimate based on government target to achieve 90% electricity access by year 2020 The World Bank 11 Electricity for All Options for Increasing Access in Indonesia 19 23 HOUSEHOLD EXPENDITURE PROFILE There is considerable demographic variation consideration when developing policies for cost recovery 21 22 12 Chapter 2 Prevailing Conditions for Electrification in Indonesia Table 2.5 Household Expenditure Across Indonesia POTENTIAL FOR UTILIZING INDIGENOUS RESOURCES Utilizing indigenous resources may help open avenues for new power supplies outside Java-Bali and reduce costs 51 21 22 15 16 16 15 25 16 18 36 21 39 23 21 15 26 16 21 15 35 21 13 25 11 25 14 12 21 14 18 12 21 14 14 29 14 11 19 14 16 12 23 12 21 12 31 16 22 12 19 19 28 19 11 24 36 22 21 15 19 21 14 25 16 19 12 26 14 13 24 15 22 13 12 15 12 Table 2.6 Energy Resource Potential in Indonesia 6 165 54 226 425 Source: BPS, Susenas 2002, 2003; www.depdagri.go.id, 2005 24 645 292 1 142 64 24 2 * total geothermal potential: installed, reserve, and resources for electricity is around 20,000 MW Source: DESDM, RUKN (National Electricity Master Plan), 2004 The World Bank 13 Electricity for All Options for Increasing Access in Indonesia 14 Chapter 3 Barriers that Impede Progress The World Bank 15 Electricity for All Options for Increasing Access in Indonesia INEFFECTIVE PUBLIC Ineffective institutional arrangements and coordination SECTOR INITIATIVE Lackofstrongpublicsectorleadership Box 3.1 Licenses for Electrification do not Provide Exclusive Rights 16 Chapter 3 Barriers That Impede Progress The universal tariff that PLN is obliged to apply acrossthecountrycreatesdisincentivestoelectrify un-servedruralhouseholds Box 3.2 The Uncertainty for Small-Scale Renewable Energy Producers PLN is under little pressure to reduce costs or to COST RECOVERY PRINCIPLE Absence of a reliable and effective mechanism IS NOT FOLLOWED for providing subsidies to customers that truly need them The World Bank 17 Electricity for All Options for Increasing Access in Indonesia INSUFFICIENT AVAILABILITY OF SUSTAINABLE FINANCING Box 3.3 Roles of Financing and Subsidy 18 Chapter 4 Framework for Solutions The World Bank 19 Electricity for All Options for Increasing Access in Indonesia · · · · Figure 4.1 Key Areas for Government Action Financing Subsidy Technical assistance Standard Tariff setting stuctures and Minimizing procedures costs electricity connections 26 25 20 Chapter 4 Framework for Solutions tariffs towards greater cost recovery 28 Fifth, it will be necessary to develop standard legal and procedural structures to reduce the costs of putting new solutions together Third, it will be important to develop an effective subsidy mechanism Fourth, it will be necessary to address the The World Bank 21 Electricity for All Options for Increasing Access in Indonesia Finally, bringing all these strands together will organizing advice and technical assistance enabling framework enhancedmodels 22 Chapter 5 Common Solutions Applicable to Enhanced Electrification Models The World Bank 23 Electricity for All Options for Increasing Access in Indonesia Financing support · Bridging the gap between revenues and costs · Technical support FINANCING SUPPORT Box 5.1 Partial Credit Risk Guarantee for Electricity Cooperatives in the Philippines · Credit enhancemen · Soft lending facilities Source:ProjectAppraisalDocumentonProposedGlobalEnvironmentFacilityTrust Fund Grant in the amount of US$11 Million to the Republic of the Philippines 24 Chapter 5 Common Solution Applicable to Enhanced Electrification Models Figure 5.1 Options for Providing Financing Support Box 5.2 Kredit Listrik Perdesaan (Rural Electricity Credit) The World Bank 25 Electricity for All Options for Increasing Access in Indonesia Box 5.3 Legal Background for On-Lending to Local Governments · SUBSIDIES · · 26 Chapter 5 Common Solution Applicable to Enhanced Electrification Models Figure 5.2 Framework for Subsidies 29 · · The World Bank 27 Electricity for All Options for Increasing Access in Indonesia Box 5.4 Rural Electrification Subsidies in Chile Alejandro Jadresic, Viewpoint, the World Bank. Note No. 214, June 2000. 28 Chapter 5 Common Solution Applicable to Enhanced Electrification Models TECHNICAL ASSISTANCE Table 5.1 Stages of New Electrification Projects Task Result Payment · The World Bank 29 Electricity for All Options for Increasing Access in Indonesia · · IMPLEMENTATION · · 30 Chapter 6 Enhanced Electrification Models The World Bank 31 Electricity for All Options for Increasing Access in Indonesia KEY DESIGN PRINCIPLES · Figure 6.1 Menu of Institutional Models · · · · PHOTOVOLTAIC SOLUTIONS 32 Chapter 6 Enhanced Electrification Models ENHANCED UTILITY MODEL The World Bank 33 Electricity for All Options for Increasing Access in Indonesia · 32 InstitutionalandContractualStructure Figure 6.2 Structure of Enhanced Utility Model (PLN Subsidiary 31 Model) · · 34 Chapter 6 Enhanced Electrification Models · Box 6.1 Applying a Regional Electricity Tariff in Batam, Indonesia The World Bank 35 Electricity for All Options for Increasing Access in Indonesia Regulation Financing 36 Chapter 6 Enhanced Electrification Models ApplicabilityandPotentialImpact Table 6.1 Example of Contents of a License · The World Bank 37 Electricity for All Options for Increasing Access in Indonesia · · Box 6.2 A Public Utility Solution in Thailand 38 Chapter 6 Enhanced Electrification Models Examples ImplementationPlan Figure 6.3 East Kalimantan Region Samarinda Balikpapan The World Bank 39 Electricity for All Options for Increasing Access in Indonesia DECENTRALIZED ELECTRIFICATION MODEL · 33 40 Chapter 6 Enhanced Electrification Models Figure 6.4 Structure of Decentralized Electrification Model Figure 6.5 Contract Structure for the Decentralized (BUMD/BLU Model) Electrification Model BUMD /BLU BUMD/BLU Note: The responsibilities indicated in the above table apply for a Design, Build, Operate, Lease type contract in which the BUMD/BLU is providing all the capital to fund the system · InstitutionalandContractualStructure · · · · · The World Bank 41 Electricity for All Options for Increasing Access in Indonesia Table 6.2 Indicative Responsibilities and Rights of BUMD/ BLU and Service Provider Note: The responsibilities indicated in the above table apply for a Design, Build, Operate, Lease type contract in which the BUMD/BLU is providing all the capital to fund the system Figure 6.6 Cash Inflows and Outflows for the BUMD/BLU BUMD /BLU Regulation 42 Chapter 6 Enhanced Electrification Models Box 6.3 From Centralized Planning to Decentralized Electricity Distribution in Mexico The World Bank 43 Electricity for All Options for Increasing Access in Indonesia Financing · "Lease" Box 6.4 A Public-Private Partnership for Increasing Access in Berau Indonesia 44 Chapter 6 Enhanced Electrification Models ApplicabilityandPotentialImpact "Concession" Figure 6.7 Concession Model Competitive Selection Process BUMD Lowest Cost Tariff (TCT) /BLU The World Bank 45 Electricity for All Options for Increasing Access in Indonesia · Examples ImplementationPlan 46 Chapter 6 Enhanced Electrification Models Figure 6.8 Map of South Sumatra Palembang · · COOPERATIVE MODEL The World Bank 47 Electricity for All Options for Increasing Access in Indonesia Table 6.3 Indicative Responsibilities and Rights of Cooperative and Service Provider InstitutionalandContractualStructure Figure 6.9 Structure of Consumer Cooperative Model Figure 6.10 Service Provider Cash Flows 48 Chapter 6 Enhanced Electrification Models Regulation Box 6.5 KLP Sinar Rinjani - A Rural Electricity Cooperative in Indonesia The World Bank 49 Electricity for All Options for Increasing Access in Indonesia Box 6.6 Rural Electricity Cooperatives Provides Access to Poor in Bangladesh 50 Chapter 6 Enhanced Electrification Models Figure 6.11 Producer Cooperative Model Typesofcooperative · Financing ApplicabilityandPotentialImpact The World Bank 51 Electricity for All Options for Increasing Access in Indonesia ImplementationPlan Examples RisksandMitigation Table 6.4 Perceived Risks and Proposed Mitigation Mechanisms 52 Chapter 6 Enhanced Electrification Models Box 6.7 Integrated Rural Development and Electrification in Tunisia The World Bank 53 Electricity for All Options for Increasing Access in Indonesia 54 Chapter 7 Conclusion and Way Forward The World Bank 55 Electricity for All Options for Increasing Access in Indonesia enabling environment · · · · · · · · · · · 56 Chapter 7 Conclusion and Way Forward · · · · · · · · electricityforallinIndonesia The World Bank 57 Electricity for All Options for Increasing Access in Indonesia 58 Annexes The World Bank 59 Electricity for All Options for Increasing Access in Indonesia ANNEX 1. REGIONAL PROFILES Province Population Gross Real Number of Number of Governance (Million) Regional Domestic households Rate (%) villages Rating* Product / Capita (Million) (Thousand) (IDR Million) 53 Source: BPS 2004; (except for Governance Rating) *KPPOD 2003 60 ANNEX 2. POTENTIAL ENERGY RESOUCES Province Hydro Geothermal Biomass Biogas Wind Photovoltalic Coal Peat Natural Oil MW Mwe MW MW m/s MToE MJ Gas MToE day MToE 5 1 43 3 4 236 13 3 485 26 4 485 9 4 1 9 4 21 355 9 485 9 4 13 2 5 5 5 16 868 285 2 4 2 614 63 3 5 2 654 126 4 4 3 99 3 286 9 295 19 26 815 16 51 1 Source: Master Plan Renewable Energy (RIPEBAT) 1997, National Electricity Plan 2004 (RUKN) 2004 The World Bank 61 Electricity for All Options for Increasing Access in Indonesia ANNEX 3. COMPARISON OF ELECTRICITY LAWS Issues Basic Philosophy Institutional Set-Up The Constitutional Court convinced by the statement made by Dr. fathers of the nation) on the interpretation of Article 33, that the increase share of ownership in any business that are vital to people's livelihood, and eventually will replace the position of private companies (local and foreign) which have been in the business. Thus, Constitutional Court considered that Article 16 (unbundling), Although this provision seems to provide an entry point article 17 (competition, market domination prohibition), and article for the participation of cooperative and business entities 68 (transition of PKUK holder, authority as the only electricity to conduct electricity provision business, the license does not necessarily provide exclusive concession in the the State Constitution article 33 paragraph 2. targeted area of operation. There is also potentially unfair competition with PLN that receives government incentives on its operation. 62 Issues There was also no clarity on the implementation of this obligation, the budget allocation and distribution between Central and Regional Government as well as the mechanism on reward and punishment However there is no detailed implementation or action for this responsibility, including any mechanism on reward and punishment. Private Sector/ Community Role and License License for self-use electricity provision can be granted if PLN or PIUKK is not present in the area, or if their services are not reliable or less economical than what can be produced by PIUKKS. This provision can be depredating towards PLN as PKUK, especially if the government subsidies are no longer available. Unlike for IUKKS, there is no clarity on the circumstances where IUKKU can be granted and how it relates with PLN role as PKUK. The World Bank 63 Electricity for All Options for Increasing Access in Indonesia Issues of the Electricity Provision Business Competition Issues Subsidy Tariff 64 ANNEX 4. KEY AUTHORITY IN · ELECTRICITY UNDER PRESENT LAWS AND REGULATIONS · CentralGovernment · · · · · · 1 · · 2 4 · · · 3 5 · The World Bank 65 Electricity for All Options for Increasing Access in Indonesia RegionalGovernment · 13 6 · · · · 8 9 · 11 · 12 66 ANNEX 5. ROLE OF GOVERNMENT INSTITUTIONS IN ELECTRIFICATION Government Policy makers and Authority on Electricity Sector Facilitators Operators Institution Regulation The World Bank 67 Electricity for All Options for Increasing Access in Indonesia ANNEX 6. PLN TARIFF CLASSIFICATIONS No. Tariff Category LV/MV/HV Power Limit (Kva) Remarks Note: LV: Low Voltage MV: Medium Voltage HV: High Voltage 68 ANNEX 7. PLN TARIFF SCHEDULE ELECTRICITY TARIFF FOR SOCIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 2 123 265 3 295 4 335 5 6 ELECTRICITY TARIFF FOR HOUSEHOLD/RESIDENTIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 169 495 2 445 495 3 385 445 495 4 445 495 5 6 621 The World Bank 69 Electricity for All Options for Increasing Access in Indonesia ELECTRICITY TARIFF FOR BUSINESS CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 254 2 465 3 >146 4 >264 518 5 545 6 452 ELECTRICITY TARIFF FOR INDUSTRIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 395 2 315 3 4 455 >196 5 455 6 439 439 8 434 70 ELECTRICITY TARIFF FOR PUBLIC OFFICE & STREET LIGHTENING CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 2 3 4 5 6 635 ELECTRICITY TARIFF FOR NATIONAL TRAIN COMPANY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 ELECTRICITY TARIFF FOR BULK CONSUMPTION No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 ELECTRICITY TARIFF FOR BULK MULTIPURPOSES No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) 1 The World Bank 71 Electricity for All Options for Increasing Access in Indonesia BIBLIOGRAPHY 72 The World Bank 73 Electricity for All Options for Increasing Access in Indonesia 74