51380 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 East Asia and Pacific Region Electricity for All Options for Increasing Access in Indonesia THE WORLD BANK OFFICE JAKARTA Jakarta Stock Exchange Building Tower II/12th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000. Fax: (6221) 5299-3111. Website: www.worldbank.or.id THE WORLD BANK 1818 H Street N.W. Washington, D.C. 20433, U.S.A. Tel: (202) 458-1876. Fax: (202) 522-1557/1560. Email: feedback@worldbank.org Website: www.worldbank.org A copublication of the World Bank East-Asia and Pacific Region Energy and Mining Unit and Indonesia Country Program Printed in December 2005 This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning. The legal status of any territory or the endorsement or acceptance of such boundaries. iv FOREWORD Indonesia's commitment to reform is continuing to accelerate economic growth, yet a staggering one third of its people live without access to electricity. It is difficult to imagine sustaining the current 6 percent economic growth rate if such large numbers of people are left behind and cannot enjoy the fruits of this prosperity. The Indonesian Government has recognized this problem and aims to provide electricity access to 90% of the population by 2020, a worthy goal which the World Bank strongly supports. At the request of the Government, this report, Electricity for All: Options for Increasing Access in Indonesia, was developed to provide some practical solutions by which Indonesia could reach their highly ambitious, yet achievable goal. The following report was developed to initiate a dialogue to further the discussion on increasing electricity access in Indonesia. It identifies the critical barriers that currently prevent electrification expansion at levels necessary to meet the Government's objective and articulates why business as usual will not suffice. Thereafter, the report proposes a number of policy improvements that would enhance the current enabling framework for electrification. At the heart of this report are several proposals for enhanced electrification models that can be implemented even under the present policy framework, although chances of success would be far greater should the recommended reforms occur. These electrification models bring to bear the best international experiences, yet are customized for application in the Indonesian context. Each option illustrates in detail the financing options, cost recovery aspects, and the institutional mechanisms that are necessary for implementation. They are also designed to take advantage of the recent decentralized governance structure in Indonesia, where sub-national governments are increasingly taking greater responsibility for providing services, including electricity, for their people. If you are interested in a practical set of options to tackle the electrification challenge in Indonesia, we recommend that you read this report. If you are willing to champion the cause of greater electrification to improve the lives of Indonesians, then the World Bank stands ready and committed to support this effort. Junhui Wu Andrew Steer Sector Manager Country Director for Indonesia Energy and Mining Unit The World Bank Office Jakarta East Asia and Pacific Region The World Bank v Electricity for All Options for Increasing Access in Indonesia ACKNOWLEDGEMENT This report was prepared by a team led by Migara Jayawardena and consisting of Leiping Wang, Eka Putra, Alex Sundakov, Helianti Hilman, Alfonzo Guzman, Sati Bur Rasuanto, Rod Barfield, and Lolo Panggabean. The report was prepared under the overall guidance of Junhui Wu, Sector Manager and Noureddine Berrah, Cluster Leader for Indonesia, both from the Energy and Mining Sector Unit of the East Asia Pacific Infrastructure Department of the World Bank, and Andrew Steer, World Bank Country Director for Indonesia. This report was developed in close collaboration with the Ministry of Energy and Mineral Resources (MEMR) and the Indonesian State Electricity Company (PLN). Yogo Pratomo, Director General for Electricity and Energy Utilization and Emy Perdanahari, Director for Electricity Program Supervision initially requested the analysis and provided guidance throughout the development process. From PLN, Parno Isworo, Director of Finance, and Herman Darnel, Director of Transmission and Distribution provided critical input and advice that advanced the development of this analysis. The work in this report also benefited from the advice and guidance from an array of reviewers and contributors including Mohamad Ikhsan, Stephen Mink, and Anil Cabraal (as peer reviewers), Jamal Saghir, Robert Taylor, Hung Tien Van, Jianping Zhao, Ximing Peng, Ton de Wilde, William Wallace, Michel Kerf, Ani Dasgupta, Jan Drozdz, Rahul Raturi, Pawan Patil, Shobha Shetty, Mohamad Al-Arief, Raihan Elahi, Joseph Wright, Neil McCulloch, Suyono Dikun, Made Astawa Rai, Imron Bulkin, Gumilang Hardjakoesoema, Ratna Ariati, Jarman, Eddy Satria, Bambang Hermawanto, Benhur Tobing, Syamsidar Thamrin, Suermi Laila Hanafiah, Indarti, Marwan Saragih, Syaiful Bahri, Abdul Gafar, Suroso Sastrosuwito, Nina Natalia and Salahudin. Logistical, editorial, and production support was provided by Julia Hanniawaty, Indra Irnawan, Terri Velilla, Carla Sarmiento, Maya Augustin, and Silvia Yulianti. The work in the report was considerably enhanced through visits to a number of regions in Indonesia. The team appreciates the collaborative spirit and the hospitality provided by officials during visits to Batam, South Sumatra, West Nusa Tenggara, and East Kalimantan. Additionally, the report gained from a regional country study tour which was attended by a number of government officials including from the Ministries of Energy and Mineral Resources, Finance, Planning, Underdeveloped Regions, State-Owned Enterprises, and also from PLN. The analysis also benefited from the comments and discussions from the Seminar on Electricity for All: Options for Increasing Access in Indonesia, held on October 25, 2005, in Jakarta, Indonesia. Financial support from the Asia Alternative Energy Program (ASTAE) is gratefully acknowledged. vi GLOSSARY OF TERMS ADB Asian Development Bank MoCSME Ministry of Cooperative and Small Medium ASKRINDO Credit Guarantee Facility Enterprises BAPPENAS National Planning Development Agency MoF Ministry of Finance BI Central Bank of Indonesia MoMAF Ministry of Marine Affairs and Fisheries BLU Public Service Enterprise MW Megawatt BPPT Agency for the Assessment and Application MWe Megawatt Equivalent of Technology MoU Memorandum of Understanding BPS National Statistics Agency NGO Non-Government Organization BRI Bank Rakyat Indonesia PP Government Regulation BUMD Local Government-Owned Enterprise PIUKKU Holder of Electricity Business License for BUMN State-Owned Enterprise Public Use DESDM Department of Energy and Mineral PIUKKS Holder of Electricity Business License for Resources Self-Use DGEEU Directorate General of Electricity and Energy PKUK Electricity Business Authority Utilization PLN the Indonesian State Electricity Company DBOL Design, Build, Operate, Lease PLTMH Micro Hydro Generation Plant DBOOT Design-Built-Own-Operate-Transfer PODES Village Potential Survey DISCOS Distribution Companies PPA Power Purchase Agreement DJLPE Directorate General of Electricity and Energy PPIAF Public-Private Infrastructure Advisory Facility Utilization PT Limited Liability Company ESMAP Energy Sector Management Assistance PRC Poverty Reduction Committee Program PV Photovoltaic GEF Global Environment Facility RPTL National Electricity Generation Plan GOI Government of Indonesia RUKN National Electricity Master Plan HPP the Indonesian State Electricity Company Basic Cost of Supply RECU Rural Electrification Coordinating Unit IDA International Development Association RPI Retail Price Index IDR Indonesia Rupiah SHS Solar Home System IFI International Financial Institutions SDSE Sub Directorate of Social Electricity IPP Independent Power Producer SUSENAS National Census of Social and Economy IUKKU Electricity Business License for Public-Use SOE State-Owned Enterprise IUKKS Electricity Business License for Self-Use TCF Trillion Cubic Feet JV Joint Venture TDL National Electricity Tariff KEPMEN Ministerial Decree TSCF Trillion Standard Cubic Feet KEPPRES Presidential Decree USAID United States Agency for International Development KPPOD Local Autonomy Watch VA Volt Ampere LGUGC Local Government Unit Guarantee Corporation WB The World Bank LPEM - Economic Research Center of the University YBUL NGO working in Indonesia energy sector FEUI of Indonesia MEMR Ministry of Energy and Mineral Resources The World Bank vii Electricity for All Options for Increasing Access in Indonesia TABLE OF CONTENTS FOREWORD v 6. ENHANCED ELECTRIFICATION MODELS 31 ACKNOWLEDGEMENT vi Key Design Principles 32 GLOSSARY OF TERMS vii Photovoltaic Solutions 32 TABLE OF CONTENTS ix Enhanced Utility Model 33 EXECUTIVE SUMMARY xi Decentralized Electrification Model 40 Cooperative Model 47 1. INTRODUCTION 1 7. CONCLUSION AND WAY FORWARD 55 2. PREVAILING CONDITIONS FOR 5 ELECTRIFICATION IN INDONESIA ANNEX 1: Regional Profiles 60 Legal And Regulatory Framework 6 ANNEX 2: Potential Energy Resources 61 Institutional Set-up For Electrification 8 ANNEX 3: Comparison of Electricity Laws 62 Electricity Pricing & Tariffs 10 ANNEX 4: Key Authority in Electricity Under 65 Financing Needs And Sources 11 Present Laws and Regulations Subsidies That Impact The Electricity 11 ANNEX 5: Role of Government Institutions in 67 Sector Electrification Household Expenditure Profile 12 ANNEX 6: PLN Tariff Classification 68 Potential For Utilizing Indigenous 13 ANNEX 7: PLN Tariff Schedule 69 Resources BIBLIOGRAPHY 72 3. BARRIERS THAT IMPEDE PROGRESS 15 Ineffective Public Sector Initiative 16 Cost Recovery Principle Not Being 17 LIST OF TABLES Followed Table 1.1 Electrification Rate by Major 2 Insufficient Availability Of Sustainable 18 Financing Island (2004) Table 1.2 Electricity Access in 2 Indonesia 4. FRAMEWORK FOR SOLUTIONS 19 Table 2.1 Authority for Granting 7 Licenses and Setting Tariffs 5. COMMON SOLUTIONS APPLICABLE TO 23 Table 2.2 PLN Expansion of 9 ENHANCED ELECTRIFICATION MODELS Connections Financing Support 24 Table 2.3 Funding Need for Increasing 11 Subsidies 26 Electricity Access Technical Assistance 29 Table 2.4 Estimated Need for Public 11 Implementation 30 and Private Financing viii Table 2.5 Household Expenditure 13 Figure 6.9 Structure of Consumer 48 Across Indonesia Cooperative Model Table 2.6 Energy Resource Potential in 13 Figure 6.10 Service Provider Cash 48 Indonesia Flows Table 5.1 Stages of New Electrification 29 Figure 6.11 Producer Cooperative 51 Projects Model Table 6.1 Example of Contents of a 37 License Table 6.2 Indicative Responsibilities 42 LIST OF BOXES and Rights of BUMD/BLU and Service Box 1.1 What is the True Electrification 3 Provider Rate in Indonesia? Table 6.3 Indicative Responsibilities 48 Box 2.1 The Electricity Law is Annulled! 7 and Rights of Cooperative and Service Box 3.1 Licenses for Electrification do 16 Provider not Provide Exclusive Rights Table 6.4 Perceived Risks and 52 Box 3.2 The Uncertainty for Small-Scale 17 Proposed Mitigation Mechanisms Renewable Energy Producers Box 3.3 Roles of Financing and Subsidy 18 Box 5.1 Partial Credit Risk Guarantee 24 LIST OF FIGURES for Electricity Cooperatives in the Figure 1.1 Achieving the 2020 Access 2 Philippines Target Box 5.2 Kredit Listrik Perdesaan (Rural 25 Figure 2.1 Related Electricity Laws and 6 Electricity Credit) Regulations in Indonesia Box 5.3 Legal Background for On- 26 Figure 2.2 PLN Rural Electrification 9 Lending to Local Governments Expansion Box 5.4 Rural Electrification Subsidies 28 Figure 2.3 PLN's Sales Revenues and 10 in Chile Costs of Supply by Region (in US cents) Box 6.1 Applying a Regional Electricity 35 Figure 4.1 Key Areas for Government 20 Tariff in Batam, Indonesia Action Box 6.2 A Public Utility Solution in 38 Figure 5.1 Options for Providing 25 Thailand Financing Support Box 6.3 From Centralized Planning to 43 Figure 5.2 Framework for Subsidies 27 Decentralized Electricity Distribution in Figure 6.1 Menu of Institutional Models 32 Mexico Figure 6.2 Structure of Enhanced Utility 34 Box 6.4 A Public-Private Partnership for 44 Model (PLN Subsidiary Model) Increasing Access in Berau Indonesia Figure 6.3 East Kalimantan Region 39 Box 6.5 KLP Sinar Rinjani - A Rural 49 Electricity Cooperative in Indonesia Figure 6.4 Structure of Decentralized 41 Electrification Model (BUMD/BLU Box 6.6 Rural Electricity Cooperatives 50 Model) Provides Access to Poor in Bangladesh Figure 6.5 Contract Structure for the 41 Box 6.7 Integrated Rural Development 53 Decentralized Electrification Model and Electrification in Tunisia Figure 6.6 Cash Inflows and Outflows 42 for the BUMD/BLU Figure 6.7 Concession Model 45 Figure 6.8 Map of South Sumatra 47 The World Bank ix Electricity for All Options for Increasing Access in Indonesia x EXECUTIVE SUMMARY Over 70 million Indonesians are estimated to be unconnected to electricity. Of this number, over 80% live in rural areas and over half live outside of the dominant economic centers of Java-Bali. Given that 3 out of 4 Indonesian poor live in the countryside and outlying islands, rural electrification is a regressive problem as much about poverty as infrastructure. The government has responded to this problem by aiming to expand electrical access to 90% of the Indonesian population by the year 2020. To achieve the government's vision, nearly 1.3 million new connections will need to be sustained per year. Outside of Java-Bali, the current universal tariff structure (TDL) cannot provide Indonesia's national power provider, PLN, with sufficient revenue for achieving long-term financial sustainability. The TDL is a tariff structure applied only to PLN and charged irrespective of the varying costs associated with providing electricity to different regions of the country. As such, the only feasible investments for the company rest in Java-Bali where cost recovery is met given the existing level of the TDL. When the PLN does not invest in Java-Bali, it focuses on loss minimization as opposed to access maximization. With tariff income providing a limited cost recovery, the impetus to engage in socially responsible regional electrification becomes constrained by economic infeasibility as well as weak institutional leadership and limited access to financing. For example, PLN's expansion into Sumatra, on average, has been almost twice that of the other islands since that is where it experiences the least shortfall outside of Java-Bali. Sumatra's lack of profitability, however, underscores PLN's engagement in loss minimizing investment. The majority of new connections needed are outside of Java-Bali. However, in the absence of an adequate combination of price flexibility and subsidy, the PLN has little incentive for such expansion, especially in rural areas. Therefore, a set of alternative electrification options are needed to achieve the 2020 GOI target. Rural electrification poses added challenges given the potential difficulty in cost recovery and the reluctance on the part of private financiers to engage in unfamiliar schemes. To some degree, this has led to the use of small-scale power supply schemes, such as photovoltaic (PV) or micro-hydro systems, for which it is easier to obtain financing. However, in many instances, these options fall victim to significantly higher unit costs due to a lack of economies of scale. Furthermore, even when private financing is available, this typically entails large amounts of collateral unavailable to many potential investors. Internationally, numerous countries, including many neighboring Indonesia, have transformed one small grids serving a limited urban population into large-scale national networks capable of powering an entire country. For example, Bangladesh, one of the poorest countries in the world, has managed to provide access to many in the rural populace through a system of innovative cooperatives and a strong, constitutionally-backed, national commitment to electrification. Elsewhere, through incentives and the utilization of technical expertise by their national utilities, Thailand and Vietnam have also outpaced Indonesia, developing access rates in excess of 80% for both countries. For Mexico, a combination of centralized planning and decentralized implementation has led to a near 95% electrification rate. Meanwhile, Tunisia, provides 88% of its scattered rural population and 100% of the urban population with electricity access by using a 3-pillar integrated planning solution structured around education, health and rural electrification. Finally, China, the most populous nation in the world, has achieved near universal electrification through its firm resolve towards public sector leadership in planning and effective on-the- The World Bank xi Electricity for All Options for Increasing Access in Indonesia ground implementation at a decentralized level. Common amongst all these countries is a recognition that the only way to ensure electricity for the poor and disaffected is through a socially and financially sustainable solution. Given the substantial challenges of rural electrification, small-scale electrification options can provide a marginal yet effective solution. In fact, even scattered and isolated PV and micro-hydro schemes can complement network systems when it becomes cost-prohibitive to expand to sparsely populated, rural areas. A medium-scale network solution provides a viable way forward in Indonesia, since national level solutions are stymied by political constraint and small-scale solutions are insufficient to confront the overwhelming number of unconnected. Recent decentralization activity in the energy sector provides a unique opportunity to implement a set of solutions that can work within the current laws and regulatory framework while overcoming those impediments that prevent a rapid expansion of the system at the required scale. International experience clearly suggests, however, that rural electrification programs require a strong public sector initiative combined with effective coordination, especially during its early stages. The success in implementing these options will depend critically on the central government's ability to create a well-coordinated enabling environment and the sub-national government's ability to `champion' electricity access in their communities. PROPOSED SOLUTIONS An Enhanced Utility Option (PLN Subsidiary Model) While the current institutional framework is not ideal, it does allow for the introduction of innovative solutions to expand electricity services. Among these possible solutions is one that would take advantage of the scale of PLN's operations, allowing for a PLN subsidiary to operate independently. The subsidiary would be allowed to focus on the needs of the local area, while maintaining the decision-making autonomy necessary to quickly address localized concerns. This greater flexibility would significantly enhance the efficiency of PLN. Perhaps most importantly, local branches would be able to charge differential tariffs in line with local costs. For this model to be effective, close coordination with local governments is essential, providing support for licensing, tariff implementation, and access to greater levels of financing. This type of model is currently being applied in the Indonesian districts of Batam and Tarakan. A Decentralized Electrification Option (Local Government-Owned Enterprise/Public Service Enterprise (BUMD/BLU) Model) Indonesian law does not allow for the efficient purchase of power by a local government directly from private providers. However, it can form a local government-owned enterprise (BUMD) or a public service enterprise (BLU) to act as an intermediary with providers. While this arrangement is necessary only when PLN electrical service is not available, it is particularly well suited for isolated areas, where a local government can act as a champion to the community by bringing together the necessary players as well as providing an institutional environment that protects the interest of the community. As in the model of a PLN subsidiary, an important function of the BUMD/BLU would be the local government's ability to set tariffs at a level that is suitable to local cost. Additionally, the local government would be able to encourage private participation in the BUMD/BLU through limited subsidies or facility guarantees. xii A Cooperative Option (Cooperative Model) Transforming existing cooperatives in Indonesia could utilize their current capacity for rapid growth. While there are several weaknesses in the cooperative system, it is a model that is familiar to many in Indonesia, with nearly 130,000 established cooperatives. The strength of the cooperatives lies in their ability to work closely with their members to develop services that suit local needs. However, cooperatives, especially those whose main focus is not energy, often lack the necessary technical skills for developing and running power systems. This can be resolved through the competitive procurement of a specialized power service provider, enabling the cooperative to focus on its core strengths. Moreover, in order to enhance the viability of the model, the cooperative can work closely with local governments to set tariffs and extend service to non-members at an agreed premium. THE WAY FORWARD Indonesians living outside of Java-Bali can be brought out of the dark if effective institutional arrangements are put in place to mobilize public and private resources to increase access to electricity. With local-level institutions setting tariffs sensitive to local cost and local government acting as an advocate, investment can be driven with the assurance of cost recovery. Furthermore, local government can leverage its position as a successful facilitator, coordinating investment in other public facilities and projects. At the same time, the central government, by recognizing the need for rural electricity, has made the first step towards development of a national electricity network. Doing so, it can move forward with the implementation of carefully considered electrification schemes, while clearly identifying needs in rural areas and coordinating with PLN to understand its various impediments to expansion. By working with local government, PLN, and other stakeholders, the central government can help to establish clear roles for those whose interest can move rural electrification forward. National coordination and local implementation together can provide not only the catalytic spark towards providing modern energy to regional consumers but also help sustain the drive until there is electricity for all in Indonesia. The World Bank xiii Electricity for All Options for Increasing Access in Indonesia MATRIX: Summary of Enhanced Electrification Models Application to each proposed electrification option Barrier Solution in principle Decentralized Electrification Enhanced Utility (PLN) Model Cooperative Model (BUMD/BLU) Model National tariff does Create a local entity which PLN establishes a local Local government establishes A consumer not cover costs would not be a part of the subsidiary, or a JV, which is a BUMD/BLU as a vehicle for cooperative, or a of service in un- national PLN grid, permitting it permitted to charge a separate providing power services. The producer cooperative electrified areas to charge a tariff regulated by tariff via a separate license law allows such BUMD/BLU supplying its the sub-national government issued by the sub-national to charge a separate tariff members and other government (e.g. along the lines through a separate license customers, is not of PLN Batam). issued by the sub-national required by law to government. charge the national tariff. COST RECOVERY PLN has limited Develop incentives for enhanced Local subsidiary of PLN would The BUMD/BLU should be the Cooperatives are incentive to further performance by encouraging have greater capacity to focus asset holding company, but typically focused on innovate and cut competitive procurement of on local needs. In addition, technically proficient operator local needs, but are costs private operators private sector firms could be should be competitively weak at technical competitively procured as IPPs, procured to design, build and efficiency. Private to operate the system under operate the system under a operator should lease, or under a management long-term lease. be competitively contract. procured to design, build and manage the system. Absence of a Create a subsidy mechanism at Subsidy should be applied only if the Government believes that the full cost recovery tariff reliable and the central level that is linked to would be unaffordable. At first estimate, and at full cost recovery tariffs, an average rural effective subsidy additional connections, not on- household consuming 40kWh would need to pay $6 per month. If the Government wanted mechanism going costs. Have sub-national to cap expenditures at, say $3 per month, it would need to spend $36 million per annum governments also focus on for every million households. The subsidy could be reduced over time as incomes increase providing support via effective and would be paid to operators for additional connections. subsidy mechanisms. Lack of access to Develop a credit enhancement To bridge the gap between financing options currently available in the market and the FINANCING financing sources scheme or a soft finance borrowing ability of existing or prospective electricity providers, the Government needs window specifically targeted at to take action to develop enhanced access to finance. In general, there are two types of new entities enhancements possible: · Credit guarantees. The role of credit guarantees is to replace collateral. Banks can use credit guarantees to lend to electricity service providers without adequate collateral while applying their standard lending criteria. · Soft lending facilities. The role of soft lending facilities is to enable financial institutions to increase the maturity of loans available in the market. Non-exclusive Clarify and streamline the The central government needs to take the initiative to delineate service areas and create license poses risk process for granting franchises a registry of franchises. Procedures need to be published setting out simple criteria to new entrants at the central government for entities (i.e. PLN subsidiaries, BUMD/BLU or cooperatives) to apply and receive an PUBLI C SECT OR LEADER SHIP level. Create non-overlapping exclusive franchise on the condition that the area will be served within a short and defined franchise areas. period of time. Limited entry into Improve the legal and policy Revised decrees, such as the PSK Tersebar that is intended to increase renewable energy small scale power framework so investors have development for supply to the grid, will engage private producers to generate power to generation due incentive to generate and sell be sold to the grid under any of the three proposed models. Adequate generation will be to discrimination power to the grid. essential for service expansion, and private participation will not only bring about greater towards embedded efficiency, but also reduce the need for up-front public financing. generators Absence of Develop model contracts and Standard procedures and documentation need to be made available "off the shelf" to local standard other model documents parties. These include: standard articles of incorporation for the type of entity adopted, institutional standard contracts for private sector participation and standard bidding procedures as well arrangements as toolkits for establishing the necessary structures and for implementing the necessary regulations at the local level. Weak institutional Provide transaction advice Technical assistance needs to be provided in a standardized form for the completion of capacity at local assistance such transactions. For example, an international consultancy may be used to train local level advisors, who can assist a large number of areas at low cost. xiv Chapter 1 Introduction The World Bank Electricity for All Options for Increasing Access in Indonesia A large number of Indonesians presently do not sufficient to cover PLN costs, this rate of expansion have access to reliable and affordable electricity does not appear to be sustainable within the present services. It is estimated that over 70 million (see structure. The inability to recover costs along with Figure 1.1) people in Indonesia are unconnected additional barriers, including limited access to to electricity and must rely instead on alternative financing, has significantly reduced PLN's ability to energy sources. The large number of unconnected expand. This is especially true in rural areas. As is a regressive problem, since over 80% of them are a result, the current practice of relying on PLN to in rural areas where 3 out of 4 Indonesian poor live. expand the national electricity grid will not enable Furthermore, with over half of those without access Indonesia to reach the electrification target. to electricity living outside the economic centers of Java-Bali, many stand to miss out on the benefits Table 1.1 Electrification Rate by Major Island (2004) as well as fail to contribute to the current economic Major Islands Population Electrification Population w/o revival in Indonesia. (mil) Rate (%) Electricity Access (mil) Figure 1.1 Achieving the 2020 Access Target Java 128.7 74 33.6 Bali 3.4 86 0.5 Year 2004 2012 2020 Sumatra 45.3 57 19.4 Population (mil) 28 245 276 Kalimantan 11.9 59 4.9 Pop. w/o Access (mil) 73 48 28 Sulawesi 15.6 6 6.1 Households w/o Access (mil) 5 10 6 Nusa Tenggara 8.2 33 5.5 # new connections (mil) 10 10 Maluku 2.1 54 1.0 % of population w/ access 67% 80% 90% Papua 2.3 22 1.8 TOTAL 217.7 (average) 67 72.7 The government of Indonesia has recognized the importance of increasing access to electricity in order to improve people's lives and overcome PLN's inability to provide adequate electricity access poverty. They also recognize that regional throughout Indonesia has sprouted a myriad of competitiveness, which is critical for economic small-scale solutions. Although these photovoltaic growth, has also been compromised, since and micro-hydro solutions can play an effective Indonesia lags behind neighboring countries in role in an overall electrification plan, however, they electrification. In response, the Government has are not feasible on a national level and would be established an ambitious target of expanding overwhelmed by the magnitude of the challenge. electricity access to 90% of the population by the Therefore, this report proposes a set of networked year 2020, a target requiring nearly 1.3 million solutions that take advantage of the current new connections annually. decentralized environment for electrification and addresses the barriers that would prevent rapid It is unlikely that this target can be achieved by and sustained expansion. maintaining the current approach to electrification. While a majority of electricity connections in the country are provided by PLN, the national electricity Table 1.2 Electricity Access in Indonesia utility, which does have the capacity to provide access Households Total Households to a significant number of customers each year, With Electricity Without Electricity (mil) (mil) (mil) most of these connections are limited to the Java- Urban 16.0 2.6 18.6 Bali region. As a large number of the unconnected Rural 13.0 12.0 25.0 live outside the Java-Bali region, with the majority living in rural areas where the tariff levels are not Total 29.0 14.5 43.5 1 Blueprint for Development of National Electricity Industry (2003- Based on LPEM FEUI electrification ratio 2020), Department of Energy and Mineral Resources (DESDM), 2003. The recently released Blueprint of National Energy Management (2005- 2025) proposes a 95% target by the year 2025 Chapter Introduction The options that are proposed rely on international · A number of potential electrification options/ experience, but are customized to be applicable models are proposed. These "enhanced models" in Indonesia. They are designed to work under will incorporate lessons learned internationally the present legal and regulatory regime, but can while connecting them to current practices in also be implemented under a scenario involving the electrification of Indonesia. This section further sector reforms. With respect to electricity will report on the necessary institutional set- service provision in Indonesia, this report analyzes up, identify the coordination effort, and propose the legal, regulatory and institutional frameworks financing schemes. along with financing options that apply to regional · A way forward is identified by highlighting some electrification. The report also highlights key specific actions that can be taken to improve the institutional mechanisms and policies that can "enabling framework" for increasing electricity be established or improved so as to develop an access, as well as the steps to be taken to enabling environment and investment climate that identify the appropriate circumstances where the achieves enhanced results. Other broader issues proposed "enhanced models" can be effectively in the electricity sector, such as what shape the implemented. future electricity market in Indonesia should take in including factors such as unbundling functions, the future role of PLN, market competition, and regulation, are not analyzed in detail, as they are Box 1.1 What is the True Electrification Rate in Indonesia? beyond the scope of this report. The precise electrification rate in Indonesia in unclear, although almost all studies indicate that a significant number This report includes the following sections of of the population is unconnected. PLN indicates a ratio of 53% in 2004, which is likely underestimated for two reasons: analysis: 1) they measure the number of PLN connections, which does not accurately portray the actual number of households due · The current environment for electrification, to many instances where more than one household is served including the relevant laws and regulations, by a single connection; and 2) they overestimate the total number of households in the country by assuming 4 persons key players, institutional framework, pricing, per each household when data indicates that this number is financing, and subsidy policies, with respect to closer to five*. increasing electricity access. · The currently existing barriers that impede cost The analysis in this report estimates an electrification rate of 67% for 2004 by using the following method: 1) Using 2003 recovery and hinder the expansion of service data from the National Statistics Agency (BPS) to identify and sustainability. This section also identifies households with PLN connections (instead of the total number ways in which some of these barriers can be of PLN connections) versus the total number of households overcome. by region**; 2) adding all new PLN installed connections in 2004; and 3) enhancing the calculation by adding various · A framework for tackling the barriers to other known non-PLN electrification connections. electrification within the existing environment. A set of principles that would guide potential *GovernanceandDecentralizationSurvey,TheWorldBank,2004. **Theresultsinsomeregionswereextrapolatedduetoalackof solutions is also identified. data. The World Bank Electricity for All Options for Increasing Access in Indonesia Chapter 2 Prevailing Conditions for Electrification in Indonesia The World Bank Electricity for All Options for Increasing Access in Indonesia LEGAL AND REGULATORY Figure 2.1 Related Electricity Laws and Regulations in Indonesia FRAMEWORK Law 20/ 2002 Most recent Electricity Law that was annulled by Constitutional Court. The legal and regulatory framework that governs the electricity sector in Indonesia is presently in a state of flux. This is mainly due to the recent annulment of a relatively progressive electricity law Law 15/1985 Annulment of Law 20/2002 (Law No.20/2002) that had been enacted in 2002 reverted the reform process and and included provisions for the unbundling of PLN, reinstated the 1985 Electricity Law. establishment of a regulatory agency, and gradual Government Government PP10/1989 was the original transition towards greater competition in the Regulation Regulation regulation intended to implement 10/1989 3/2005 Law 15/1985. In 2005, a new sector. This law was annulled on the grounds that Presidential regulation, PP3/2005 it was in conflict with the Constitution of Indonesia was issued as a stop-gap measure as determined by the Constitutional Court. The until a new electricity law could be decision was based on the interpretation that enacted. PP3/2005 is intended to retain some of the sprit of the the state should regulate, facilitate and operate annulled electricity law as well as the provision of electricity as a means to exercise upgrade regulation PP10/1989 to "control" over the sector. Furthermore, it was reflect recent developments such deemed that electricity production facilities should as the law on decentralization. be integrated, nullifying the provision for unbundling Ministerial Ministerial Ministerial decrees issued after PLN. Based on Indonesian law, the annulment Regulation Regulation PP3/2005 to facilitate the 9/2005 10/2005 implementation of PP3/2005. automatically reverted authority to the previous law, which was Law 15/1985. The Government quickly issued Regulation 3/2005 New law being drafted There is uncertainty as to what as an interim measure, and followed with two exactly will be included in this Ministerial Regulations. The intention was to new law, which will be critical in enhance the application of Law 15/1985, which determining the structure of the is now in effect but does not provide a sufficient power sector. framework to address today's electricity needs OTHER LAWS & REGULATIONS THAT and challenges.2 The Government is currently IMPACT ELECTRICITY SECTOR drafting a new electricity law, which is likely to play Kepmen 1122K/30/ Decree aimed at promoting a significant role in determining the structure and MEM/2002 ("PSK renewable energy development functions within Indonesia's power sector. TERSEBAR") by enabling renewable power producers below 1 MW capacity to sell to PLN at a preset portion of There are several options for operating an electricity the PLN Basic Cost of Supply (HPP) business under the present licensing regime: Law 27/2003 Law designed to support power generation by utilizing · Electricity Business Authority (PKUK)3: The the abundance of renewable main electricity business authority is given by geothermal energy law to the state-owned enterprise, PLN. This Law 32/2004 Law on decentralization that delegates authority on many mandate leaves PLN with vast authority to matters, including electricity, to provide integrated electricity services throughout regional, provincial and district level Indonesia by controlling national transmission governments. Law 19/2003 State-Owned Enterprise Law that, 2 For example, it does not address issues related to Indonesia's among other things, requires decentralization, which devolves many responsibilities in the sector to SOEs, including PLN, to operate sub-national authorities on a commercial basis and make 3 Known as Pemegang Kuasa Usaha Kelistrikan (PKUK) based on Ar- a profit. ticle 7 of Law 15/1985 and Article 3 of Presidential Regulation 3/2005 Chapter Prevailing Conditions for Electrification in Indonesia from the generation of power to the distribution offered, however, do not seem to explicitly provide of electricity. The exact areas within which PLN exclusivity of the service area to the licensee, operates are to be defined by the Minister of Energy allowing other operators, such as PLN, to hold out and Mineral Resources, but presently includes the possibility of overrunning these areas with the entire country since such specific areas have their own systems in the future. yet to be identified using this mandate. · Electricity Business License for Self Provision · Electricity Business License for Public Provision (IUKKS): Public and private entities can obtain (IUKKU): Public and private service providers, permission from different levels of government to other than PLN, can obtain a license for providing provide electricity for their own use. The licenses electricity services to the public outside the are only required for systems over 200KVA, and national transmission network. An IUKKU are granted by the government authority that application must be approved by the level of holds jurisdiction over the specified service area government that has jurisdiction over the supply (see table 2.1). In principle, such permits are only area (see table 2.1). This level is also responsible to be granted when PLN or other IUUKU holders for the regulation of such operations including are not present or otherwise such services are tariff setting. The licenses that are currently not sufficiently reliable or too costly. Box 2.1 The Electricity Law is Annulled! Table 2.1 Authority for Granting Licenses and Setting Tariffs In December 2004, the Constitutional Court in Indonesia Minister Provincial District annulled Electricity Law No 20/2002, which was designed Government Government to reform the electricity sector. More specifically, this law Interconnected to contained provisions for introducing market competition, National Transmission vertically unbundling the industry, increasing the role of sub- Network national governments, emphasizing the use of renewable resources, and encouraging enhanced private sector NOT interconnected to participation. National Transmission (if across (if across (if within Network provinces) districts) district) The actions of the Constitutional Court created uncertainty in the sector. The Court did so, however, by deeming that the Law was in conflict with the Constitution of Indonesia, especially with Article 33, that mandates the State, to control production facilities that are important and vital to all people, such as electricity. In their verdict, the Court interpreted the term "to control" as to regulate, facilitate and operate. They also deemed that private ownership over the electricity sector INSTITUTIONAL SET-UP FOR was not in the people's best interest. The decision also stated that Article 16 (on industry ELECTRIFICATION unbundling), Article 17 (on competition, market domination prohibition), and Article 68 (on transforming the role of PLN from electricity authorization holder to one of the electricity A significant level of coordination is required to providers) of the Electricity Law were all in conflict with the Constitution. Consequently, it was determined that electricity facilitate the numerous actors and stakeholders service provision should be integrated, and that facilities needed for effective service provision. Those cannot be separated into the seven areas (i.e. generation, key players who hold a significant role in electricity transmission, distribution, market operator, system operator, retail and wholesale) stipulated in the annulled law as they services today vary from the government to the are in conflict with the Constitution. private sector, and from the state-owned utilities to community-based organizations. For any given The annulment of Law 20/2002 automatically re-instates the previous electricity law established in 1985 (Law No. electrification option, the support of several of these 15/1985), although any agreements made based on the law players and effective coordination among them are prior to the dissolution would remain valid. The Court also necessary to achieve a successful outcome. required the government to prepare a new law that would be in compliance with article 33 of the Constitution. The World Bank Electricity for All Options for Increasing Access in Indonesia The Government some local governments are taking the initiative to explore electrification solutions and beginning The Government currently plays a major role to allocate more of their resources towards this through policy formulation, planning, and purpose. regulation. The Ministry of Energy and Mineral Resources (MEMR) is the main policymaking The Planning Ministry (BAPPENAS) and the Ministry body for electricity, and shares the regulatory of Finance also play important roles in supporting burden with sub-national governments.4 Working electricity provision. BAPPENAS is responsible for through the Directorate General of Electricity and overall planning, including for the electricity sector. Energy Utilization (DJLPE), MEMR is responsible Furthermore, their endorsement is required for for developing the electricity master plan as well as public financing, a key component of past electricity issuing laws and regulations pertaining to the sector. expansion efforts.8 The Ministry of Finance, MEMR also establishes most of the tariff policy for on meanwhile, is the ultimate authority on public and off national transmission networks.5 In addition financing, and therefore must authorize any public to issuing various electricity business licenses, the money offered in the form of subsidies or loans Minister for Energy and Mineral Resources also has for expansion. There are also other government the authority to define the service areas for PLN.6 agencies who at times participate in the process DJLPE responsibilities also extend to formulating of financing and facilitating electrification beyond and facilitating subsidies for electrification. their primary mandates.9 Within MEMR, there is a sub-directorate for Social Electrification that has given the central The Electricity Business Authority - PLN government responsibility to electrify low-income communities, under-developed areas, and power PLN remains the largest electricity service generation in remote and inter-country border provider in Indonesia, a fact that must be taken areas. The department mostly relies on the regional into account in any electrification effort. As the branches of the electricity utility (PLN Regional) for public utility responsible for electrification, PLN had implementation, since MEMR has little technical over 33 million total customers, of which 31 million capacity. were household connections, as of 2004. PLN grid expansion, including that into rural areas, helped the Indonesia began to decentralize national country achieve a remarkable amount of success governance in 1999, after which a significant role for during the past decade, with electrification rates electrification was placed on district and provincial increasing from 32 percent in 1994 to 53 percent by governments. Although most regional governments 2004. Although PLN's role in the sector has evolved exercise these relatively new responsibilities in a and their connectivity expansion has become more limited way, sub-national governments do have the measured than before, they still provide more mandate to provide input into national electricity new electricity connections than any other entity. planning, issue electricity business licenses, and Furthermore, as an organization, PLN has the most define tariffs that are outside the national electricity extensive technical expertise in Indonesia when it network. Under present regulation, they are also comes to electrification. Therefore, any solution obligated to allocate funds from their budgets for that aims to increase electricity access should supporting the provision of electricity to "social" consider the role and impact of PLN. customers.7 As a result, there are indications that 4 Based on their jurisdiction over operational areas 5 The exception being when the responsibility falls on sub- national governments, based on the Decentralization Law 32 of 2004 8 The World Bank, Asian Development Bank, and the Japan Bank for 6 This is based on new regulation 3/2005, but this mandate is yet to International Cooperation, have all provided substantial financing and be exercised expertise for expanding electricity in Indonesia 7 Similar to the central government mandate for social electrification, 9 The Ministries of Cooperatives, Fisheries, and also Agriculture, all this mandate is defined as underprivileged people, those living in remote have programs where they provide support for electrification to enhance areas, under developed areas, and inter-country border areas their progress in their respective sectors Chapter Prevailing Conditions for Electrification in Indonesia It is unlikely that PLN will meet the electrification Rural areas do pose an added challenge for target, especially outside Java-Bali due to a money expanding electrification. Since many of these losing operation. Bound by the universal tariff and areas are more sparsely populated, the cost suffering from high supply costs, PLN would incur of connecting customers is likely to be higher. losses not only on rural connections, but on most Furthermore, the levels of income among these expansion anywhere outside the Java-Bali area. customers may also be low, resulting in billing This is important to note since there is a perception and collection challenges. There is also legal and that rural electrification is where PLN's finances are regulatory ambiguity surrounding the responsibility challenged due to the high cost of expansion and for rural electrification. With the current state of potentially low levels of affordability. Ultimately, legal uncertainty in the sector, there is confusion as PLN remains conflicted between their obligation to whether the responsibility for rural electrification as a state-owned enterprise to make a profit,10 is given to the MEMR Social Electrification Unit their inability to absorb losses and their desire to or PLN. In fact, PLN's interpretation resulted in uphold their mandate to electrify the country. As disbanding their Rural Electrification Unit, after a result, PLN's past and future expansion plans which the rate of expansion, already in substantial aim to minimize their potential losses rather than decline, was reduced further. Despite these maximize the number of connections, with a difficulties, the future challenge will be to expand majority of such projects aimed at Java-Bali where in rural areas, where over 80 percent of the they are able to avoid losses. Table 2.2 illustrates unconnected live. this pattern. The table also shows that over 30 percent of planned future connections outside Java- Figure 2.2 PLN Rural Electrification Expansion Bali are in Sumatra, where the shortfall between their revenues and costs is the least. Table 2.2 PLN Expansion of Connections PLN Actual Expansion (2001-04) Year Total Java Outside Outside Java Bali (Mil) Connection Bali Java Bali (Mil) (Mil) (Mil) Sumatra Other Island 2001 27.2 18.5 8.7 4.8 3.9 2002 28.9 19.7 9.2 5.1 4.1 Source:PLNStatistic,1999-2002 2003 30.2 20.4 9.8 5.3 4.5 2004 31.1 21.1 10.0 5.5 4.5 The Private Sector PLN Planned Expansion (2005-10) The private sector plays several important roles in supporting electricity provision in Indonesia. Private Independent Power Producers (IPPs) mostly augment PLN electricity generation. In addition, a third of total generation capacity in Indonesia is captive power, which is mostly private. These producers generally provide for their own needs, but some also sell excess electricity to PLN and other nearby electricity grids. In other instances, Source:PLNStatistics2001,2002,2003;PLNRPTL2004 private electricity generators support electricity service providers, such as the Cinta Mekar Proper accounting of rural expansion is not available beyond 2002 10 Law on State-Owned Enterprises No.19/2003 since the disbanding of PLN's rural electrification unit. The World Bank Electricity for All Options for Increasing Access in Indonesia cooperative, based on sales or rental agreements politicized nature of the electricity tariff6 compelled and joint-ventures. There are also a number of the government to abandon this effort prior to the private dealers who sell individual systems such as presidential elections of 2004. Such uncertainty in Photovoltaic (PV) solar home units. tariff adjustment also contributes to PLN's financial risk, thus deterring private investment from funding the needed capacity expansion.17 ELECTRICITY PRICING & Electrification options outside the national TARIFFS transmission network and PLN are not subject to the universal tariff. Instead, such tariffs are determined by the lawful authority that regulates The Government applies a universal tariff a given concession area. Two regions, Batam (TDL) structure irrespective of the varying cost and Tarakan, have utilized this option by working associated with providing electricity in different outside the national electricity network, and have regions of the country. This tariff structure2 average tariffs that range from IDR 730-750/kWh. only applies to PLN, which acts as the Electricity Although the electricity utilities in these regions are Business Authority or PKUK. The current tariff 100 percent PLN-owned subsidiaries, there are structure, however, places the utility in a financial indications that their ability to operate independently quandary since it is insufficient to cover their cost and recover costs has contributed to more reliable of supply. This is especially the case where PLN service8 and an improved financial position. There supplies power to customers in islands outside of are also other examples of independent tariff Java-Bali, when costs can be substantial due to setting such as the Sinar Rinjani Cooperative on the heavy reliance on expensive imported fuels and island of Lombok, which has operated since 1979. limited utilization of indigenous resources. The Due to their relatively high cost of operating a large average PLN cost per kWh of power produced is IDR 617/kWh (US 6.5 cents/kWh), with the company Figure 2.3 PLN's Sales Revenues and Costs of Supply by Region (in US cents) recovering only IDR 582/kWh (US cents 6.1/kWh) 6.72 Java on average across their electricity network.3 Even in Bali 6.69 6.71 7.63 Java-Bali, where they sell about 80% of their power, North Sumatra 7.28 6.92 PLN does not recover their costs prior to receiving West Sumatra 6.86 7.5 Riau 7.46 the government subsidy for lifeline consumption.4 Batam 9.09 8.65 8.59 Since losses outside Java-Bali can be much greater Southern Sumatra 7.37 7.99 for each unit produced, PLN has little incentive Lampung 7.38 7.53 7.48 to increase access in these areas. In fact, they West Kalimantan South & Central Kalimantan 7.14 13.45 8.92 are more likely to look for loss minimizing options East Kalimantan 7.2 9.33 rather than to access maximizing solutions. North & Central Sulawesi 7.68 10.72 7.3 South Southeast Sulawesi 8.39 West Nusa Tenggara 6.93 In order to recover costs and generate a fair return on 11.48 7.83 East Nusa Tenggara 15.28 investments, the Government originally estimated Maluku 7.53 17.27 that an average tariff of around US 8 cents/kWh Papua 8.07 15.82 was needed and began a program of a 6% quarterly Revenueincludeselectricitysalesrevenue,andsubsidy,consumerconnectionfee price increase in 2001.5 However, the highly andotheroperatingrevenue Costconsistsoffuel,powerpurchase,personnel,depreciationandotheroperating expenses 16 By Presidential Decree, it is stipulated that the TDL will be set by the 12 Includes a fixed demand charge, consumption charge, public street President of Indonesia based upon the recommendation of the Minister lighting tax, value added tax, stamp duty, and, for mostly non residential of Energy and Mineral Resources classes, an excess KVArh charge and transformer leasing charge 17 Since PLN is a single-buyer of wholesale electricity, IPPs face the 13 PLN Statistics, 2004 risk of PLN default 14 PLN Statistics, 2004 18 PLN Batam, for example, is re-acquiring industrial and commercial 15 Presentation by PLN President Director at PT Indonesia Power, customers who previously relied on captive power solutions, partly as a October 2001 result of improved capacity and better system reliability 0 Chapter Prevailing Conditions for Electrification in Indonesia number of diesel generators, this cooperative levies How will investment needs be financed? A a charge of around IDR 1,100/kWh. combination of public and private funding is important because there is limited public budget The cost of obtaining an electricity connection available while commercial banks appear reluctant may also impede the expansion of electricity to extend financing for rural electrification. If access, especially in poorer areas. PLN normally the private sector only finances up to 15% of the charges new residential customers an installation costs, then the necessary public financing can fee, a connection charge, and an advance deposit. be as high as US$ 5.5 billion between now and For small residential customers installing a 450 VA 2012. Alternately, if the more prosperous rural connection, this cost can be over IDR 1 million or communities enable a greater level of private over US$ 100. While PLN does offer payment plans participation by utilizing independent power to facilitate connections among poorer customers, producers or even granting concessions of sorts, it is unclear as to the exact manner through which then the public funding support needed may be the Government provides additional support. reduced to US$ 2.9 billion. Table 2.4 Estimated Need for Public and Private Financing FINANCING NEEDS AND Total Investments Private Participation* Public Financing Requirement** SOURCES 2004-2012 billion US$ 2004-2012 billion US$ 2004-2012 billion US$ Investments Required for 4.5 to 6.2 0.7 to 1.6 2.9 to 5.5 The funding needed to reach the 2020 electricity Increasing Electricity Access target is substantial and a combination of financing sources will be required. Moreover, it is * A Pessimistic scenario assumes that private participation in rural electrification likely that a solution will also include a combination isexpectedtobelessthan15%.Anoptimisticscenarioassumesaconcessionsin themorewell-to-doruralareasmaynetupto25%privatecapital of technical options ranging from grid extension **Basedonlikelyprivateparticipation to remote systems such as PV or micro hydro. The cost of connecting through a mini grid system or pursuing expansion of the current national grid may cost between US$ 500-US$ 850, while that of a more remote connection may be as high as SUBSIDIES THAT IMPACT THE US$ 1,250. Assuming that most consumers, about ELECTRICITY SECTOR 80%, would rely on grid-based access while others would utilize remote systems, it is estimated that US$ 4.5-US$ 6.2 billion will be needed during the Subsidies that impact the electricity sector can next eight years. be better targeted to help the poor and enhanced to leverage additional investments in service coverage. Currently, there are three significant Table 2.3 Funding Need for Increasing Electricity Access channels through which public money support Total Investments Electricity Access** 2004-2012 impacts the electricity sector: [billion US$] Grid extension 1.3 to 1.9 · Consumption Subsidy: The Government Mini grid and isolated grid 2.1 to 3.0 currently provides a consumption-based subsidy Remote (PV, microhydro) 1.1 to 1.3 mostly for small residential consumers with Sub-Total Electricity Access 4.5 to 6.2 electricity connections that have a capacity of less than 450VA. This subsidy is also extended **estimatebasedongovernmenttargettoachieve90%electricityaccessbyyear to social institutions, small businesses, and 2020 small industries. The total number of consumers eligible for this subsidy make-up 53% of all PLN The World Bank Electricity for All Options for Increasing Access in Indonesia customers and account for more than 28% As a result, PLN has a lower cost of production. of the electricity supplied.9 In application of More specifically, the Government currently the subsidy, PLN receives funds through the provides a 50% subsidy for diesel, the fuel government budget to cover the difference used in generating over 18% of PLN's power. between their basic cost of supply and the With an annual estimated fuel consumption of universal tariff that applies for the consumer over 7.5 billion liters per year, the PLN subsidy category ranging up to 60 kWh of consumption is calculated at about US$ 1.4 billion.23 This per month. A recent study shows that despite subsidy is not well targeted, however, since it the output-based nature of the subsidy, it may does not specifically assist the poor, but rather not be targeted well enough to assist the poor. helps all PLN customers. Furthermore, the In fact, it is estimated that of all consumers that resultant price distortions cause PLN to invest receive this subsidy, only 36 percent are actually in a sub-optimal energy mix, thus adding to their poor.20 Since the total subsidy given to PLN in financial woes as the Government progressively 2004 was approximately US$ 365 million, the reduces these subsidies. poorly targeted amount of public resources is significant. Furthermore, the average consumption among the poor is about 38 kWh per month, raising the question as to whether HOUSEHOLD EXPENDITURE the life-line threshold for the subsidy is also too PROFILE high. · Connection Subsidy: The Government and PLN assist customers in obtaining electricity There is considerable demographic variation connections by either providing funds for the across Indonesia, which requires careful cost of a connection or by enabling them to pay consideration when developing policies for cost for the cost over time. In 2004, the Government recovery. A quick overview, as illustrated in Table spent approximately IDR 450 billion (about 2.5, indicates that expenditures in areas such as US$ 50 million) through regional PLN units Jakarta are twice those of people living in the poorest on investments meant for increasing rural province, Gorontalo. This gap is also evident when electrification. A further amount of IDR 500 comparing differences between rural and urban billion (about US$ 55 million) is earmarked for populations, even within the same region. Since 2005. This financing may have fully or partially many of the unconnected reside in rural areas, contributed to the cost of developing the a good understanding of their willingness-to-pay approximately 125,000 PLN rural connections for new and improved energy services (electricity during the past year. Some of these funds, instead of alternatives such as kerosene or candles) along with other grants, are also utilized to is necessary for designing suitable tariff policies. finance small-scale, stand­alone electrification These disparities also make a compelling case for projects in rural areas. However, it is unclear as carefully designed subsidy policies that provide to how exactly these funds are channeled, the well-targeted public support. criteria used for selection of the finance options, and how progress is monitored. · Fuel Subsidy: The Government of Indonesia maintains fixed fuel prices by providing a subsidy that was expected to reach IDR 602 trillion (approximately US$ 6.4 billion) in 2005.22 Government drastically reduced the subsidy increasing diesel prices by 19 "Designing a New Subsidy System for Infrastructure: A Case of over 150%, which will alter the cost of PLN power generation. The exact Electricity Subsidy", LPEM ­ FEUI, 2004 net impact of this change on PLN and also on the fiscal budget is still 20 "Designing a New Subsidy System for Infrastructure: A Case of unclear Electricity Subsidy", LPEM ­ FEUI, 2004. 23 Based on the current world price of diesel of IDR 3,500 per liter, 21 Based on Nota Keuangan and Draft State Budget Law for 2005 which would make the subsidized fuel price in Indonesia IDR 1,750 per 22 Estimate based on prices prior to October 1, 2005, when the liter Chapter Prevailing Conditions for Electrification in Indonesia Table 2.5 Household Expenditure Across Indonesia POTENTIAL FOR UTILIZING Average Monthly Average Monthly Expenditure per Capita for Housing and HH Facilities* INDIGENOUS RESOURCES Expenditure per Capita, Province Name USD Urban Rural Urban Rural Ratio Utilizing indigenous resources may help open Amount, % Amount, % Urban avenues for new power supplies outside Java-Bali vs and reduce costs. Indonesia has an abundance USD USD Rural of resources for producing energy including oil, Java Bali coal, natural gas, geothermal, hydro power, and bio DKI Jakarta 5 - 15.9 31.3 - - - West Java 27 17 5.6 2 2.7 16 2.1 mass. The present practice of large fuel subsidies Central Java 22 5 3.6 6 2.1 14 1.7 distorts the optimal mix of these resources that D.I Yogyakarta 30 6 6.0 20 2.4 5 2.5 East Java 25 6 4.4 8 2.1 13 2.1 would yield the least-cost option for a given area. Banten 36 17 7.6 2 2.4 15 3.1 Instead, diesel-powered generation has been widely Bali 39 23 8.3 2 3.4 5 2.4 used as the easy solution for rural electrification Non Java Bali needs when the true cost of operation without N. Sumatera 26 6 4.6 18 1.7 10 2.7 heavy subsidization may not imply the same choice. W. Sumatera 30 2 4.6 5 2.1 10 2.1 Moreover, this reliance on diesel is becoming Riau 35 20 7.5 2 2.6 3 2.9 Jambi 25 17 4.3 17 1.9 2.3 increasingly untenable due to the substantial fiscal S. Sumatera 25 4 4.8 20 1.6 2 3.1 burden that results from the unsustainable fuel Bengkulu 2 4 3.8 8 1.7 2 2.3 subsidy. In fact, the over-consumption of oil brought Lampung 2 4 3.7 17 1.9 4 1.9 Bangka Belitung 29 20 4.2 4 2.1 2.0 on by the subsidy has recently made Indonesia a W. Nusa Tenggara 9 4 2.9 6 1.7 2 1.7 net oil importer. Developing indigenous resources E. Nusa Tenggara 23 2 4.7 2 1.4 2 3.4 have substantial potential in Indonesia. However, W. Kalimantan 3 6 6.8 22 1.8 2 3.7 C. Kalimantan 27 9 5.1 9 2.0 10 2.6 efforts need to be taken to reduce the cost of S. Kalimantan 28 9 4.9 17 2.1 2.4 their development.24 The result can be a more E. Kalimantan 36 22 7.5 2 3.4 5 2.2 optimal energy mix that relies on less costly local N. Sulawesi 30 9 6.1 2 2.7 4 2.3 C. Sulawesi 25 6 4.9 9 2.0 2 2.5 resources. S. Sulawesi 26 4 4.4 17 1.9 3 2.4 SE. Sulawesi 24 5 5.3 22 1.9 3 2.8 Gorontalo 17 2 2.6 5 1.4 2 1.9 Aceh, Maluku, n/a n/a n/a n/a n/a n/a n/a Table 2.6 Energy Resource Potential in Indonesia North Maluku & Major Coal Natural Oil Geothermal* Hydro Biomass Papua Islands Gas MToE MToE MToE Mwe MW MW * (includes Non-Food Expenditure components: Housing & Household Facility, including payment for electricity/telephone/gas/kerosene/water/firewood, Goods Java 6 65 67 3086 54 13,622 and Services, Clothing, Footwear and Headwear, Durable Goods, Taxes and Bali - - - 226 20 347 Insurances, Parties and Ceremonies) Sumatra 13,558 425 1,551 5,433 5,489 6,433 Source:BPS,Susenas2002,2003;www.depdagri.go.id,2005 Kalimantan 5,885 1,180 200 - 6,047 6,231 Sulawesi 20 24 - 721 4,479 5,337 Nusa - - - 645 292 1,174 Tenggara Maluku - - 42 217 1,093 Papua 64 24 2 - 24,974 6,814 TOTAL 19,533 1,817 1,822 10,027 41,436 41,651 *totalgeothermalpotential:installed,reserve,andresourcesforelectricityis around20,000MW Source:DESDM,RUKN(NationalElectricityMasterPlan),2004 24 For example, the current cost of developing geothermal energy in Indonesia can be high because much of the needed equipment and expertise must be imported. Developing the domestic market in such cases can help reduce these costs. Reducing the risks associated with developing different energy resources is another way of lowering costs The World Bank Electricity for All Options for Increasing Access in Indonesia Chapter 3 Barriers that Impede Progress The World Bank Electricity for All Options for Increasing Access in Indonesia INEFFECTIVE PUBLIC Ineffective institutional arrangements coordination: There are many players in the country and SECTOR INITIATIVE working on various electrification programs, with competing government departments running competing electrification programs with different Nowhere in the world has successful rural electrification agendas, procedures, and financing sources. been achieved without strong government leadership Unfortunately, there is no effective coordination among and coordination. Rural electrification programs cannot the major players. In looking for an effective model of be completed quickly and their benefits are not realized such desired coordination, however, the experience in the short term. Strong public sector leadership and in Tunisia shows how well defined roles for various sustained political commitment have been key factors institutions ensures agency cooperation (see Box in successful rural electrification programs in both 6.7). Moreover, human resources are often stretched developing and developed countries across the world. thin due to the lack of coordination. Outside PLN, for For example, Bangladesh, where there has been example, each rural electrification project generally success with electrification through cooperatives, has requires a one-off solution to its organizational and constitutionally prioritized rural access and established licensing issues. However, as high-level contacts and a Rural Electrification Board (REB) that exercises strong significant skills are required to obtain all the necessary leadership in the sector (see Box 6.6). Unfortunately, licenses and permits, the majority of these rural post-crisis Indonesia has seen weak public schemes rely on a limited number of Jakarta-based leadership and ineffective coordination among major NGOs for support and leadership. This both increases stakeholders. The current regulatory framework also the cost of such schemes and creates a bottleneck remains insufficient to encourage private participation, in the form of time and skill constraints. In this area, especially for off-national grid solutions. Indonesia can substantially benefit by simplifying and standardizing procedures and practices, as was done Lack of strong public sector leadership: International in the Bangladesh rural electrification program. experience suggests that strong public sector leadership, particularly centralized support in the forms Insufficient legal framework: The annulment of the of technical, managerial, and financial assistance, 2002 Electricity Law exposed the power sector to is critical to successfully implement electrification a significant amount of uncertainty, which created programs, especially when access rates are low. Strong a negative impact on rural electrification programs, leadership leads to reliable and binding electrification particularly those with private sector participation. More plans, with clear targets and sustainable financial specifically, there are two major flaws in the current support. In Indonesia, however, public leadership legal system which directly hinders the improvement of during the past few years has been weak. Although the access rates, especially in remote areas. Ministry of Energy and Mineral Resources continues to support PLN's electrification program through budget The first one is the so-called "non-exclusive license" issue, subsidies, the reality is that the leverage of this support since ambiguity in regulations results in non-exclusive is rather small. Compounding financial difficulties has electricity-supply licenses offered to non-PLN providers. forced PLN to slow down its electrification program As ambiguous current regulations indicate that the amidst uncertainty over its direction under the government's power sector restructuring program. Furthermore, the restructuring process has largely Box 3.1 Licenses for Electrification do not Provide overlooked the importance of electrification in remote Exclusive Rights and vast rural areas and undermined the public sector KLP Luwu and KLP Lampung were two electricity cooperatives role in electrification. While local governments have established in the late 70s with the support of USAID. Both cooperatives greater responsibility for electrification under the policy built their own distribution networks and diesel generators. Eventually, when PLN's grid expanded close to the concession area, the of decentralization, ambiguity as to their precise role cooperatives were unable to compete with PLN's cheaper subsidized and also a lack of experience in the sector is preventing rates. Soon, the cooperatives were taken over by PLN. them from rising to the challenge. Chapter Barriers That Impede Progress electricity supply licenses offered to non-PLN providers ensure reliable and orderly finances amongst those are non-exclusive, private investors have little protection utilities responsible for electrification. In addition, every from competitive threats offered by PLN's subsidized effort is needed to minimize costs in order to protect rates. This creates a disincentive to investment in customers from excessive tariffs and to ensure good systems within or near PLN's service areas. value for money from public subsidy spending. Efforts to minimize costs typically involve some form of private The second involves the discrimination practiced by participation and competition in the provision of PLN in towards to embedded generators, including electrification services. For example, countries such as small-scale power producers using renewable energy. Mexico effectively make their sub-national governments This kind of energy can play a very important role in compete for public financing in order to achieve more the electrification program. The current applicable laws efficient outcomes (see Box 6.3). allow PLN to buy electricity from embedded generators and oblige them to purchase renewable electricity. The universal tariff that PLN is obliged to apply However, the size of a renewable energy generator across the country creates disincentives to electrify has to be below 1.0 MW and the price is only 60% of un-served rural households: PLN's cost of service for PLN's supply cost when the generator is connected customers on other islands and isolated customers to a low voltage grid and 80% when connected to a is substantially higher than for on-grid customers in medium voltage grid. Additionally, the power purchase Java-Bali. This is because tariffs charged by PLN to agreements have to be negotiated and signed annually. customers in these areas do not cover the higher cost As a result, less than 1 MW of capacity has been of serving them. The current tariff structure, although developed through this scheme, and this figure mostly differentiating among customer classes and levels comprises small producers who sell their unusable of consumption, doesn't account for differences in residual power to supplement their income. costs of supply among regions. Moreover, the level at which the national tariff is set does not allow for a cross subsidy from urban to rural customers, as Box 3.2 The Uncertainty for Small-Scale Renewable Energy it barely covers the cost of service on the Java-Bali Producers grid. Kalimaron is a 12 kW micro-hydropower plant built in 1994 to supply electricity to an environmental education center and households in the surrounding area. The plant's excess electricity is sold to PLN under a PLN is under little pressure to reduce costs or to power purchase agreement based on the PSK Tersebar regulation on small-scale renewable energy. Although this scheme has standardized find innovative solutions. The license held by PLN is power purchase agreements and created a formula whereby the seller open ended, meaning that it does not face any risk receives a fixed proportion of PLN's basic cost of service (HPP), it has of losing franchise areas if it fails to electrify them. a significant shortcoming. The process by which PLN calculates its HPP is unclear and lacks transparency. During Kalimaron's first year Hence, PLN has no need to extend service to new of operations, the tariff was estimated based on a figure of IDR 530/ areas in order to protect its license. While it is under kWh. In the second year, PLN continued to buy electricity but the price was estimated based on a decreased HPP of IDR 426/kWh. PLN's political pressure to undertake new connections, the reasoning for the dramatic decline of the HPP is that the previous low national tariff provides PLN with a strong excuse year's HPP was miscalculated, but the investor was forced to bear the burden of this error since the contract is negotiated yearly. for its slow pace of investment. As an unregulated monopoly, PLN faces little pressure to cut costs in the already served areas, where resources could have been released for further electrification. COST RECOVERY PRINCIPLE Absence of a reliable and effective mechanism IS NOT FOLLOWED for providing subsidies to customers that truly need them. Similar to many successful rural electrification programs, Indonesia utilizes certain Electrification is neither viable nor sustainable without forms of subsidies, including free equipment being able to cover its full costs through two sources: funded by grants from donors or from central and customer tariffs and public subsidies. Tariff setting local governments. These subsidies, however, are needs to be integrated with the subsidy regime to often hampered by poor targeting and an ineffective The World Bank Electricity for All Options for Increasing Access in Indonesia delivery mechanism. As a result, they have to fund the initial capital investment in power generally been negligible in terms of meeting needs networks and generation. There are indications and have been structured around specific projects that many domestic financial institutions would rather than generating nationwide programs. In require substantial collateral as a condition for contrast, substantial funds (close to US$ 365 providing funding for rural electrification projects. million in 2004) were provided to PLN to subsidize Such requirements are partly due to their the lower tariff of the first 60kWh consumed by inexperience with rural electricity financing as well households with a 450 VA connection as well the as perceptions regarding political risk. However, cost of connecting rural customers (close to US$ experience from Bangladesh to China suggests 50 million). The consumption subsidy offers limited that providing access to funds, including those of targeting as it includes a range of income groups, international multilateral institutions that provide while the impact of the connection subsidies in generous repayment options, can be a key to terms of electrifying un-served consumers remains achieving success. In Bangladesh, the low rates and unclear. Furthermore, it is generally accepted that extended maturities offered by multilateral agencies PLN's costs are inefficient and would negate the have been used to finance immediate investment effect of these subsidies. requirements while recovering costs over a longer period of time. This has been effective in reducing the burden on poor communities. In Tajikistan, the lack of attractive terms available through capital INSUFFICIENT AVAILABILITY markets prompted the government to on-lend OF SUSTAINABLE FINANCING to a private enterprise for the provision of power. These cases demonstrate that the development of mechanisms for credit enhancement should be an While cost recovery is necessary, it may not be important consideration when increasing electricity sufficient to ensure access to the financing needed access. Box 3.3 Roles of Financing and Subsidy It is important not to confuse financing and subsidy issues. Subsidies address the cost recovery problem, while financing issues may exist even if costs are fully covered through a combination of tariffs and subsidies. The following figures illustrate the difference between the two concepts. The first figure shows a provider with cost recovery issues. Total revenues The second figure illustrates a true financing need. It shows a provider from all sources (tariffs and subsidies) are lower than total costs, that needs to make a major initial investment. This could be a distribution including capital costs. One cannot refer to the provider illustrated in system extension, a new generation plant or a new mini or micro grid. In this figure as having a financing problem. The problem is not that money the figure, the provider is assumed to be able to sell electricity at a full is needed only now and can be repaid later. Rather, the problem is simply cost recovery rate in the operations phase. If the Present Value (PV) of that the provider does not have enough income to cover its total costs for the cash flows during the operations stage exceeds the Present Value the foreseeable future. In this case, no amount of financial engineering of the negative cash flow during the investment phase, the provider is would enable the service provider to access sufficient funding. said to be able to recover its costs. In theory, providers in this situation would be able to get financing. This can be done by borrowing to pay for the initial investment, then repaying the debt from the positive cash flow during the operations phase. Chapter 4 Framework for Solutions The World Bank Electricity for All Options for Increasing Access in Indonesia The lessons from existing attempts to increase At the technical level, cutting costs may involve: electricity access and overcome the barriers that have prevented a large-scale expansion of these · improving the generation mix through better options suggest that the way forward is to develop planning and coordination; an integrated framework for implementation. · simplifying distribution systems (e.g. using Such an approach should address the key barriers single phase rather than 3-phase networks for in a systematic way, focusing around the themes the initial system roll-out); of public sector initiative, cost recovery and · reducing hours of supply (although such savings sustainable financing. are partly offset by the fact that fewer hours of supply increase the total cost per kWh as the The key areas for government action within these capital charge per kWh rises); and broad themes are set out in Figure 4.1. As the · decreasing the level of reliability. Most electricity figure shows, these policy areas interlock and systems are built to meet the n-1 contingency require a systematic and coordinated approach to criteria, i.e. the system should have a reserve achieve success. capacity equal to the capacity of the largest single unit running at any time. For example, in a 4 MW Figure 4.1 Key Areas for Government Action system, the optimal plant configuration to meet the n-1 contingency criteria while still having enough downtime to perform maintenance would be four units of 1 MW each. The total Financing cost of this system would be US 17 cents/kWh. In contrast, providing the same capacity, but Subsidy Technical assistance without the contingency requirement, could decrease the total cost to US 15 cents/kWh. Standard Tariff setting stuctures and Minimizing procedures costs Perhaps more importantly, it is necessary to find institutional solutions to promote greater efficiency. Improved planning that optimizes benefits from economies of scale can be such a factor. For example, there is currently a tendency to provide small-scale technological solutions, such as the micro-hydro First, it is necessary to find ways to minimize system, for rural electrification. However, while a the costs of serving both new and existing mini-hydro solution, such as a 25MW power plant, electricity connections. Reducing the costs of can produce electricity far cheaper, at around US existing connections would boost PLN's finances 3-4 cents,26 such a scale would need to be applied and enable a greater amount of cross-subsidies at perhaps a district level rather than simply in a to be applied to new connections. It would also small number of villages. Another promising option free up existing subsidy resources to be applied to is to facilitate the development of a local market new connections. Steps needed to increase the towards achieving expertise in a given sector efficiency of PLN's existing operations are outside or technology, which would reduce the cost of the scope of this report, but it is an aspect that developing indigenous resources.27 In essence, this clearly requires further investigation.25 However, it requires creating incentives for service providers to is equally important to find ways to minimize the be more efficient. Ultimately, one of the best ways costs of service to unconnected areas. This involves to achieve incentives for cost-cutting is through both institutional and technical solutions. competitive procurement of private providers. 26 Proposed run-of-the-river hydro power plant by PT. Bukaka in 25 PLN inefficiencies can amount to some US$600 ­ US$800 million Sulewesi per year, as reported in World Bank publication "Indonesia ­ Averting an 27 Implementation Completion Report for Solar Home Systems Project Infrastructure Crisis: A Framework for Policy and Action", 2004 in Indonesia, The World Bank, 2004 0 Chapter Framework for Solutions Second, it is necessary to find ways to move periods. Therefore, public financing sources that tariffs towards greater cost recovery. Even if all provide concessional rates along with longer-term technical and institutional options to minimize costs maturities are well placed to catalyze investments of serving new areas are taken up, it is still likely by addressing this barrier.28 that the full cost of providing service to rural areas would be above the current national tariff. While Fifth, it will be necessary to develop standard the full cost recovery tariff may not be affordable legal and procedural structures to reduce the or politically acceptable, it would still be helpful to costs of putting new solutions together. The promote the principle that high-cost areas should key objective is to allow relatively unskilled and have higher tariffs. This is important because inexperienced people at the local level ­ both at electricity tariffs send important signals indicating local governments and within the communities where the cost load should be located. Thus, it themselves ­ to easily replicate solutions that would be inappropriate to encourage heavy power have been successfully implemented elsewhere users to relocate to high cost areas. in the country. This requires a number of actions. First, the government agencies involved in While the current law is ambiguous, precedent granting relevant licenses and permits need to exists whereby higher tariffs have been charged in streamline and simplify their procedures so that areas not connected to the high voltage grid and all necessary approvals can be obtained without not directly controlled by PLN. Such precedent recourse to high level contacts and without detailed creates an important opportunity to institutionalize knowledge of the government system. Second, this option. local governments need to be provided with sample procedures and rules to enable them to learn the Third, it will be important to develop an effective skills currently practiced in the central government. subsidy mechanism to bridge the gap between the Third, this requires preparation of standard "ready- full cost of service in rural areas and an affordable to-use" legal documents and operations manuals tariff, since full cost recovery tariffs may not be which can be used by people at the local level (for feasible for those living in many areas. As mentioned example, the South African government maintains before, the key issue is to design a subsidy program a strong unit within its State Treasury whose role it that leverages limited fiscal resources to achieve is to develop documents and manuals for use by the greatest impact. local government units in contracting public-private partnerships in water and electricity). Fourth, it will be necessary to address the question of financing. This review has identified a Another important aspect of standardization is to gap between the financing options available and the ensure that technical and safety rules allow for a financing needs of existing or prospective electricity wider and more appropriate range of technical providers in Indonesia. This gap is mostly a result of solutions. For example, technical standards targeted excessive collateral requirements and the inability at urban systems (including the requirement for a of prospective borrowers to meet them. Lenders are 3-phase supply) may prevent development of least- unfamiliar with the risks associated with small-scale cost rural networks. electricity systems and consequently seek high levels of security to cover their lack of experience and Improving the performance of a wide range of understanding with these ventures. In addition, the government agencies is not an easy task. One domestic banking system in Indonesia is not able option that may be worth considering is outsourcing to provide sufficiently long maturities for financing some of these functions to advisory groups, law construction of power systems with long payback firms or NGOs. 28 For example, the World Bank can provide loans with up to a 10-year grace period and up to a 30-year repayment option at very competitive rates. The World Bank Electricity for All Options for Increasing Access in Indonesia Finally, bringing all these strands together will not have the authority to lead the program. Despite require a systematic and strategic approach to these sentiments, one agency must become a organizing advice and technical assistance. The "champion" of the entire program, possessing development of institutional forms and solutions the necessary authority and access to advice and that can be easily replicated throughout Indonesia technical assistance. will require a considerable commitment of skills and effort. To assist in coordinating solutions, it is helpful to distinguish between two levels of reforms. Overall, true breakthroughs in speeding up the Firstly, reforms are needed to create an enabling pace of electrification in Indonesia can only occur environment, i.e. to resolve issues needing attention if all of the interlocking issues are addressed in regardless of the specific institutional model a coordinated fashion. For example, because a selected. Such issues include resolving barriers to responsible financial organization will not lend when financial access, bridging the gap between revenues there is no clear prospect for loan repayment, there and costs and providing technical assistance to is no point in fixing financing issues until full cost implementing entities. These reforms are referred recovery can be achieved through a combination to as the "enabling framework" reforms. of tariffs and subsidies. Similarly, little progress can be expected unless the solutions to various Secondly, in order to ensure that solutions can be problems are standardized and packaged in a way easily replicated across Indonesia, it is essential that can be easily implemented and replicated. to standardize procedures, arrangements and institutional structures. A complete package of This adds up to a significant demand for coordination standard solutions, which includes subsidies and and leadership at the central government level. It financial arrangements, documents for creation is important to emphasize that every other country and governance of the necessary institutions, that has been able to achieve rapid progress in draft contracts for public-private partnerships, and electrification has done so with strong government technical assistance for implementation at the sub- leadership, both at the central and sub-national national level is referred to as an electrification level. In preparing this report, the team met with model. A range of "enhanced models" is presented officials from many relevant agencies, including from which stakeholders can choose to address a MEMR and BAPPENAS. All expressed frustration particular electrification challenge. at the lack of coordination, but all felt that they did Chapter 5 Common Solutions Applicable to Enhanced Electrification Models The World Bank Electricity for All Options for Increasing Access in Indonesia Chapter 6 will present three "enhanced models" commercial lending criteria, but apply the term for increasing electrification across Indonesia. structure of a soft loan. However, regardless of which model is selected, the following actions will need to be incorporated. The main features of such facilities are illustrated There are three cross-cutting areas for government in Figure 5.1. To fund the guarantee and/or soft action: lending facilities, the Government may request a soft loan or grants from International Financial · Financing support: It will be necessary to Institution (IFIs). develop mechanisms for enhancing access to finance. In the case of a guarantee facility, the proceeds · Bridging the gap between revenues and costs: from this loan or grant would be transferred to a In those areas where consumers are unable Guarantee Fund administered by an intermediary to pay for the full cost of service, some form of financial institution (see Box 5.1). The Guarantee subsidy will be required. The subsidy should be Fund would in turn provide partial risk guarantees targeted, effective and cover costs efficiently to commercial banks that are lending to electricity · Technical support: Local governments need providers (asset owners). The financial institution technical support to structure and implement administering the Guarantee Fund should have good electrification projects. There must be a good coverage nationwide and some experience in way for the central government to adequately offering guarantees. Coverage would expedite the extend its technical capabilities to all areas in approval process and experience with guarantees need of electrification. would minimize the initial support required to operationalize the facility. In the case of a soft lending facility, a development FINANCING SUPPORT bank could be used as the intermediary to on-lend at long maturities and low interest rates to eligible electricity providers. To bridge the gap between the financing options currently available in the market and the borrowing Box 5.1 Partial Credit Risk Guarantee for Electricity ability of existing or prospective electricity providers, Cooperatives in the Philippines the Government needs to take action. In general, Most Electricity Cooperatives (ECs) in the Philippines are unable to raise there are two possible types of enhancements: financing from commercial banks as a result of the high risk perceived by lenders and the consequently high collateral required to cover this risk. To overcome this barrier, the Department of Energy (DOE), with · Credit enhancement. The role of credit funding from the World Bank and a Global Environment Facility grant, guarantees is to replace collateral. Banks can established a partial credit guarantee program for commercial loans. The DOE selected the Local Government Unit Guarantee Corporation use credit guarantees to lend to those electricity (LGUGC) to be the Guarantee Program Manager. LGUGS manages and service providers who don't possess adequate operates two windows: one for loans to non-ECs and the other for loans to qualified ECs. Underlying principles of the facility include. collateral while applying their standard lending criteria. Credit guarantees, however, do not · the guarantee provides risk mitigation to lenders, and therefore to investor borrowers, to support investments in energy efficiency change the underlying liquidity of banks, and · guarantees leverage existing banking credit assessment expertise, hence do not provide a basis for increasing share borrower credit risk with commercial lenders and improve the maturity of loans. Moreover, it is typical to terms and access to loan financing, including the extension of maturities for borrowers provide partial guarantees, thus ensuring that · the guarantee coverage required would be determined by the banks still take on some risk. nature of each investor EC and relative status of the EC, as well as the specific debt financing structure · Soft lending facilities. The role of soft lending · the guarantee liabilities for a given transaction would be decreased facilities is to enable financial institutions to over the life of the loan in line with a principal amortization schedule increase the maturity of loans available on the market. Typically, a soft lending window is The guarantee facility was established in late 2004. provided to a bank or a group of banks, which Source:ProjectAppraisalDocumentonProposedGlobalEnvironmentFacilityTrust on-lend at commercial interest rates and use FundGrantintheamountofUS$11MilliontotheRepublicofthePhilippines Chapter Common Solution Applicable to Enhanced Electrification Models Figure 5.1 illustrates options for facilitating financing. businesses and that some degree of technical It shows that the beneficiary of the financing assistance would be required to help them, and facilities would be an asset owner. As this report possibly commercial lenders as well, develop these presents the institutional models in chapter 6, it will skills. This technical assistance could be included become obvious that various entities can be asset as part of an IFI loan or donor grant. owners, including PLN and its subsidiaries, local- government owned entities, cooperatives of various As an alternative or complementary option to kinds and private service providers contracted to the guarantee and soft lending facilities, local any of those entities. Hence, the financing solution governments could seek to directly bridge the needs to ensure that it can serve any of these asset financing gap. Acting consistent with the GOI owners. decentralization mandates established in Law 32/2004, they may seek to remove financing barriers by directly borrowing from an IFI through Figure 5.1 Options for Providing Financing Support the MoF As explained later in Chapter 6, a related and potentially more viable option would involve the establishment of a local government-owned enterprise (BUMD/BLU), which would be in charge of providing electricity to un-served areas in its jurisdiction. Either the local government or this BUMD/BLU would then borrow from an IFI through the MoF to build electricity systems in those areas. Revenues collected from tariffs paid by customers would later be used to repay the loan. Guarantee products of this kind are offered by the Ministry of Cooperatives and Small and Medium Box 5.2 Kredit Listrik Perdesaan (Rural Electricity Credit) Enterprises (MOCSME), as well as by the Poverty From 1989-1998, the Ministry of Energy and Mineral Resources Reduction Committee (PRC). MEMR established (MEMR) ran a program called Kredit Listrik Perdesaan, channeled a credit facility in the past, but it didn't succeed via Bank Rakyat Indonesia (BRI), under which each household was provided with a credit of IDR 130,000 (this amount was equivalent to (see box 5.2). The PRC uses Bank Mandiri as the about US$60 during this time when the average IDR/US$ exchange guarantor of banks lending to cooperative-type rate was about IDR 2,200) to pay their electricity connection fee. This credit facility assisted 84,500 new customers in connecting to PLN entities that meet certain poverty criteria. Bank service. The repayment installments were carried out over a duration Mandiri's guarantees are backstopped by IDR of a maximum of 2 years, and were paid together with the payment of the monthly user charge. The credit was guaranteed by ASKRINDO, a 200 billion in funding set aside by the mandatory credit guarantee agency. corporate social responsibility contributions from State-Owned Enterprise (SOE). Further Unfortunately, the program did not run well and the repayment performance was poor. One of the reasons for this failure, based on understanding of the capabilities and interests of feedback from BRI personnel, was that the program involved too many potential financial institutions would be required departments (causing unnecessary bureaucracy), and the subsidized interest rate had been causing moral hazard among the beneficiaries before recommending any specific one as best (who became both dependent on the subsidies and less diligent in placed to act as guarantor. their repayments). As a result, the program was discontinued in 1998 soon after Indonesia was hit by economic crisis. There has been some internal discussion within the MEMR on reactivating the funding Before offering a guarantee or soft loan, the program in 2006. However, a new creative mechanism to channel intermediary financial institutions would be the credit needs to be explored to ensure the performance of the program. expected to analyze the creditworthiness of the prospective borrowers. The terms of the guarantee Source: "Analysis on Developing Rural Electrification in Indonesia" YBUL, 2005. and soft loan would be adjusted based on the results of this analysis. It is likely that most candidate financial institutions would not have experience in conducting credit analysis of small-scale electricity The World Bank Electricity for All Options for Increasing Access in Indonesia Box 5.3 Legal Background for On-Lending to Local This section sets out a framework for thinking about Governments subsidies that can be applied both to off-national Local government borrowing from International Financial Institutions grid development and to national grid extension (IFI's) is governed by Ministerial Decree KMK 35/2003, which is by PLN. In particular, it highlights a concern that presently being implemented. KMK 35's intention is to make on- lending demand-driven, with regions being required to submit the current subsidies are poorly targeted and extensively documented project proposals for review by a central implemented, consequently achieving a low level of evaluation team. benefit. According to KMK 35, foreign loans are to be passed on to sub-national governments as sub-loans for cost recoverable or revenue-generating The purpose of the subsidy policy is to step in when projects, and as grants for non-cost-recoverable or non-revenue generating projects. The sub-loans will carry the same maturity and the full cost for an efficient operator is, in a sense, grace period as the original loan to the GOI. All the costs (interest too high. But, what exactly is "too high"? From an rates and commitment fees, including the GOI's foreign exchange management cost) will be passed on to the local governments. For electrification policy point of view, the key question non-cost recoverable projects, grant financing depends on the fiscal is whether electrification would occur at the target capacity of each local government (ability to take on 30%, 60% or 90% level at full cost recovery. Some form of subsidy is of the project costs, depending on whether the local government is fiscally strong, average or weak, respectively). Appraisal of sub-projects justified if electrification would fall below the target and decisions on loan or grant approval will be made by a team from without an intervention. If electrification would the MoF and Bappenas, in consultation with the relevant technical ministry. occur at the target level even without a subsidy, payment of the subsidy becomes a form of income Foreign financing transactions were recently processed using KMK 35 procedures, but there is still a need for clarity regarding how projects redistribution through the purchase of electricity. will be evaluated as cost recoverable (or not). The government has The Government may still wish to provide subsidies acknowledged the need to amend KMK 35 in this respect. Accordingly, for a mix of social or political reasons, but these the present legal and regulatory framework for on-lending to local governments is unclear and uncertain, but the most likely way forward reasons should not be confused with electrification is for local governments to play an increasingly larger role in financing policy. their local investment needs. Financing for local borrowing based on KMK 35 is unclear in cases Figure 5.2 illustrates this logic: where consumers are unable to pay for the full cost of service, i.e. non cost-recoverable projects. Since local government would receive an on-grant depending on its fiscal capacity, they would be required · Point A shows an extreme situation, where to provide the remaining part from discretionary funds, potentially the full cost recovery tariff is so high that no creating an avenue for local governments to provide subsidies. commercially viable service would be realistically possible. For example, the cost of supplying electricity to a remote village may be so high that no single household in that village would be SUBSIDIES able to afford a connection. · Point B shows a situation where some commercial service would be viable at full cost recovery As explained before, the issue of subsidies is not to tariffs, but the level of demand would fall below be confused with that of financing. No matter how the Government's electrification targets. financing is obtained, however, only two sources can · Point C illustrates a situation where the be used for repayment: the tariff paid by customers Government's electrification target would be and any subsidies provided by the government. In reached at the full cost recovery tariff, but general, the most significant and efficient source such a tariff exceeds some socially or politically of funding for electrification is customer payment acceptable level. for the services they receive. In some cases, however, this might not be possible because the As a general rule, providing subsidies in such cost of supplying electricity is higher than the price situations as described by point C would likely be that consumers can afford to pay. This is often the inefficient. As a form of income redistribution, case in rural areas, where small scale and remote subsidies that encourage greater consumption of systems lead to higher supply costs and customers electricity are likely to be regressive; to the extent that are economically less well-off than those living in or more electricity is consumed by those households around urban areas. Chapter Common Solution Applicable to Enhanced Electrification Models Figure 5.2 Framework for Subsidies and targeted subsidy scheme. The first would involve the Government deciding what constitutes an affordable tariff level for rural areas, and then providing subsidies to cover the difference between that level and the full cost of providing the service (the upfront cost of connection would be financed and recovered through the tariff). In order for this approach to work, the Government would need to be willing to create sufficient fiscal space to cover the entire subsidy need. If the Government fails to do so, service providers will sustain financial losses, and as a result, not be able to finance further development. It is difficult with more appliances, the benefits of the subsidy to estimate how much subsidy would be needed will be disproportionately captured by that higher however, as least-cost solutions of supply can vary income group. substantially from region to region. While small- scale electricity systems in Indonesia typically rely Overall, the policy needs to aim at convergence on hydro or diesel generators, those regions with between actual operator costs and politically mini-hydro plants have substantially lower costs acceptable tariffs, so that a subsidy is only required in than those using diesel plants.29 The true cost of a rare situations where a full cost recovery tariff would diesel plant is around US 15 cents/kWh (excluding lead to less than the Government's target level of the fuel subsidy), three times more than that of electrification. As mentioned before, operator costs a mini-hydro (US 5 cents/kWh). If it is assumed can be reduced by encouraging greater efficiency that two-thirds of the un-served areas have hydro through private sector participation and competition. potential, and the other third would need to rely on The Government also needs to promote political diesel, then the average least-cost of generation acceptance of full cost recovery tariffs. could be roughly US 8 cents/kWh.30 Adding the costs of distribution would take the total cost to Below-cost-recovery tariffs cause two types of around US 15 cents/kWh. inefficiencies: Data from the BPS 2002 census indicates that · Those who are already lucky enough to have a people living in rural areas outside Java-Bali spend connection benefit from the subsidy even if they around US$ 2 per month on energy purchases. A are willing and able to pay more. study by LPEM UI indicates that a poor household · Those who do not have a connection remain uses on average roughly 40 kWh/month. On this without electricity even when they are willing basis, poor households outside Java-Bali would need and able to pay the full cost of provision. to pay US$ 6 per month for full cost recovery. The pressure to minimize tariffs is caused by the perception that full cost recovery tariffs are not affordable, and that lower tariffs would encourage 29 The average capital cost of a mini-hydro in Indonesia is estimated by YBUL to be around US$ 800/kW. The average cost of buying a small demand and help the Government achieve its scale diesel generator is around US$700/kWh. The subsidized price of electrification targets. In reality, however, low tariffs diesel is around US 23 cents/lt, around 60% of the international price. Delivering diesel to a remote area could cost as much as US 10 cents/lt are delaying electrification by starving the industry 30 There is no consolidated data on current sources of generation in of necessary capital. The Government can pursue a remote areas, but informal discussions with PLN and others indicate that the most common source is diesel-powered plants. There is strong number of options for implementing a more efficient policy direction to promote renewable energy, but not all un-served areas have potential for renewable energy and would likely need to rely on diesel generation. Based on this, it is reasonable to assume that around two-thirds of the future energy sources would be renewable (most likely hydro) and the rest diesel The World Bank Electricity for All Options for Increasing Access in Indonesia If, for example, the Government chose to set an Box 5.4 Rural Electrification Subsidies in Chile affordable tariff at half that level, US$ 3, it would In the 1980s Chile privatized its state-owned electricity companies. need to pay an annual subsidy of US$ 36 per Distribution utilities were divided according to the areas in which household. If the Government aimed to electrify they operated, but no exclusive distribution rights were granted. The National Energy Commission (Comisión Nacional de Energía, CNE) was 2 million households per year ­ which would be created as the main policymaking and regulatory body. By the early consistent with its targets ­ subsidy expenditures 1990s more than half the rural population had no access to any source of electricity. The lack of access was concentrated in a few regions would be US$ 72 million in the first year, US$ 144 in where most of the rural population lives, and it affected mainly lower the second year and so on, rising to US$ 360 million income families. per annum after 5 years. However, since incomes To increase rural access to electricity, Chile launched a rural tend to increase once electrification takes place, it electrification program in 1994. The design of the program was based may be possible to reduce the subsidy requirement on competition, private investment and decentralized decision making. The goal was, with the help of a subsidy, to turn rural electrification by gradually increasing tariffs. into an attractive business opportunity. The state, private investors and users would all contribute to funding investments in rural electrification. Alternatively, the Government could adopt a less open-ended approach to applying subsidies by The state funded subsidy was delivered through a special fund set up launching "subsidy auctions" several times each to competitively allocate a one-time direct subsidy to private electricity distribution companies to cover part of their investment costs in rural year. In each auction, the Government would have electrification projects. Subsidy bids (auctions) are conducted annually. a fixed amount of subsidy that it intends to use for To apply for a subsidy, companies present their projects to the regional governments, which allocate the funds to those scoring best on several supporting electrification in rural areas. Prospective objective criteria: cost-benefit analysis, amount of investment covered and qualified subsidy beneficiaries would be invited by the companies, and social impact. The central government allocates the subsidy funds to the regions on the basis of two criteria: how much to the auction and would be asked to indicate the progress a region made in rural electrification in the previous year and number of un-served connections that they intend how many households still lack electricity. to electrify. The subsidy would be awarded to the Regional governments also allocate their own resources to the prospective beneficiary that offers to electrify program. If technically and economically feasible, the first choice is to the largest number of un-served people. Subsidy provide service at the standards offered by the distribution grid (220 volts effective mono-phasic alternate voltage and 50 hertz frequency, allocation to a beneficiary would only be paid once with twenty-four-hour availability). Where the costs of this solution are the agreed outputs have been delivered, for example, too high, alternative technologies are considered. These alternatives, mainly for self-generation in isolated communities, include: when the new connections have been installed. The Photovoltaic systems for isolated areas, hybrid systems that reduce subsidy could be paid directly to the beneficiary or fossil fuel dependence and operating costs, mini-hydro power stations, to the lender financing the beneficiary. If the outputs independent or combined with other energy sources, or wind power and biomass systems, which would require a resource assessment are not delivered within the agreed timetable, program before being applied. To ensure sustainability, all costs over thus disqualifying the beneficiary for payment, the the life of the projects are considered in the appraisal, as well as organizational schemes for operating and maintaining the projects. subsidy funds allocated to that particular beneficiary would be freed and added to the subsidy funds for The program increased the coverage of electricity systems in rural areas from 53 percent in 1992 to 76 percent at the end of 1999, exceeding future auctions. A fairly complex form of subsidy the 75 percent target set for 2000. The state has contributed the most auction exists in Chile, but a simpler regime may be funding to the program, investing US$112 million in rural electrification suitable for Indonesia. Another variation exists in in 1995­99, something less than what was estimated at the beginning of the program. Private investment in the program so far has totaled Cambodia, whereby the subsidy is provided to village US$60 million. communes, who are free to decide how to distribute Source: Promoting Private Investment in Rural Electrification ­ The Case of Chile, it amongst their members. Electricity to the village is AlejandroJadresic,Viewpoint,theWorldBank. NoteNo.214,June2000. charged at a full cost recovery price. Chapter Common Solution Applicable to Enhanced Electrification Models TECHNICAL ASSISTANCE government, a local government-owned enterprise, a cooperative, etc). The project manager would also support the preparation of the project, including At present, provincial and district governments, overseeing contracts from builders, operators, cooperatives and other entities outside PLN suppliers and lenders, as well as monitor the (referred to as project sponsors) that are or could subsidy fund (if applicable). Once the system is be involved in rural electrification have a limited built and commissioned, this organization would capacity to structure electrification solutions, provide ongoing advice and monitoring. and even less capacity to participate in subsidy processes or raise debt from commercial banks. Table 5.1 Stages of New Electrification Projects Likewise, there are limited resources and skills Stage Planning Project Project Project Advise and Identification Preparation Implementation Monitoring available from central government agencies to support these project sponsors. Task Prepare Market Work with Support Ongoing Business program sponsors project during advise and Plan with project to structure construction performance A conventional solution to address this barrier is sponsors project audit for an IFI or donor to provide funds for technical Result Business Secure Transaction Connections Regular Plan mandate closed, installed report assistance, which would include international and from project financing domestic advisors organizing training sessions, sponsors raised, subsidy writing procedure and operational manuals, and secured running several other capacity building initiatives. Payment Small First Second Third success Small However, as technical assistance offered by Retainer Success success fee recurrent Fee fee fee international and high-level Jakarta-based advisors would be relatively costly, its use should be prioritized towards the development of key documentation and procedures. This would increase the chance The project arranger would be given incentives in of a succesful implementation of electrification the form of payments attached to desired results. schemes. These results could be conceptualized as a series of project milestones: Beyond that, the barrier presented by lack of capacity should be addressed through lower cost · Firstly, there would be the preparation of a project options. A possible mechanism could be to create identification plan with target areas and sponsors a panel of "project arrangers," whose role is not to along with a description of the methodology for build the capacity of concerned government officials, approaching and engaging project sponsors, but to deliver tangible results that are consistent a timetable, and an estimate of the cost of with reaching the 90% electrification target at the implementing this plan. The appropriate central local level. To this end, the project arrangers would government agency would analyze these plans and be involved in all stages of the new electrification suggest modifications, disbursing a small retainer projects. This concept is illustrated in table 5.1. to the arranger upon approval. The retainer could cover around 5% of the total costs. The Government would conduct a competitive · The arranger would then commence selection process to select a panel of project implementation of the plan, with the immediate arrangers, which would include local firms or objective of securing one or more mandates individuals with skills to operate in rural areas. from a project sponsor. This would take the form Project arrangers would then be trained to of a Memorandum of Understanding (MoU), use model documents and follow government which would clearly explain the commitment of procedures. A project arranger would be responsible the project sponsor to prepare and implement for identifying and initiating electrification projects an electrification project in their jurisdiction. A and securing an initial level of commitment from signed MoU would trigger a second payment to the project sponsor (which could be the local the arranger. The World Bank Electricity for All Options for Increasing Access in Indonesia · The arranger would then work with the project · Model bidding documents that can be used sponsors to structure the electrification project. by project sponsors to competitively select a Depending on the model selected (see Chapter system builder/operator 6), this might involve preparing and launching · Model contracts between project sponsors and a competitive selection process to find a firm to builders/operators build and operate the system. Structuring could · Model subsidy agreements involve intermediating with potential lenders who can access the financing facility, and applying for subsidies. It would also involve securing the necessary IUKKU and reaching agreement on IMPLEMENTATION the level of tariff to be charged. Upon closure of the appropriate project structure, the project arranger could be paid a second success fee. The following steps would be needed for the · Once a contract is secured with a builder and/ Government to address the cross-cutting issues or operator, the arranger would oversee project common to all electrification models. construction and commissioning. The arranger could be paid a third success fee once the new 1. Test feasibility of key elements of the reform connections are installed and the system is program: commissioned. If the project is eligible for subsidies, a. Financing facility this fee could be paid from the subsidy fund. i. Assess interest of various banks in · Finally, during the initial month after participating in this facility and ascertain commissioning, the arranger would be involved their likely fees in providing ongoing advice to the sponsor. ii. Assess interest from potential IFI and/or donors Experience shows that there are firms that would iii. Estimate amount required to provide be willing to work as project arrangers. One such guarantee firm is Yayasan Bina Usaha Lingkungan (YBUL), iv. Perform cost/benefit analysis of facility an Indonesian NGO that is actively engaged in b. Technical assistance promoting market-based solutions using renewable i. Conduct informal survey of potential resources. YBUL has experience in the expansion project arrangers of electricity access, having identified, prepared ii. Gather information regarding resources and supported the implementation of the Karya required, costs incurred and lessons Mukti self-financed mini-hydro system serving 87 learned from similar work households and a coconut oil processing machine. iii. Perform cost/benefit analysis of facility In that arrangement, YBUL shared the costs of c. Subsidy fund preparation and the implementation process with i. Work with MoF to estimate total amount a GEF grant. of subsidies needed ii. Develop subsidy delivery options The concept of a project arranger is very similar to that of a transaction advisor, with the main 2. Implement the project: differences being that a project arranger works a. Close agreement with financial intermediary at a micro level, is responsible for originating the b. Competitively select panel of project transactions and remains involved after they close. arrangers c. Establish rules and procedures governing To reduce the cost of the project arrangers, the subsidy fund Government ­ through technical assistance ­ would d. Train project arrangers and commercial develop standard documents. These could include lenders (among others): e. Develop model documents 0 Chapter 6 Enhanced Electrification Models The World Bank Electricity for All Options for Increasing Access in Indonesia KEY DESIGN PRINCIPLES Three types of models are considered: · Innovative structures to leverage greater This section presents a range of proposed "ready- efficiency and commitment to electrification made" institutional models designed to provide from PLN a basis for increasing the rate of electrification in · Structures designed to draw local governments Indonesia. These models have been designed to into taking part in promoting electrification in provide institutional structures which can be easily their areas implemented simultaneously across different · Structures which enhance the applicability and locations. The institutional models provide a basis efficiency of the existing cooperative models. for a systematic solution to the electrification problem. In considering how these models fit into the overall electrification program, it is important to It is important to emphasize that the models were point out that they do not cover household-level developed to address the constraints and issues solutions that primarily utilize PV systems. While arising out of the current legal environment in such solutions will be important, it is unlikely that Indonesia, ensuring implementation under the they would be appropriate for more than a small present laws. However, these principles can be proportion of the population. For the majority of the implemented even under circumstances involving population, connection to a power network ­ albeit additional reforms. This chapter also includes possibly a very small-scale micro-grid ­ is likely to boxes that summarize various electrification represent the most efficient solution. The menu of experiences from Indonesia as well as from around institutional options and how they fit with the PV the world. Although no single global electrification program is shown in Figure 6.1. experience is replicated in its entirety in any of the proposed enhanced models, the reader will notice Figure 6.1 Menu of Institutional Models the application of those best practice principles commonly found in successful electricity expansion efforts. Each model is structured to address four key issues within the current rules and regulations: · How to achieve a more sustainable tariff · How to achieve lowest costs of operation and investment · How to access financing options · How to access the subsidy Overall, the objective is to find the least-cost PHOTOVOLTAIC SOLUTIONS solutions that are technology neutral. Most importantly, the models are designed to be As mentioned above, household-level PV solutions, easily replicable and scaleable. At the core of these while very important, are unlikely to provide models is the standardization of contracts and a sufficient basis for achieving Indonesia's bidding documents, designed to reduce transactions electrification target. While PV systems are suited costs. The models essentially represent variations to isolated households, they are relatively less on similar themes, with standard components efficient for clustered settlements, where networked bolted on to flexible elements, thus making them solutions are likely to be less costly. In addition, designed to reflect local needs. PV systems are somewhat less suited to supplying Chapter Enhanced Electrification Models power for productive activities and are less capable Experience with PV systems in Indonesia shows that than networked solutions in accommodating load there already exist precedents for a comprehensive growth. Moreover, experience in other countries, and coordinated approach to rural electrification. such as Tunisia, indicates that households with PV The weaknesses of the PV program have arisen systems prefer to switch to networked connections in areas where coordination was not sufficiently once they become available. carried out and important components of the overall program were not adequately implemented. It is important to note, however, that Indonesia has been one of the leaders internationally in While the business models outlined in this report are implementing PV solutions on a large scale, and it not directly applicable to the PV program, they draw is useful to learn from Indonesia's experience in this from the above lessons. In turn, the lessons from area when considering how networked electrification the development of comprehensive and systematic solutions can be developed. The key lessons are: networked solutions described in this report will be useful for the continued enhancement of the · Indonesia's PV program has been relatively PV component of the overall rural electrification successful because it was implemented in program. a systematic and integrated fashion; thus, arrangements were made to develop and sustain One of the key issues addressed in the business a network of PV dealerships, together with models described in this report is the need to supporting financing arrangements ensure that the institutional arrangements for · However, where insufficient training and technical rural electrification support a planned approach support was provided to local communities, the to infrastructure development, and that once the program proved unsustainable, with systems infrastructure is in place, it remains sustainable. falling into disrepair, and many electrified For example, the models below address the need households becoming un-served again for power system planning to be integrated with · PV dealers struggled with achieving sufficient other local government infrastructure plans, such economies of scale in many isolated communities. as the location of schools and hospitals, and for In other words, it was not worthwhile to set up tariff and subsidy funds to be available for on-going a dealership and offer maintenance services in maintenance. areas where only a small number of units were likely to be sold initially. This made it unviable Enhanced planning capacity at the local level for services to be offered to those communities ­ whether within local governments, local PLN that were most likely to benefit from PV solutions. subsidiaries or cooperatives ­ will allow more The absence of an efficient subsidy arrangement informed decisions to be made about appropriate prevented the program from overcoming this technologies for electrification, and will ensure that initial lack of scale PV solutions complement rather than compete with · The program benefited from a regime which micro-grids and other networked solutions. allowed providers to experiment with a variety of business models. In some cases, dealers sold systems to households, with the households borrowing to finance the initial purchase, but ENHANCED UTILITY MODEL then not having to pay for the on-going supply of electricity. In other cases, dealers borrowed to purchase PV systems, which were then provided PLN will remain a key player in the Indonesian to households in return for payment on a per kWh electricity sector and needs to be provided with every basis. In other words, dealers became energy opportunity to make a contribution to electrification. services providers. The availability of diverse The main barriers to extending services to isolated business models enhanced the take up of the PV areas within the existing PLN structure are: systems. The World Bank Electricity for All Options for Increasing Access in Indonesia · PLN's cost of service for isolated customers is PLN Batam is a good example of how a PLN Persero substantially higher than for on-grid customers, branch office can be transformed into a subsidiary but it is not allowed to charge a differential that not only operates with more autonomy and tariff. efficiency, but is also subject to some degree of · PLN as a nationwide organization is built on regulation and control. The enhanced PLN model expertise involved in developing a grid-connected described below is largely based on the PLN Batam system. Thus, alternative solutions struggle to example, but features some modifications that will find a place within PLN's current structure. For make it more effective in addressing the barriers instance, in southern Sumatra, where the PLN's described above, and ultimately in increasing reported electrification ratio is only 39%, the access to electricity.32 PLN regional office has not installed any new isolated systems for the past five years. All rural Institutional and Contractual Structure electrification investments have been allocated for the purpose of extending distribution lines Figure 6.2 below presents the main elements of the and connecting isolated areas to the basic grid. Enhanced Utility Model. · PLN undertook an efficiency study several years ago, which concluded that its inefficiencies were Figure 6.2 Structure of Enhanced Utility Model (PLN Subsidiary worth US$ 600 to US$ 800 million each year.3 Model) It is difficult to identify the root cause of these inefficiencies, but anecdotal evidence (from discussions with PLN staff) points to complex procurement practices, poor system planning, and rigid employee management policies as the culprits. The challenge, therefore, is to find innovative solutions with an improved set of incentives for PLN to play a stronger role in electrification outside the Java-Bali grid. In other words, this would take the form of an Enhanced Utility Model. The most likely way forward for PLN lies in creating local subsidiaries focused on local needs in areas outside Java-Bali. A subsidiary structure would: Under this model, PLN Persero would transform a · Focus on the needs of the local area within the branch office into a subsidiary, which may include a organization. Such a focus is currently missing joint venture with the private sector. This subsidiary as PLN branch offices do not have the decision- would: making autonomy to address concerns within their areas. · Apply to the relevant authority for a license to · Improve coordination with the local government. provide services for public use (IUKKU), and to Currently, PLN local branches have no planning set the tariffs applicable in the service area (See functions, and hence cannot coordinate with details in regulations section below). the local government on decisions regarding the · Be established as an independent enterprise location of such major electricity consumers as with the following features: schools, hospitals and other public facilities. · Allow the local unit to charge a differential tariff that would be more in line with local costs. 32 The model proposed is not intended to improve PLN's overall efficiency and effectiveness; it has been designed with the objective 31 Indonesia: Averting an Infrastructure Crisis: A Framework for Policy of creating a PLN-based sustainable solution to increasing access to and Action, The World Bank, 2004 electricity in rural areas Chapter Enhanced Electrification Models · Its corporate mission would be to comply with Establishing a subsidiary with vertically integrated the service obligations stated in the license, control could create a constraint to implementing and to deliver a return to its shareholder. this model. It seems that the natural setting for a · The Board of Commissioners (BoC) would subsidiary would be one of the existing regional or include a majority of independents and branch offices. However, not all regional or branch decisions would be made on the basis of a offices have jurisdiction over vertically integrated majority vote. Other board members would systems. For example, in the southern Sumatra include representatives from PLN Persero grid, one branch office (Kiltur Southern Sumatra) is and the relevant local government. in charge of generation and transmission, and four · The President Director, and possibly other other branches (Riau, S2JB, Lampung and Sumbar) key members of the management team, are in charge of distribution and supply to isolated would be appointed by the BoC. areas. This issue is discussed later in more detail. · The management team would be made accountable for delivering the corporate mission, and appropriate incentives (e.g. Box 6.1 Applying a Regional Electricity Tariff in Batam, bonuses) would be linked to achieving these Indonesia results. The District of Batam has a population of approximately 644,00. The · The management team would be given electrification ratio in 2003 was 67.01%, and rose to 71.4% in 2005. autonomy to make most day-to-day The average regional minimum wage is IDR 750,000 and annual management decisions. Major decisions on income per capita is about IDR 14 million. This district was designed as an industrial area and therefore the demand for electricity is high. system planning, investments and financing would need approval from the BoC. PT. PLN Batam, a subsidiary company of PT. PLN (Persero), was · Ideally, the management team would have established in October 2000 to carry out a vertically integrated electricity business in Batam District. Compared to PT. PLN (Persero), full autonomy on staff hiring, firing and which operates as a National Business Authority (PKUK) and is subject salary decisions. This is not the case in PLN to the national tariff that renders them unable to recover the actual cost Batam, however, where most employees of supply, PT. PLN Batam operates as a PIUKKU (Holder of Electricity License for Public Interest). This permits PT. PLN Batam to apply continue to be covered by the collective a regional tariff that is higher than the national tariff, consequently convention of the PLN union of employees. allowing them to recover cost. The regional tariff setting in Batam was a response to the high growth of To further enhance this option, the local government electricity demand in the area. Because PT. PLN (Persero) was unable entity granting the license and setting tariffs would to invest in its own resources, it was deemed important to establish a effectively be the regulator of the PLN subsidiary. regional tariff that allowed electricity providers to recover actual cost of supply and cover investment. Since PT. PLN, as a PKUK, is subject to Because there is little power sector regulatory the national tariff, it was necessary to establish a subsidiary company experience at the central and local government in order to apply a regional tariff. levels, technical assistance should be offered to The average selling price of PT. PLN Batam is IDR 745/kWh, which is the relevant authority. IDR 195/kWh higher than PT. PLN's average selling price of IDR 550/ kWh. The District Government of Batam, upon approval of the Ministry A PLN subsidiary would most likely be a vertically of Energy and Mineral Resources, determines the regional tariff. The actual cost of supply for the oil-fueled power plant is IDR 818/kWh, integrated system, such that the subsidiary has while the figures are 408/kWh for the gas-fueled power plant and IDR control over planning and operation of power 439/kWh for the coal-fired power plant. generation, transmission and distribution assets. The installed capacity at PT. PLN Batam is 197 MW generated from A PLN subsidiary with control over only distribution oil-fueled generators, natural gas-fueled generators, coal-fired power may continue to rely on the (unreliable) supply from plants and a gas-engine power plant. The electricity produced annually PLN Persero generation plants. However, such is 989 GWh with average annual sales of 979 GWh. The electricity losses are about 8.9%. Net profit generated in 2003 was IDR 5.9 subsidiaries should aim to contract with private Billion from 145,000 total customers. IPPs as a way of reducing generation costs. The World Bank Electricity for All Options for Increasing Access in Indonesia Regulation the indexation currently used in Batam, and "X" is a factor that reflects expected efficiency gains. The existing legal and regulatory framework is not clear on how to treat a PLN subsidiary and two As an alternative, licenses for PLN subsidiaries regulatory issues could affect the viability and could be treated more like a concession contract, structure of this model. These issues seem to have rather than a simple authorization to serve an emerged from PP 3/2005, which was not in place area. With this in mind, it would be necessary to when PLN Batam and Tarakan were established. establish clear service obligations, set tariffs that are consistent with these obligations and enforce First, according to Keppres 9/2005, which their compliance. To this end, Table 6.1 provides regulates the issuance of licenses for providers an example of the minimum provisions that a PLN connected to the National Transmission Network, subsidiary license would need. an integrated license (i.e. generation, transmission and distribution) can only be granted in areas that Furthermore, it is important to strengthen regulation are not currently served by PLN. This rules out the and enforcement by giving the de-facto regulator option of a third party competing directly with PLN. (i.e. the entity granting licenses and setting tariffs) Accordingly, the option proposed in this report support to effectively perform this function. Two establishes a PLN subsidiary to replace centralized options are possible for providing this support. First, PLN operations, not to compete with PLN. Further there would be a standard technical assistance clarification from MEMR is needed to ensure the option, whereby advisors with experience in best way in which to apply this scheme. regulation would sit alongside the staff appointed by the authority to help them develop their skills Second, this same decree (consistent with the and experience. This is a more conventional way provisions of PP 3/2005) doesn't explicitly say for providing support to an inexperienced regulator. that an IUKKU (license for public interest) can be A less conventional approach, which has been granted to a state-owned enterprise. Rather, it says tried with success in some cases, particularly in that one can be granted to a regional enterprise. In management contracts for electricity and water contrast, PP 3/2005 explicitly says that an IUKKS utilities, is to partly outsource this function to a (license for self-interest) can be granted to state specialized firm. Assuming that the license provides enterprises. Again, further clarification should be a detailed set of the rules and standards expected sought on this matter. from the PLN subsidiary, a third party could be retained for auditing the performance of the PLN Assuming that a PLN subsidiary is able to obtain subsidiary and for recommending to the granting a license for an area previously served by a PLN authority, where applicable, the application of regional or branch office, and that it can be subject sanctions. to a different tariff regime than that applicable to PLN Persero, the suggestion is that the license Financing and its enforcement could be improved to make the service provider (i.e. the PLN subsidiary) As an independent enterprise with separate more accountable for its obligations. The license financial statements, the PLN subsidiary would granted to PLN Batam is vague in terms of what be expected to raise capital based on its own standards are required and how these would be creditworthiness. Upon creation of the subsidiary, it enforced in practice. Similarly, the MEMR decree would be rational to expect that PLN Persero would that sets tariffs for PLN Batam includes provisions transfer all the assets and liabilities that correspond for periodic indexation to reflect fluctuations in to that service area to the subsidiary's balance. inflation, foreign exchange and fuel prices, but The creditworthiness of the subsidiary would likely lacks provisions to promote efficiency gains. This is depend on the amount of debt transferred by PLN normally done in other jurisdictions by introducing a Persero. "RPI-X" type formula, where RPI is the equivalent of Chapter Enhanced Electrification Models Table 6.1 Example of Contents of a License Applicability and Potential Impact Item Provision Rural areas in need of electrification can be Scope of Generation, transmission, distribution and sale of License electricity to urban and rural consumers in area ___ classified into three groups: Term of ___ years, or until early revocation License · Areas in which it is more economical to extend Obligations Connect all prospective on-grid customers that request the on-grid distribution lines than to build an service within ___ days of request isolated mini-grid system. The PLN branch in Provide services to ___ new off-grid consumers in year charge of distribution in Sumsel, Jambi and 1, ___ in year 2, etc. Bengkulu (South Sumatra) thinks that it is For on-grid customers: · System average interruption frequency index of __ economical to extend the distribution lines to or less serve a load of at least 5 MW that is not more · System average interruption duration index of __ or less than 50 km away from the distribution line. · Maintain frequency at __ and voltage at __ · Areas that, while being remote, have a · Respond to consumer complaints in less than ___ hours sufficiently large and clustered market to make a mini-grid option an economical solution. This For off-grid customers · Provide ___ hours of continuous supply ___ days a would involve a generation plant, a low voltage week transmission line and distribution lines. · Maintain frequency at __ and voltage at __ · Respond to consumer complaints in less than ___ · Areas where individual households are sparsely hours located, and where individual household Establish easily accessible mechanism for consumers electrification solutions like solar home systems to complaint are the most economical source of electricity. Penalties Failure to achieve any of the above obligations would trigger the process: · Period of ___ days to explain non-compliance The PLN Enhanced Utility Model could be used · Licensee accepts/denies explanation · Licensee forgives/applies penalty to electrify any of these areas. As the owner of Tariffs Adjusted for: the existing distribution lines, the PLN subsidiary · Ordinary increase in underlying costs, minus could extend these lines to connect isolated areas. efficiency adjustment · Extraordinary events Likewise, if the service area covered by the license Rebased every five years to reflect fundamental also includes remote and isolated areas, the PLN changes in economics of business subsidiary, similar to other electrification models described later, could install, operate and maintain mini-grids and individual household systems. In fact, it is reasonable to expect that the size of the PLN subsidiary could provide economies of scale that lead to a lower cost of supply compared to other electrification models described in subsequent sections. A larger scale operation would reduce the burden of fixed maintenance and administration costs, and could use its relatively stronger bargaining power to obtain better prices from suppliers, e.g. better prices for fuel purchase and delivery and better prices from suppliers of equipment and spare parts. The impact of the application of this model on increased access to electricity in rural areas depends on four factors: The World Bank Electricity for All Options for Increasing Access in Indonesia · The number of PLN subsidiaries that can be -- where there are substantial electrification established: a similar model to the one described needs, such as service areas where 50% or in this section has been applied with relatively more of the people do not have access to good success in Batam and Tarakan. Batam electricity was selected because it had a wealthy and fast -- where the on-grid market is able to pay a growing customer base. Tarakan was selected rate that reflects the true cost of supplying because, with its indigenous resources, it had them, and/or where this cost can be rapidly a strong potential for generation. Some of the decreased by using unexploited and less criteria that seem most important in deciding costly sources of primary energy, e.g. which PLN region this model should be applied geothermal, coal and gas to are: -- where the local government is committed to addressing electrification needs -- where a relatively medium sized (e.g. < 1,000MW capacity) vertically integrated · The rural electrification needs in the service system can be operated independently from area of the subsidiary: the greater the needs, the rest of the grid the greater the potential impact Box 6.2 A Public Utility Solution in Thailand Thailand's rural electrification effort began in 1970 with a United States Agency for International Development (USAID) assisted plan to achieve total coverage of the country through grid connections. The National Plan for Thailand Accelerated Rural Electrification called for an intensive program of rural electrification that was expected to result in virtually all parts of the country having access by the year 2000. The organization of the electricity industry in Thailand had significant implications for the way in which the rural electrification program was implemented. The country's power generation and distribution are divided among three different public companies. These include a company responsible for power generation ­ the Electricity Generation Authority of Thailand (EGAT), a company responsible for electricity distribution in the Bangkok Metropolitan Areas ­ the Metropolitan Electricity Authority (MEA), and the Provincial Electricity Authority (PEA) that was responsible for providing electricity to all other regions of the country. PEA is an autonomous government agency for electricity distribution, and it was given responsibility for developing and implementing the program. Its ability to focus solely on public distribution in areas outside the Bangkok Metropolitan Area contributed significantly to program success. The lessons of the Thai government's experience follow. Dedicated Distribution Company: The PEA, a company dedicated solely to electricity distribution, carried out the rural electrification program. Unlike electricity companies in many other developing countries, the PEA did not have to concern itself with power generation and transmission or providing services to mega-cities with high- growth, high demand urban centers. Furthermore, within the PEA, a group created to assume sole responsibility for rural electrification. Thus, PEA facilitated an effective system wherein a committed group of professionals with control over their own budget were eager to solve the problems of developing a national distribution system to cover the country's rural areas. Commitment to Financial Soundness: As an autonomous agency, the PEA had complete control over its budget and activities and was mandated to achieve and maintain solvency. To that end, the company took the following specific measures. Many innovative and imaginative approaches were devised to cut costs. The overall strategy was to first provide electricity to rural areas that were already economically advanced, with high potential for productive uses and good returns on initial capital investments. The company conducted careful market research and identified industries that it believed should be targeted for its aggressive load promotion efforts. The company also devised strategies to ensure that bill collections rates were extremely high. Avoiding Political Interference: The PEA realized in advance that political interference in village selection could cause serious escalation in system expansion costs. The company largely avoided this hazard through the use of objective criteria for village selection and a contribution incentive program that permitted villages that could help defray costs to "jump the queue" for being connected to the grid. Gaining Strong Local Support: By working closely with local villagers and their leaders, the PEA was able to gain considerable local support for the expansion program, increased enthusiasm for obtaining connections; and a range of valuable, in-kind contributions from villagers that helped substantially in defraying program costs. Financing Expansion through Cross-subsidies and Concessional Loans: Extension of distribution networks in rural areas is capital-intensive. To help finance system expansion in rural areas, the PEA relied heavily on price cross-subsidies, as well as grants and concessional loans. Bulk tariff subsidies as compensation for universal electricity pricing structure: With a national policy of uniform retail pricing firmly in place, the rural electrification expansion effort was assisted by a series of cross-subsidies that were approved by the government to assist in system expansion. The PEA was permitted to purchase bulk electricity at 30% below the rate paid by the company serving Bangkok and approximately 15% below normal bulk-price costs. In addition, there was a cross-subsidy between urban and rural consumers within the company's service territory. *Information contained herein was compiled from the forthcoming publication by the World Bank's ESMAP titled "Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs". Chapter Enhanced Electrification Models · The resources available within the subsidiary government officials on acceptability of to develop rural electrification projects: In the candidate areas and resulting tariffs existing PLN branch offices, rural electrification vii. Select one or two pilot areas is a small part of the operations. Limited availability of human resources would constrain 2. Establish subsidiary the speed at which electricity can be extended a. Retain corporate legal and financial to rural areas advisors · The amount of capital available: the PLN b. Advisors conduct legal, accounting, financial subsidiary would have access to the financing and technical work required to spin-off the support facility as well as the subsidy fund. pilot area(s) into a subsidiary However, it is most likely that the total amount c. Apply to relevant authority for IUKKU and of capital that can be raised from these sources tariff setting is less than the needs of the entire country. 3. Establish regulatory regime Quantifying this impact would require a better a. Retain regulatory advisor to assist license understanding of the physical characteristics of the granting authority PLN system, the electrification needs within system b. Develop detailed license clusters that could be spun off from PLN Persero, c. Develop and implement monitoring and as well as the likely amounts that could be obtained enforcement mechanism from IFIs to support the financing facility and the subsidy fund. Examples Implementation Plan One of the areas where this model could be applied is in East Kalimantan, shown on the map in figure 6.3. The following steps would be required to implement this model. Figure 6.3 East Kalimantan Region 1. Test feasibility of key elements of the proposed model: a. Legal and regulatory feasibility i. Confirm with MEMR the feasibility of granting a IUKKU to a vertically integrated PLN subsidiary in an area currently Samarinda served by a number of PLN branches Balikpapan b. Technical feasibility ii. Analyze technical and organizational configuration of PLN systems iii. Identify possible candidate areas to establish subsidiary iv. For each candidate area analyze the existing market, revenues, costs, asset value and liabilities, and develop an investment plan and financial projections to determine the required tariff This region is currently managed as a separate and v. Analyze affordability against tariffs, both vertically integrated grid by the PLN East Kalimantan in urban and rural areas regional office. The headquarters of this office are c. Political feasibility in Balikpapan, with 10 branch offices throughout vi. In parallel to technical feasibility, consult the region. The regional office has around 714 staff with PLN, MEMR, Bappenas and local who are responsible for the 414,133 customers. The World Bank Electricity for All Options for Increasing Access in Indonesia Total consumption is 1,214 GWh per year, with a peak load of 245 MW. The system is managed by DECENTRALIZED the PLN East Kalimantan regional office, which ELECTRIFICATION MODEL currently has an installed capacity of 240 MW and a dependable capacity of 174 MW. The majority of this capacity is fuelled by diesel or industrial fuel The objective of this option is to develop a structural oil. The region has vast potential for other primary solution that facilitates political buy-in at the local sources of energy, including 51.3 TCF of natural level while at the same time ensuring efficiency gas, 13.1 billion tones of coal and 4,900 MW of through the participation of private providers. hydro potential. The average cost of supply in 2004 This structure lends itself to being standardized was US 8 cents/kWh and US 9 cents/kWh for high across different districts or provinces and has the and low voltage distribution lines, respectively. The advantage of being readily scaleable to correspond average tariff charged for that year, however, was to the size of the local government unit wishing to US 6.8 cents/kWh. implement the model. The service area includes a total of 1,328 villages, The purpose of this model is to deal with political of which 1,152 are considered rural; 486 (42%) and legal constraints, including the obstacles of these rural villages are electrified. The National imposed by the law on control of electricity supply Statistics Office indicates that rural households in systems by private enterprises. If it were not for this East Kalimantan are using around 80 kWh/month law, the most efficient solution would be to have and spending approximately US$ 3.40 to buy this local governments contract directly with private electricity, i.e. US 4.3 cents/kWh. concessionaires. However, since this is an unlikely option under present conditions in Indonesia, a This region could serve as a good pilot area for local government-owned company provides a viable implementing the Enhanced Utility Model for a intermediary to achieving the same result. number of reasons: The key elements of the proposed model are set out · It It is less complex to isolate from a technical in Figure 6.4. In essence, a local government-owned and organizational point of view because a enterprise (BUMD) or a public service enterprise separate regional office already controls a (BLU) would be established to supply electricity separate system within the defined area of its jurisdiction that is not · The electrification rate is low, meaning there is a currently serviced by PLN. This area could include substantial market to be served all villages not served by PLN, or a cluster of those · The region is rich in natural resources and villages that are nearby and that could be used as relatively better-off than other regions with a pilot area for this model. The local government similar electrification rates in the country, would also grant this BUMD/BLU an IUKKU (license meaning un-served consumers could have a for public use) to electrify the selected areas. The greater potential to pay for services than in other local government would have the authority to grant areas. this license as well as to set tariffs in these areas, provided that the MEMR has first agreed that these are not PLN business areas.33 This model would be particularly suited to isolated areas. 33 According to Decree 10/1989 and 3/2005, PLN is required to submit to the Minister for its approval a business plan that indicates the business areas to be served by PLN. This plan is the basis that the Minister uses to determine if area is or will be served by PLN; and to monitor and evaluate PLN's performance. Historically PLN's plans have been optimistic and in most cases actual services and coverage have been below planned 0 Chapter 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:TheresponsibilitiesindicatedintheabovetableapplyforaDesign,Build, Operate,LeasetypecontractinwhichtheBUMD/BLUisprovidingallthecapitalto fundthesystem The BUMD/BLU would essentially act as a shell entity, serving as a vehicle for holding all contracts, such as The day-to-day running of the company would be those for borrowing from the financing facility and best carried out under a standard Management for administering subsidies, but not itself providing Contract, which would specify the responsibilities any services. Rather, the provision of services would of the Manager and its accountability to the Board be competitively procured from one or more service of the BUMD/BLU. The Manager could be an providers, depending on whether the entire area can individual, a small private firm or even the Project be served by a single grid, or requires a number of Arranger. The manager would: mini-grids. If the area is best served by a number of mini-grids, it may be more efficient to contract with · Prepare and launch the competitive process to separate service providers for each mini-grid. select the Service Provider. The Manager would be supported by the Project Arranger, who will These key design features are expanded in the have signed a Memorandum of Understanding sections below. (MoU) with the local government and/or BUMD/ BLU to support the implementation of the project Institutional and Contractual Structure · Raise capital from commercial lenders who are backstopped by the partial guarantee facility, or The BUMD/BLU could be 100 percent or partly- by way of further equity injections from the local owned by the local government within whose government jurisdiction it operates. The BUMD/BLU would · Bid for subsidies offered through the government- have a standard constitution allowing the local administered subsidy fund government to exercise oversight but limiting the · Take responsibility for financial management, ability of local politicians to interfere with the day-to- including administering proceeds from loans and day running of the business. This would be achieved subsidy disbursements, as well as payments to through standard contracts incorporated into the and from Service Provider BUMD/BLU's constitution. Establishing it as a shell · Administer the contract with the Service entity is important for insulating it from political Provider, including monitoring and evaluating its influence. As well, local governments simply do performance not have the capacity to perform these functions. · Report to BUMD/BLU Board as well as other These contracts are illustrated in Figure 6.5. relevant entities The World Bank Electricity for All Options for Increasing Access in Indonesia Table 6.2 Indicative Responsibilities and Rights of BUMD/ The provision of the electricity generation and BLU and Service Provider distribution service could be carried out under a Service Provider BUMD/BLU standard Design, Build, Operate, Lease (DBOL) Responsibilities contract. The constitution of the BUMD/BLU would specify the competitive process through which · Design, build and · Submit quarterly commission system, performance reports to such contracts would be procured and the mutual including power plant, BUMD/BLU responsibilities of the BUMD/BLU and the Service transmission, and · Post a performance bond in distribution lines according the amount of ___ and valid Provider. An indicative split of responsibilities between to specifications agreed with for a period of ___ these two parties is presented in Table 6.2. BUMD/BLU · Raise the capital required to · Connect ___ new customers cover the cost of designing, no later than ____ months building and commissioning The BUMD/BLU will have one recurrent source of after effective date of system contract · Make payments to Service revenue and several one-time cash inflows and · Deliver ___ hours of electric Provider upon completion outflows, which are all illustrated in Figure 6.6. supply to each connection of design, build and during term of contract, commissioning milestones at ___ voltage and ___ Initial sources of cash inflow for the BUMD/BLU frequency · Pay an IDR ___ fixed lease would include proceeds from loans, subsidy fee to BUMD/BLU no later disbursements, and possibly initial equity injections than ____ day of each calendar month from the local government. These sources of Rights capital would be used to pay the Service Provider · Invoice customers a fix rate · Impose penalties to a fee for designing and building the assets, which of IDR ___ per month plus a Service Provider if it fails would then be added gradually to the BUMD/BLU's rate of IDR ___ per kWh of to meet project completion electricity consumed during milestones, or if it fails balance sheet. The BUMD/BLU would administer month to meet required service any subsidies that it receives from either the MEMR standards or its shareholders. The standard Service Provider · Disconnect customers that · Retain ownership of the invoices due for more than assets build and operated by contract would establish rules for the allocation of ___ months the Service Provider subsidies, thus ensuring that they are tied to the provision of outputs by the Service Provider. Note:TheresponsibilitiesindicatedintheabovetableapplyforaDesign,Build, Operate,LeasetypecontractinwhichtheBUMD/BLUisprovidingallthecapitalto On a periodic basis, the BUMD/BLU would receive fundthesystem lease payments from the Service Provider, and would be expected to cover debt service obligations, Management Contract requirements, Board costs and any associated expenses. The lease fee would Figure 6.6 Cash Inflows and Outflows for the BUMD/BLU be set prior to the Service Provider contract being bid out, and would be priced into the tariff. In order to enable the BUMD/BLU to access finance, it would be required to meet the lenders' debt service coverage ratio requirements. The lease fee would be set at a level that maintains the necessary margins. BUMD /BLU Regulation There are two levels of regulation involved in this model. One is regulation of the BUMD/BLU, which essentially involves granting a license and setting tariffs, and the second is regulation of the Service Provider. Chapter Enhanced Electrification Models The first level of regulation is governed by ambiguity on the definition of un-served areas Presidential Decrees 10/1989 and 3/2005. within PLN's declared service areas, as well as on Because the BUMD/BLU would be established the exclusivity of licenses, particularly for those by a sub-national government to provide services areas where private capital is at risk. in areas not currently served by PLN (i.e. not connected to the National Transmission Network), Assuming that the local government has clearance the responsibility for granting licenses and setting from the MEMR to award the license for a particular tariffs rests with the Governor of the province or the service area, such a license should be developed at Head of the District, based on their jurisdictions. a greater level of detail than existing licenses. The content of a more detailed license is suggested in The decrees are also silent on the extent to which table 6.1. the licenses are exclusive, i.e. those granting the holder exclusive rights to supply services in the The local government would also need to set area covered by the license. None of the licenses tariffs, with the proposed model competitively that have been reviewed (IUKKUs for PLN Batam determining the Full Cost Tariff. If it is determined and Sinar Rinjani Cooperative in Lombok) grant this that consumers are able to pay the full cost tariff, exclusive right. Without the right of tenure, however, then the local government should simply adopt any private firm would find it very risky to invest this number as the tariff. Even so, this tariff would capital in an isolated mini-grid that could eventually need to be adjusted regularly based on fluctuations be absorbed by PLN's distribution lines. in underlying costs, as well as extraordinary events (e.g. a market downturn). The license should include A new electricity law is being drafted to replace explicit and detailed provisions to determine these the annulled law 20/2002. This law would provide adjustments. an appropriate opportunity to clarify the existing Box 6.3 From Centralized Planning to Decentralized Electricity Distribution in Mexico In 1938, only 38% of Mexico's 18.5 million people were electrified. Today, nearly 95% of the country's 98.6 million people-some 93.4 million residents- have electricity. Among the key reasons for the success of Mexico's Rural Electrification Program (REP) has been the social compact between federal government and society that considers rural electrification indispensable for social and economic betterment. Because of this commonly held view, significant resources have been steadily allocated to the REP, despite many economic downturns in the country's' history. In addition to its sustained political commitment to rural electrification, Mexico has benefited from a technically competent and motivated national utility. Created in 1937, the Federal Power Commission (CFE) has evolved from its initial role as the sole rural electrification decision-maker to one of coordinating the funding decisions that are increasingly entrusted to local governments and communities. This gradual shift toward decentralized decision-making attests to the CFE's ability to adapt to Mexico's ever-changing rural electrification needs. Much of Mexico's success in increasing electrification was derived from the following conditions. Decentralization and Changing Role of Central Stakeholder: At the outset, Mexico established a state-owned enterprise devoted to electrification. This institution, the CFE, centralized the REP, making electricity easily available to rural households. As the REP matured and electrification of subsequent communities became more difficult and expensive, the federal government began involving sub-national stakeholders, whose participation was coordinated by the CFE. Community Integration: In many developing countries, electrification programs fail because of the expenses involved in maintaining systems in remote locations. By extensively training users in system maintenance, Mexico's REP has gradually integrated local communities into assuming responsibility for electrifying their villages and maintaining systems. Local community involvement has nurtured a sense of ownership which ensures that equipment is better maintained and more carefully handled. The Right Fit for Renewables: The main distribution network has been overextended to cover most of Mexico's rural settlements. Rural areas still to be electrified have special characteristics that make further grid-extension difficult. For these remote communities, a highly successful program is being implemented based on the installation of photovoltaic (PV) cells that supply solar power to rural dwellings. It is noteworthy that the CFE acknowledged the appropriateness of remote renewable-energy technologies as complementary to, rather than in competition with, standard grid supply. Success of Creating Competition: Through a bidding process requiring states and local communities to submit carefully planned proposals, the Mexican government has created a competitive environment, where communities and municipalities vie for federal and state funds. The competitive environment has been important, if not essential, to the REP's success, as it has involved beneficiaries in all phases of the electrification process. *Information contained herein was compiled from the forthcoming publication by the World Bank's ESMAP titled "Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs". The World Bank Electricity for All Options for Increasing Access in Indonesia The second level of regulation involves defining the by a smaller district government, and if the mini- rules that would govern the operations of the Service grid (or mini-grids) which comprises the service Provider. These rules would be established in the area was too small to attract significant industry contract between the Service Provider and the BUMD/ participants. In such a case, the BUMD/BLU would BLU. The provisions in this contract should broadly be best placed to finance the construction of the follow those suggested in Table 6.2, and should be generation and distribution facilities, which would consistent with the terms of the IUKKU granted to then be leased to a private operator. the BUMD/BLU. To guarantee its compliance with the terms of the contract, the Service Provider would This sub-model would require the shareholding be required to provide a performance bond of an local government unit to capitalize the BUMD/BLU amount equivalent to 2-3 years of fees. adequately. It would also be more likely to come into effect if the partial credit guarantee program Financing was designed to target local government units rather than the service providers themselves. The purpose of this model is to combine the BUMD/ BLU's ability to raise finance with the Service Provider's Under this sub-model, the Service Provider contract building and operating expertise. As discussed above, would be procured by asking potential operators to at least two possible sub-models with respect to bid on the following two tariffs: financing could be envisaged. These can be broadly defined as "lease" and "concession" models. · A "lowest operator tariff", which would cover the O&M costs and the Service Provider's fees "Lease" · A "lowest total tariff", which would reflect the This sub-model would apply if the BUMD/BLU could provider's assessment of the level of capital be expected to enjoy better credit worthiness than investment required to develop the system. This small-scale local service providers. This would would be bid on using the financing assumptions occur, for example, if the BUMD/BLU was created supplied by the BUMD/BLU. Box 6.4 A Public-Private Partnership for Increasing Access in Berau Indonesia The District of Berau in East Kalimantan is comprised of 120,000 households, of which about 50% are located in urban areas. The regional minimum wage is IDR 600,000 per month while it is IDR 700,000 per month for those working in the mining sector. The current electrification ratio in Berau is 10.8%, or about 13,000 households. The Government of Berau, concerned by their low rate of electrification, has taken initiative to identify options for increasing access. They recognized that the remote distribution of much of the population made it difficult for PLN to expand is services, They also found it difficult to scale-up and sustain the deployment of small diesel generators and the installation of solar home systems.. Subsequently, the district government opted to utilize the abundance of indigenous coal resources and established a joint venture company (called PT. Indo Pusaka Berau/IPB) with private investors to generate electricity and sell it to PLN and local industry. This initiative was supported by the mining company, PT Berau Coal, who agreed to provide low-grade coal charging only a transportation fee. In return, PT Berau Coal requested to purchase 20% of the generated power, but was willing to pay more than the PLN price. To ensure that the project would help increase access to electricity, a MoU was signed between stakeholders that 80% of the power produced by IPB would be prioritized for public interest, while the remainder could be sold to industry. The shareholders of IPB consisted of Indonesia Power (50%), District Government (35%) and San Dong, a technology provider (15%). San Dong, who is the equipment supplier, was requested to place a portion of their equipment value as equity in the venture so as to ensure the performance of their equipment. Since 2004, IPB operates 2 x 7 MW coal-fired power plants in Lati, with dependable capacity of 65% (including 25% transmission loss). The investment cost for these power plants, including building the 20 KV-transmission line was IDR 130 billion (approximately US$ 13.68 million), which translates into US$ 1,062/kW. Transmission losses are high due to the long distances. The primary buyers of IPB power are PLN (6.7 MW) and Berau Coal (1.8 MW during peak load or 1.2 MW average load), with a power purchase agreement (PPA) lasting 20 years. With the two major off-takers, IPB is able to balance their load as PLN and Berau Coal have peak times that are complimentary. IPB power supply helps PLN reduce their cost of generation. Prior to the formation of IPB , PLN operated diesel generators that cost IDR 800/kWh (about US 8 cents) on average while their average selling price was IDR 600/kWh. Since IPB sells their power to PLN at IDR 485/kWh, average cost per kWh supplied by PLN has fallen to IDR 600/kWh (about US 6 cents). Berau's experience in creating a public-private partnership through local government initiative to reduce the cost of generating power for the specific purpose of increasing access incorporates key fundamental principles that are necessary for implementing a successful electrification scheme. Chapter Enhanced Electrification Models While the winning bidder would be required to to pay any subsidies that it is able to obtain from design and build the system, the funds would be the government-administered subsidy fund. These provided by the BUMD/BLU under the terms of the subsidies would be paid on the basis of outputs winning bid and the system would be owned by the delivered (i.e. connections installed). BUMD/BLU once it is built. The Service Provider would pass the difference between the total tariff Applicability and Potential Impact and the operator tariff onto the BUMD/BLU. As discussed at the beginning of this chapter, "Concession" there are three types of areas that are in need As mentioned above, current law prohibits the of electrification. This model would be more government from directly contracting a private appropriate for mini-grids and micro-grids and for concessionaire. Therefore, a concession contract areas with very limited existing PLN coverage. between the BUMD/BLU and a private Service Provider provides an effective substitute. The purpose of the proposed models is to increase access to electricity, especially in rural areas. If This sub-model would apply when the BUMD/BLU successful, this process is likely to occur gradually was less likely to enjoy better credit worthiness than and can take several years to implement. Local the potential Service Provider. For example, if the governments who subscribe to this model will need BUMD/BLU was created at the provincial level, it may to begin with a number of selected pilot areas in be able to attract significant international investors order to demonstrate the model's potential, and then to bid for the Service Provider role. In such a case, use the lessons from this experience to enhance the the objective should be to encourage the Service strategy for gradually expanding its implementation. Provider to finance infrastructure development, but The first phase of pilot projects could be awarded to to still use any access to financing that the BUMD/ a single provider and could involve building several BLU may have as a means for reducing the risk to mini-grids. A single contract would reduce the the Service Provider. transaction costs for the BUMD/BLU and could open the space for economies of scale between areas. Under this sub-model, the Service Provider would Economies of scale could be achieved by sharing own the system assets and use its own balance fixed cost resources between each mini-grid (such as sheet or cash flows from the project to finance the management and maintenance teams), or by using assets through the partial credit guarantee facility the bargaining power of a larger buyer to achieve offered by government. The BUMD/BLU would offer better prices from suppliers. In selecting such first-phase areas, the local Figure 6.7 Concession Model government should try to find one single village with several clusters of houses that are connected with each other, or neighboring villages with clusters of houses connected to each other. The objective is to find those areas with the largest population density to maximize the effect of economies of scale. A BUMD Competitive Selection Process Lowest Cost Tariff (TCT) second criterion that the local government could /BLU consider when selecting an area is local wealth and the ability to pay for services. It may be practical to begin implementing this model in areas where people are more capable of paying for services. The third criterion that the local government should consider is selecting an area that has primary sources of energy that can be used to fuel small-scale systems. The World Bank Electricity for All Options for Increasing Access in Indonesia It is possible that the above criteria might conflict, or c. Technical feasibility that the local government would wish to use political i. Within each of the candidate local considerations to decide which areas to include in governments, analyze distribution of the first-phase. It is important, however, that the unelectrified areas, based on proposed selected areas present the most likely environment criteria, to identify candidate first wave for success, and therefore, careful consideration areas should be given during this selection. ii. Confirm political feasibility of candidate first wave areas with relevant local The potential impact of this model on electrification government levels depends on several factors: iii. Estimate investment and operating cost requirements, as well as true cost tariffs · The number of local governments that are iv. Analyze affordability in each area against interested in and capable of pushing this type of tariffs initiative ahead v. Obtain clearance from MEMR on areas · The extent to which areas within one local not being within the PLN service area government's jurisdiction can be packaged and included under a contract to one provider 2. Establish the BUMD/BLU · The time needed to properly establish the a. Retain advisors BUMD/BLU, and for the BUMD/BLU to raise b. Develop draft constitution and contractual the necessary capital to prepare and launch a documents transaction with a Service Provider c. Obtain necessary approvals from local · The amount of capital that can be raised through government the financing support facility as well as from the d. Obtain IUKKU subsidy fund. 3. Select a Service Provider Quantifying this impact would require a better a. Prepare and launch competitive selection understanding of these factors for a given region or process area, which goes beyond the scope of this report. b. Evaluation, award and closure. Examples Implementation Plan One example area where this model could be The following steps would be required to implement applied is the province of Southern Sumatra, shown this model. on the map in Figure 6.8 1. Test feasibility of key elements of the proposed A key factor for its model implementation potential model: is that the provincial government, and in particular a. Legal and regulatory feasibility the Directorate of Energy and Mining, is interested i. Confirm with MEMR any ambiguity about in finding options to resolve the electrification the definition of PLN service areas and shortage in its region. According to PLN, South exclusivity of license Sumatra has a household electrification ratio of b. Political Feasibility 48%. In contrast, the province has vast amounts of i. Identify a long list of local governments primary energy resources, predominantly coal and that could be interested in this model natural gas. In fact, its coal reserves are in excess ii. Through meetings and feedback, develop of 22 billion tons, and its natural gas reserves are a short list of 2 or 3 local governments above 7 trillion cubic feet (TCF). Exploiting these that are prepared and committed to sources of energy is a key program of the current implementing this model Governor's administration. Chapter Enhanced Electrification Models Figure 6.8 Map of South Sumatra KLP Sinar Rinjani provides an example of a reasonably successful consumer cooperative. Even more importantly, there are numerous producer cooperatives in agriculture and fisheries. However, cooperative structures may also exhibit a Palembang number of weaknesses. These include: · Politicized governance. Elections to cooperative boards are often dominated by communal politics, rather than issues of efficiency. Board members elected from among cooperative members often lack the necessary business and governance skills. This tends to reduce the performance level of cooperatives · Costs involved in setting up new cooperatives. Cooperatives require each individual member to sign up voluntarily. Hence, the transaction costs South Sumatra has 2,436 villages, of which 1,678 of forming a new consumer cooperative may be (69%) are claimed to be electrified. Data from the formidable and such processes may involve National Statistics Office indicates that, on average, considerable delay rural households use 50 kW per month and pay · Lack of expertise. While existing producer around US$ 1.60 for this electricity, i.e. US 3.2 cooperatives may be able to avoid the above cents/kWh. transaction costs, they will lack expertise in developing and running power systems. South Sumatra could, in principle, provide a good Members of producer cooperatives want their example of where to apply this model, mainly leadership to be focused on the core business because its provincial government is engaged in of earning their livelihood, which would be the need to electrify un-served areas, given that a compromised if the cooperative diversifies into substantial market exists to be served and because supplying electricity. large amounts of low-cost primary sources of energy are available. One challenge that would need to be The proposed model outlined in this section resolved is finding small-scale supply options that aims to build on the strengths of the cooperative can deliver electricity at prices as low as those model, while compensating for its weaknesses. As currently paid by rural households, or accessing explained in more detail below, two institutional the subsidy funds that would be made available adaptations are suggested to strengthen the through the government. model: · The cooperative structure should be integrated with the competitive procurement of private COOPERATIVE MODEL operators in order to get the best of both worlds: public support for the cooperative model together with private sector efficiency; and The objective of this option is to develop a structural · Cooperatives should be allowed to serve solution that takes advantage of the established consumers who are not members. This strength of the cooperative movement in Indonesia. departure from the standard cooperative model, Cooperative structures are well understood within which requires that all users be members, the Indonesian political structure, with strong would promote the `scalability' of the proposed political will exerted to promote their development. solution. The World Bank Electricity for All Options for Increasing Access in Indonesia Table 6.3 Indicative Responsibilities and Rights of Overall, a combination of public (in this case, a Cooperative and Service Provider cooperative) structure and a competitively procured Service Provider Cooperative private service provision makes this model similar Responsibilities to the BUMD/BLU model presented in the previous · Raise the capital required to · Submit quarterly section. As in the BUMD/BLU case, a local government finance the system, including performance reports to the unit would grant the cooperative a an IUKKU (license applying for subsidies cooperative available from MEMR · Post a performance bond in for public use) to electrify the selected areas. The local · Design, build, own and the amount of ___ and valid government would have the authority to grant this operate system, including for a period of ___ power plant, transmission, · Raise capital or provide license, as well as set tariffs in these areas, provided and distribution lines guarantees required to that the MEMR has first agreed that these are not according to specifications buyout Service Provider on agreed with the cooperative eventual early termination as PLN business areas. This model would most likely be · Connect ___ new customers a result of competition from particularly suited to isolated areas. no later than ____ months PLN and cooperative default after effective date of events contract Institutional and Contractual Structure · Deliver ___ hours of electric supply to each connected customer during term of contract, at ___ voltage and At the core of the model is a Design, Build, Operate, ___ frequency Own and Transfer (DBOOT) contract between the Rights cooperative and a private Service Provider (See · Invoice customers a fixed · Impose penalties on rate of IDR ___ per month Service Provider if it fails Figure 6.9 Structure of Consumer Cooperative Model plus a rate of IDR ___ per to meet project completion kWh of electricity consumed milestones, or if it fails during month to meet required service · Disconnect customers that standards have invoices due for more · Retain ownership of the than ___ months assets built and operated by the Service Provider Cash inflows and outflows for the Service Provider are illustrated in Figure 6.10. Figure 6.10 Service Provider Cash Flows Figure 6.9). The cooperative would launch a competitive process to select a Service Provider. In order to prepare and launch the transaction, the cooperative would receive strong support from those Project Arrangers made available by the government. The Project Arranger would assist the cooperative in adjusting the standard bid documents and contracts prepared by the government, market the investment opportunity to potential investors, and assist in the bidding and award process. The provider would be selected as the bidder that offers the lowest True Cost Tariff (TCT), inclusive of The Service Provider's main source of revenues all capital and operating costs. This Service Provider would be tariff payments from consumers (the would sign a DBOOT contract with the cooperative. section that follows explains how this tariff would An indicative split of responsibilities between these be determined). Capital would be raised from two parties is presented in the table 6.3. Chapter Enhanced Electrification Models commercial debt and equity. Debt would be financed granting a license and setting tariffs, while the through the government's financing support facility, second is the regulation of the Service Provider by but it is possible that commercial lenders would the cooperative. also require the Service Provider to inject some equity. Expectations are that, with the financing As discussed for the Decentralized Electrification support facility in place, the amount of equity that Model, existing rules are ambiguous with respect lenders would require would be fairly minimal. The to the criteria that the MEMR would use in deciding Service Provider, through the cooperative, could which areas are not served by PLN, and provide also tap into the subsidy funds administered by the no right of tenure as a comfort to investors. These government. As mentioned before, these subsides issues would need to be clarified for the model to could be allocated on the basis of an auction succeed. process, would be paid to the provider once agreed outputs (e.g. connections) are delivered, and could Assuming that the local government has clearance then be used as a source for early repayment of a from the MEMR for awarding an IUKKU for the service portion of the debt from commercial lenders. area in question, this IUKKU could be developed in a greater level of detail than it has so far. The Regulation proposed contents of a more detailed license has already been discussed earlier in this chapter. The As with the Decentralized Electrification Model, license conditions should both enable and require there are two levels of regulation involved in this the cooperative to serve non-members within their model. One is the regulation of the cooperative service area. This would help to achieve two key by the local government and essentially involves goals. First, it would speed the creation of consumer Box 6.5 KLP Sinar Rinjani - A Rural Electricity Cooperative in Indonesia KLP Sinar Rinjani (KLP-SR) is an electricity cooperative providing services to its members. It was established in 1979 as one of the pilot projects for rural electricity cooperatives (REC) development supported by USAID in cooperation with Ministry of Cooperatives. Currently, it provides uninterrupted service to more than its 17,900 customers spread in 40 villages located within 9 sub-district of East Lombok. The remaining areas in Lombok are served by PLN. KLP SR has an installed capacity of 11,000 KVA mostly from diesel generators, with peak load of 6,300 kVA. Total consumption is about 1.5 million kWh per month. Before the recent oil price increase, the cost of supply was approximately IDR 1,000 per kWh, lower than that of PLN's which is IDR 1,280 per kwH. The average monthly revenue is IDR 1.75 billion (US$ 184 k). Electricity sales constitute the majority of revenues along with other supporting business activities, namely the savings and loan unit, a commercial radio station and an ice plant. The price setting is determined based on the consensus of its members through the Member Assembly Meeting. Although the license obtained by KLP-SR is a non-exclusive one and its electricity price at IDR 1,150/kWh is higher than PLN's average selling price of IDR 553 (US 6 cents) and due to the quality and reliability of its service, KLP-SR remains a good option for electricity consumers in the area. There is an "unwritten agreement" between KLP-SR and PLN that both will operate in their own respective areas. As the only surviving pilot REC of its kind, KLP-SR' strength is dependent on the consumers' willingness to pay, which is largely sustained as a result of the reliability and quality of their service. Strong consumer ownership of the REC coupled with government and PLN support also enhance the sustainability of the system. Even though the service is more reliable than PLN in terms of operation, KLP Sinar Rinjani needs significant improvement. The power loss is about 29%, of which 20% is estimated to be technical while the remaining 9% is lost through non-technical means (stolen capacity, etc.). Furthermore, their operational cost is high as each liter of diesel only produces 2.7kWh of electricity when compared with a standard bench mark of about 4.0 kWh per liter. The monthly revenue in the cooperative, usually about IDR 1.73 billion (US$ 181.6 k) is only sufficient to cover operational costs and a small proportion of maintenance. There is insufficient capacity to mobilize the necessary capital either to rehabilitate or replace worn-out facilities (e.g. old generators and transmission lines) or to enhance their capacity to service existing equipment for better reliability. A recent estimate made by the KLP-SR shows a need for investment of IDR 8.7 billion (US$ 916 k) to replace the worn-out transmission poles and another IDR 3 billion (US$ 316 k) to replace old 2 MW diesel generators. Efforts to obtain bank loans have met with little success because previous debts were not written off from their financial accounts. Consequently, they had to resort lease diesel generators from two private companies which costs them about four times as much as if they could finance through a standard bank loan (monthly lease fee of IDR 342 million (US$ 36 k) for 5 years). A lack of financing options at reasonable terms is severely hampering KLP-SR's ability to expand access to more than 50,000 un-served households within its service area. The World Bank Electricity for All Options for Increasing Access in Indonesia cooperatives where such cooperatives represent the own tariffs, on the assumption that they would not best solution, since it would no longer be necessary over-charge their own members. In other countries, to secure the agreement of every household in the such as the Philippines, cooperatives are subject to area in order for a cooperative to be formed. Second, the same regulatory oversight as any other utility. it would allow producer cooperatives to provide services to the wider population, while also making Since regulatory functions would rest with the sure that they do not strictly favor their members and sub-national governments under this model, exclude others. those governments would be able to establish the electricity tariff that would be applied to members However, for this to work, cooperatives would need of the cooperative as well as non-members (by to be able to charge differential tariffs to members regulating the tariff differential). They are likely to be and non-members. Otherwise, there would be no well suited for this task since they would have more incentive to become a cooperative member, since information on local needs. members are expected to contribute to the capital needs of the cooperative. In other words, tariff The second level of regulation involves defining regulation needs to be consistent with the objectives the rules that would govern the operations of the of the cooperative model. In some countries, such Service Provider. These rules would be established as Bangladesh, cooperatives are allowed to set their in the contract between the Service Provider and the Box 6.6 Rural Electricity Cooperatives Provides Access to Poor in Bangladesh Few would have predicted that Bangladesh, a poor South Asian country, would have succeeded in providing electricity to 50% of its population including 28% if it's rural households, after only gaining independence in 1975. This transformation began when the Government of Bangladesh (GOB) committed to rectifying the lack of rural electricity by including it as a part of the countries' constitution. The GOB accomplished many of its electrification targets through strong central leadership. In 1977, the GOB created the National Rural Electric Cooperative Association (NRECA) with financial and technical assistance from USAID. The NRECA conducted studies which led, the same year, to the adoption of a master plan to combat the problem of lack of rural electrification. The plan formally created the Rural Electrification Board (REB). The first phase of REB's development was financed by USAID and aimed to develop the capacity of the REB to manage the program and to establish the first 13 Rural Electric Cooperatives (RECs). In the years that followed, 63 RECs, known as Palli Bidyut Samities (PBSs), have been constructed and are now in operation. Lessons that highlight the experience of the Bangladeshi government's REB experience follow. Centralized Supervision, Decentralized Operations: The Government of Bangladesh met a major organizational challenge with the formation of the REB. The REB program is characterized by centralized planning, design, and construction and decentralized operational responsibility. Centralized supervision authorizes the REB to monitor and evaluate the cooperatives' performance using standardized, objective tools and to make and enforce changes, as needed. Decentralized operational responsibility through the PBSs ensures that the personnel most knowledgeable about specific problems are empowered to make day-to-day operational decisions. Standardized Procedures and Practices: The REB has established carefully considered and clearly stated planning, engineering, administrative, and business procedures. They have consistently been put into practice throughout the entire program, covering all aspects of the development and operations of an electricity distribution system. Standardization has allowed growth of the construction program to accelerate, while giving operations engineers the opportunity to share plant and technical resources. Performance-based Measurements: To evaluate performance and assure quality control, a management system was established that links pay and promotion to measured compliance with clearly stated expectations. Measures of performance include indices that allow monitoring of loss reduction, collection performance, and other business goals. Effective Commercial Practices: A key factor contributing to Bangladesh's rural electrification success has been the effective implementation of day- to-day commercial practices. In particular, effective billing and collection procedures have resulted in collection rates exceeding 95%, significantly better than the national electricity utility. Other measures implemented by Bangladesh's REB program, such as rotating meter reader routes and centralizing collections in rural banks, have effectively limited fraud and theft, thereby contributing to high PBS performance. Prioritized System Investment: At the outset, the REB program established a clearly defined, master-planning process that prioritized system investment according to revenue generation. This model has been used almost universally. Political pressure has influenced the selection of some projects, resulting in poor performance, but it has not been a major factor in overall program implementation. The program in Bangladesh also profited greatly from the consistent technical advice of an international firm that has been involved in the program since its inception. The long-term nature and the commitment of the GOB also has played a significant role in addressing problems as they arise and evolving the program to meet future challenges. *Information contained herein was compiled from the forthcoming publication by the World Bank's ESMAP titled "Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs". 0 Chapter Enhanced Electrification Models cooperative. The provisions in this contract should Figure 6.11 Producer Cooperative Model broadly follow those suggested in Table 6.3, and should be consistent with the terms that the IUKKU grants to the cooperative. To guarantee its compliance with the terms of the contract, the Service Provider would be required to provide a performance bond. Types of cooperative As explained above, it is important to make a clear distinction between consumer and producer cooperatives. The key differences between the two sub-models are: · Producer cooperatives already exist, and are primarily established for the purpose of carrying out an income earning activity for its members. Financing Providing electricity services to the public is a secondary issue for these cooperatives. However, In the consumer cooperative model, the Service such cooperatives can also become cornerstone Provider would rely on the financing support consumers of energy for a new Service Provider. facilities to raise all the capital needed. By definition, such cooperatives are likely to sell electricity to non-members. Crucially, producer Applicability and Potential Impact cooperatives have revenue sources that are not related to the provision of electricity, and hence As mentioned in the earlier section, there are three can draw on these resources as collateral if area types in need of electrification. This model required is more appropriate for medium-scale, mini-grid · Consumer cooperatives, by contrast, are set solutions. The model may be also be applied to up specifically to provide electricity services. individual household systems by having the Service Consumer cooperative have no business beyond Provider finance, supply, install and maintain the the supply of energy, and hence have little ability system, as well as bill and collect payments from to provide collateral. end-users. As mentioned above, this model is adaptable The institutional and contractual structure of a for both consumer and productive cooperatives. producer cooperative will slightly differ from the Consumer cooperatives would most likely include consumer cooperative structure presented in the newly established cooperatives with the mandate previous Figure 6.9. of resolving electricity access issues for their members. One example of this type of cooperative The modified structure for a producer cooperative is the case of Sinar Rinjani in Lombok. Any village- is presented in Figure 6.11. size community that is currently not electrified would be a candidate for establishing a consumer The main difference between the two cooperative cooperative. Accordingly, it is difficult at this point structures is that the producer cooperative would to identify specific areas where this model could also have a productive business, which would be applied or to provide a rational estimate of require financing, consume electricity and be an the potential impact of implementing the model. additional source of income for members. Discussions with MEMR officials and NGOs could be a starting point for identifying candidate communities. The World Bank Electricity for All Options for Increasing Access in Indonesia In the case of producer cooperatives, candidates ii. Compare affordability in each area with for implementing this program could be found likely tariffs in the Ministry of Cooperatives and Small and iii. Obtain clearance from MEMR for areas Medium Enterprises (MoCSME), and in the Ministry not within the PLN service area of Marine Affairs and Fisheries (MoMAF). Both Ministries regularly receive requests for assistance 2. Select Service Provider in resolving electricity access issues from their a. Prepare and launch competitive selection affiliated producer cooperatives. process b. Evaluation, award and closure Implementation Plan 3. Licensing The following steps would be required to implement a. Obtain license and tariff approval from local this model. government. 1. Test feasibility of key elements of the proposed Examples model: a. Legal and regulatory feasibility MoCSME has a list of producer cooperatives that i. Resolve ambiguity on definition of PLN have expressed their interest in finding a sustainable service areas and exclusivity of license solution to supplying electricity to their members with MEMR and productive businesses. These cooperatives are b. Political Feasibility good examples of where the producer cooperative i. Identify long list of cooperatives that version of the model could be applied. However, could be interested in this model without specific information about the location and ii. Through meetings and feedback, develop business activities of these cooperatives, it is difficult a short list of 2 or 3 of cooperatives that to provide specific details of an example area. are prepared to commit and implement this model Risks and Mitigation iii. Consult with local government to confirm their willingness to issue licenses Table 6.4 summarizes the risks associated with the c. Technical feasibility implementation of this model, and the mechanisms i. Within each of the candidate cooperatives, proposed for risk mitigation. estimate investment and operating cost requirements, as well as true cost tariffs Table 6.4 Perceived Risks and Proposed Mitigation Mechanisms Risks Suggestion for Mitigation Delays in the process of · Project Arrangers could be introduced as a mechanism to facilitate preparatory and implementation work. preparing and implementing the Project Arrangers would be given incentives to deliver results rather than time inputs and reports model · To avoid a lengthy and resource-consuming process of building the technical skills of cooperative staff, the cooperative would contract all technical and operating functions to the Service Provider PLN extends distribution line · In this case the generator financed and installed by Service Provider would become idle. The Service and is able to provide services at Provider would require compensation of an amount equal to un-recovered capital. The contract with the a lower tariff cooperative would have a buyout obligation. The partial guarantee facility could be used to backstop this obligation There are insufficient interested · The model as proposed does not include a mechanism to mitigate this risk. The magnitude of this risk and qualified prospective Service should be further assessed before implementation. Providers to create competition for the market Chapter Enhanced Electrification Models Box 6.7 Integrated Rural Development and Electrification in Tunisia Tunisia's achievement of 100% urban and 88% rural electrification is remarkable, all the more so because the country's definition of rural electrification is restricted to connections made outside incorporated areas. Compared to rural populations in other developing countries with high rates of electrification, Tunisia's rural population although only 35% of the total population-is highly dispersed and isolated, with long distances between small groups of often scattered houses. This characteristic, combined with the social commitment to connecting all households, has highly influenced the rural electrification program's costs and choice of institutional set-up, distribution system, and technology. The following lessons highlight the Tunisian government's experience with rural electrification. National Commitment: Tunisia's rural electrification achievement has been motivated by continuing national commitment as part of a broader, integrated rural development program that has emphasized social equality including a specific emphasis on gender. This is evidenced by the 4th Development Plan, implemented in 1972, whose three pillars were basic education, improved health services, and rural electrification (whose socioeconomic criteria included gender equity). Integrated Rural Development Context: Regional planning processes and successive five-year plans, which have tightly incorporated rural electrification into broader integrated rural development objectives, have produced synergistic effects. Indeed, growth in rural electrification and national socioeconomic indicators are strongly correlated. Informal surveys in several rural areas attest to the multiple benefits of rural electrification- as perceived by rural householders, especially women-in education, health and family planning, economic opportunities, and enhanced security. Effective Institutional Approach: Regardless of the structure or process that a country adopts for rural electrification, certain principles are essential to success. These include well-defined, coordinated roles for all agencies concerned and established procedures that ensure agency cooperation that is perceived as being fair. The Tunisian system scores well on both counts. All agencies that participate in Tunisia's rural electrification program have well-defined roles. Coordination is ensured through an agency with a specific mandate for coordination. Equally important, policymaking and implementation agencies at both regional and national levels collaborate closely. Agency cooperation is facilitated through a project-selection process that is meticulous, orderly, and transparent. Through this process, concerns about social justice are addressed, thereby reducing political pressure in identifying projects, allowing for a more rational and economic long-term program. Transparency and Innovation: The Tunisian Gas and Electricity Company's (STEG) effectiveness and efficiency have earned it both political and popular support. Much of the utility's success can be attributed to a clear mandate and a management structure that combines the benefits of centralized planning and design with decentralized operations. Published norms, guidelines, and standard contracts contribute to operational transparency. STEG has demonstrated a high-level capacity for adapting technology to meet Tunisia's clearly-defined, rural electrification objectives. Early on, the utility computerized its management systems and developed customized software applications. Introduction of the three-phase/single-phase distribution system (MALT) has dramatically demonstrated STEG's high level of innovative technical expertise. Indeed, the utility's switch to the MALT system has permitted rapid expansion of rural electrification, and also improved the quality of service by reducing the rate and duration of outages. Successful construction and implementation of rural electrification projects also owes much to encouraging private-sector participation in construction and promoting local industry efforts to supply equipment and materials Robust Financial Arrangements: Tariffs broadly reflect the varying costs of supplying high-, medium-, and low-voltage customers. All markets distinguish between off-peak and peak usage to encourage more efficient capacity use. Low voltage supply, of which rural users account for 11%, has various tariffs designed to promote social equity and rural development. These include a lifeline tariff, subsidized public lighting, and low tariffs for irrigation. Such tariffs benefit from a significant, yet apparently manageable, cross-subsidy. Although STEG does not publish detailed power-sector finances, it is believed that, over the last decade, there has been only a modest gap between electricity-sector costs and prices. *Information contained herein was compiled from the forthcoming publication by the World Bank's ESMAP titled "Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs". The World Bank Electricity for All Options for Increasing Access in Indonesia Chapter 7 Conclusion and Way Forward The World Bank Electricity for All Options for Increasing Access in Indonesia This report has explored options for increasing the In going forward, as the Government examines the rate of electrification in Indonesia. The proposed proposed options, several key actions can be taken solutions call for regional electrification schemes to improve the "enabling environment" for a faster that can better incorporate local requirements by and more sustainable increase in electrification: taking advantage of the decentralized governance structure in Indonesia. It is evident that network · Ensure that the proposed new electricity law solutions will be the most plausible methods for and the corresponding implementing rules tackling the overwhelming challenge of connecting and regulations do not overlook the issues nearly 75 million people, but such schemes will need surrounding the provision of electricity access, to be complemented by isolated remote systems. but instead, make it an integral part. Useful It is also important that selected technological improvements in the business environments for options are based on least-cost solutions rather rapid replications of the proposed options would than on a pre-determined technology. include: These options were developed based on the · Suitable power market structures for expectation that the problems which are holding those islands outside of Java-Bali and cost back the pace of electrification could be solved reflective regional tariffs. by effective institutional arrangements that · Clarification on the definition of un-served create adequate incentives for multi-stakeholder areas within PLN's declared service areas, participation. In other words, both public and as well as on the exclusivity of licenses. private resources can be mobilized if appropriate · Eliminating discrimination of embedded and effective institutional arrangements are put in power generators, especially those using place. renewable resources. This paper provides a rich menu of institutional · Strengthen the central government's leadership options which include the following common in electrification program planning and features: supervision, and its capability of providing technical, business and financial assistance · Creation of local-level institutions able to set to sub-national governments and local service tariffs more in line with the local costs of service providers. and consumers' ability to pay. · Rationalize the pricing and subsidy policies · Greater use of private sector participation, and establish sustainable financing supports to wherever possible, to deliver efficiencies, lower electrification programs. costs, and set the tariffs required, thereby · Build the capacity of local governments, which reducing the need for government subsidies. will play increasingly important roles in improving · Greater role for the sub-national governments. electricity access within their jurisdictions. Under all the models proposed in this paper, · Standardize the rules and processes for sub-national governments would issue licenses securing all the approvals necessary for speedy and regulate tariffs. This would, among other processing of investments. things, facilitate more effective local planning. A sound "enabling framework" will significantly In addition, the models would be integrated with contribute to better electrification outcomes. a subsidy and financing mechanism to create Regardless of such an environment, however, an enabling environment for the mobilization certain actions will be necessary to implement the of financial resources. In this respect, strong "enhanced models" successfully. It is recommended leadership and effective coordination among major that the government take the following specific stakeholders at the central government level is actions: extremely important. Chapter Conclusion and Way Forward · Identify areas for demonstrating the proposed models. It will be useful to identify the regions that are better prepared to champion and showcase a suitable electrification option. · Work with PLN to identify their own expansion plans within these areas in order to avoid potential conflict due to overlapping areas. · Develop specific electrification plans and implementation mechanisms for the proposed models in a given area, including: · Least-cost analyses to identify the requirements for cost-recovery that will sustain the electrification program. · Willingness-to pay analyses to identify the level to which costs can be recovered through residential user charges. · Assessment of productive uses for electricity, including potential commercial and industrial consumers, to identify the opportunity for designing an electricity tariff to cross subsidize residential consumers. · Estimation of the need to provide any direct subsidies that may be necessary to support access to the poor while still sustaining the electrification program. · Arrange financing options in line with proposal. Once the proposed enhanced electrification models are demonstrated in several suitable areas, the lessons learned from those experiences can be used to further improve their application. Thereafter, the modified electrification options can be progressively implemented in subsequent regions until there is electricity for all in Indonesia. The World Bank Electricity for All Options for Increasing Access in Indonesia Annexes The World Bank Electricity for All Options for Increasing Access in Indonesia ANNEX 1. REGIONAL PROFILES Province Population Gross Real Number of Electrification Number of Governance (Million) Regional Domestic households Rate (%) villages Rating* Product / Capita (Million) (Thousand) (IDR Million) Aceh 4.1 9.7 0.8 74.1 5.8 - North Sumatra 12.1 6.9 2.4 74.9 4.9 high West Sumatra 4.5 6.1 0.9 75.1 0.6 high Riau 5.7 18.3 1.1 40.1 1.4 medium Jambi 2.6 4.5 0.5 31.3 1.1 high Bengkulu 1.5 3.8 0.3 50.0 1.0 medium Bangka Belitung 1.0 6.8 0.2 53.4 0.2 high Southern Sumatra 6.6 7.2 1.3 50.5 2.4 medium Lampung 7.1 4.0 1.4 37.1 1.9 low Banten 9.1 6.0 1.8 31.0 1.3 medium DKI Jaya 8.8 32.0 1.8 99.0 0.0 - West Java 38.6 6.0 7.7 82.3 5.2 medium Central Java 32.5 4.2 6.5 61.7 7.8 low DI Yogyakarta 3.2 5.0 0.6 69.0 0.4 low East Java 36.5 6.6 7.3 80.2 7.7 low Bali 3.4 5.8 0.7 86.0 0.6 high West Nusa Tenggara 4.1 3.7 0.8 42.3 0.7 low East Nusa Tenggara 4.2 2.3 0.8 24.8 2.3 low West Kalimantan 4.0 5.6 0.8 54.5 1.4 low Central Kalimantan 1.9 7.0 0.4 54.8 1.2 medium East Kalimantan 2.8 33.0 0.6 62.1 1.1 medium South Kalimantan 3.2 6.3 0.6 64.9 1.8 medium Central Sulawesi 2.3 4.9 0.5 58.2 1.3 medium South Sulawesi 8.4 4.5 1.7 61.6 2.3 medium North Sulawei 2.2 5.6 0.4 85.1 1.0 medium South East Sulawesi 1.9 3.9 0.4 39.2 1.3 low Gorontalo 0.9 2.1 0.2 53 0.3 low Maluku 1.2 2.5 0.2 60.6 0.8 low North Maluku 0.9 2.4 0.2 45.5 0.7 - Papua 2.3 9.9 0.5 22.1 3.7 low Source:BPS2004;(exceptforGovernanceRating) *KPPOD2003 0 ANNEX 2. POTENTIAL ENERGY RESOUCES Province Hydro Geothermal Biomass Biogas Wind Photovoltalic Coal Peat Natural Oil MW Mwe MW MW m/s kWh/m2/ MToE MJ Gas MToE day MToE Aceh 5 1,185 43 3 4 715 1,092 236 25.5 North Sumatra 3 2,522 2,365 47 3 - - 1,529 - - West Sumatra 10 485 1,117 26 4 - 110 - - - Riau 0.4 485 1,570 9 4 - 1,304 39,031 - 836.6 Jambi 1,385 1,033 9 4 - 220 20,562 23.6 31.9 Bengkulu 2 1,073 355 9 - - 67.7 - - - Bangka Belitung 0.4 485 1,570 9 4 - 1,304 39,031 - 836.6 Southern Sumatra 3 1,335 2 27 5 5 1,105 7 155.8 Lampung 2,969 1,774 5 6 - 20 868 - - - Banten - 285 - - 2.9 4.4 5.7 - - - DKI Jaya - - 7.6 0.7 4.0 4.2 - - - - West Java 2 3,397 3,735 40 - 4 - - 23.6 30.4 Central Java 2 64 4,048 63 3 5 - - - - DI Yogyakarta - 10 20.8 7.7 - 4.5 - - - - East Java 2 654 5,464 26 4 4 2.8 - - 37 Bali 80 350 347.4 31.9 2.4 5.3 - - - - West Nusa Tenggara 6.2 250 615.4 28.2 3.1 5.1 - - - - East Nusa Tenggara 14.8 1,850 1,160 56.7 4.1 5.7 - - - - West Kalimantan 235.9 - 2.3 17.5 3 4.6 99 1,768 - - Central Kalimantan 2.8 - 3,004 3,791 3 - 286 12,232 - - East Kalimantan 1.2 - 3,224 4.9 3.0 4.2 2,750 27,660 1,180 - South Kalimantan 3.2 - 1.1 9 2.9 9.4 2,750 295 - 21.9 Central Sulawesi 17.1 250 1,150 9 3.0 5.5 26 - - South Sulawesi 25.9 250 2,506 41.5 - - 19.8 - 14.2 - North Sulawei 17.8 85 737 6 3.0 4.9 - - - - South East Sulawesi 270 5 872 10 - - - - - - Gorontalo 61.1 40 72 - - 4.9 - - - - Maluku & North 0.8 750 1,093 5.7 3.3 - - - -00 Maluku Papua 9.8 - 6,814 9.4 3.4 5.7 97.4 - - 2.5 Source:MasterPlanRenewableEnergy(RIPEBAT)1997,NationalElectricityPlan2004(RUKN)2004 The World Bank Electricity for All Options for Increasing Access in Indonesia ANNEX 3. COMPARISON OF ELECTRICITY LAWS (Annulled Law 20/2002 and Current Law 15/1985) NOTE: Based on the annulment of the most recent Law 20/2002, the governance of the sector reverts to the previous Law 15/1985. This law, combined with Regulation 3/2005, provides the current legal framework for the sector CURRENT LAW: Law 15/1985 Issues ANNULLED LAW: Law 20/2002 (plus interim regulation 3/2005) Basic Recognize the importance of electricity for economic Recognize the importance of electricity for development and Philosophy development and livelihood as well as the equal right and equal access for electricity as in Law No 15/1985. The Law also access to electricity to all people. However this law does not recognizes the importance of efficiency in providing electricity explicitly state the importance of providing electricity by the through competition and transparency in a healthy business most efficient means through competition and transparency. environment by providing a level playing field to all business players, and an opportunity to participate in the electricity provision business. Through price setting policy, the Law also intends to provide electricity access to people living in rural and remote areas. The Law also obligated the Central and Local Governments to provide funding for increasing electricity access to rural and remote communities. Institutional Central Government Role: Central Government Role: Set-Up The role of Central Government is dominant, in terms of The Central Government is in charge of policy making (laws and regulating (through the Minister, except for tariff which other implementing regulations) and facilitating (through allocation is regulated through a Presidential Decree), facilitating of budget for social electricity). The regulator role will be assigned (through allocation of budget for social electricity), operating to an independent body (BAPEPTAL or EMSA ­ Electricity Market (through assignment of state-owned enterprise, PLN) as well Supervisory Agency) especially for competitive regions. as supervising and controlling. However, the Constitutional Court interpreted the term "controlled" on Article 33 (2) of Constitution ("production facilities that are vital to the state and general public must be controlled by the state") as "operated", and thus the state must operate all vital production facilities (such as water, electricity, road). Handling over the operational activities to private sector is considered against the best interest of the people. PLN Role & Mission: PLN Role & Mission: · The status as Electricity Authorization Holder (PKUK) · Less dominant, as this laws does not acknowledge the bestowed PLN with the full authority in electricity role of PLN as Electricity Authorization Holder (PKUK). PLN provision. is considered as one of the business players that provide · Under Law No. 15/1985, PLN's role is very dominant, electricity to consumers. Thus the laws provide equitable covering electricity provision business from generation, opportunities for the private sector especially for competitive transmission and distribution. regions like Java, Madura and Bali. PP 3/2005: · Receives first priority right for non-competitive regions (outside Stated that the Minister has a right to define the PLN of Java, Madura and Bali) operation areas; the regulation also gives the central and · Unbundling the business of electricity provision into 7 aspects, local government the authority (according their jurisdiction) and distribute the license to do these to various institutions. to grant license to cooperatives and other business entities to: · conduct electricity provision (IUKKU) for the public if TheConstitutionalCourtconvincedbythestatementmadebyDr. there is no PLN service in the targeted service area; Hatta (the first Vice President of Indonesia, one of the founding · conduct electricity provision for self use (IUKKU) if no fathersofthenation)ontheinterpretationofArticle33,thatthe PLN service reached the area, or if PLN service is not term "controlled by the state" means that the State should gradually reliable, or if PLN service is more expensive than what increaseshareofownershipinanybusinessthatarevitalto can be produced by IUKKU holder people'slivelihood,andeventuallywillreplacethepositionofprivate companies(localandforeign)whichhavebeeninthebusiness. Althoughthisprovisionseemstoprovideanentrypoint Thus,ConstitutionalCourtconsideredthatArticle16(unbundling), fortheparticipationofcooperativeandbusinessentities article17(competition,marketdominationprohibition),andarticle toconductelectricityprovisionbusiness,thelicense 68(transitionofPKUKholder,authorityastheonlyelectricity doesnotnecessarilyprovideexclusiveconcessioninthe business license holder) of Law No. 20/2002), are in conflict with targetedareaofoperation.Thereisalsopotentiallyunfair theStateConstitutionarticle33paragraph2. competitionwithPLNthatreceivesgovernmentincentives onitsoperation. CURRENT LAW: Law 15/1985 Issues ANNULLED LAW: Law 20/2002 (plus interim regulation 3/2005) Local Government: This law explicitly recognizes the local government role, as stipulated Law No. 15/1985 does not specifically govern the position, on Article. 5 (planning -RUKD); Article. 7 (obligation to allocate authorities and obligation of local government. Local budget specifically for social electricity); Article 10 (authority to grant Governments participation on planning, granting license permits); Article 30 (central/local government obligation to supply and budgeting is not explicitly recognized. The Law to some electricity on non-competitive regions); and Article 41(setting up degree is inconsistent with the regional autonomy policies price for non competitive regions). that bestowed local governments with the right to govern all affairs within their jurisdiction, other than international affairs, justice, security and defense, fiscal and monetary and religious affairs. PP 3/2005: However GR 3/2005 that amends GR 10/1989 as the implementing regulation of Law No. 15/1985 has included the role of local government in planning (provides input for national electricity planning), granting permits for license holders within their jurisdiction and in allocating the budget specifically for social electricity (catering underprivileged people, underdeveloped regions, remote located regions, inter-country borders regions, and rural electricity development). Social Electricity: Social Electricity: Law 15 of 1985 implies that PLN as PKUK holds the Under this law, the Central and Regional Government are obligated mandate for electricity provision in the country, which can to set aside budget for social-missioned electricity provision, which be interpreted that PLN holds two missions, commercial and includes electricity for: social. This dual-role is inconsistent with the legal mandate · Low-income communities of PLN as a state-owned enterprise to generate profits as · Under-developed region mentioned in the SOE law. · Remote areas · Borders areas PP 3/2005: · Rural areas PP No. 3/2005 that amends GR No. 10/1989 as the implementing regulation of Law No. 15/1985 governs Therewasalsonoclarityontheimplementationofthisobligation, issues on transferring the social mission electricity to the thebudgetallocationanddistributionbetweenCentralandRegional Central & Regional Government through a budget allocation. Governmentaswellasthemechanismonrewardandpunishment Howeverthereisnodetailedimplementationoractionfor thisresponsibility,includinganymechanismonrewardand punishment. Private The default of electricity business provision bestowed to PLN The PLN status as PKUK is no longer recognized in the Law and it is Sector/ as the state-owned enterprise as the authorization holder in treated equally as other business players such as private sector and Community electricity provision. community on electricity provision. Role and License The role of private sector and community is recognized The Laws recognize three types of license: through the opportunity of obtaining license of electricity · Izin Operasi, license to operate electricity installation for self- provision, however this opportunity is more to compliment use the PLN capacity and must not be detrimental to the interest · Izin Usaha Penyediaan Listrik, license to conduct electricity of the state and limited to provision of electricity. There is no provision for public use clarity on the conditions considered as detrimental. · Izin Usaha Penunjang Tenaga Listrik, license to conduct electricity supporting industry. The laws recognize two types of license: · Izin Usaha Ketenagalistrikan untuk Kepentingan The right to grant the license in competitive region is bestowed to Sendiri/IUKKS, license for self-use electricity business Electricity Market Supervisory Agency (BAPEPTAL), while for non- for electricity load less than 200 KVA. competitive regions is bestowed to the Central/Local government · Izin Usaha Ketenagalistrikan untuk Kepentingan towards electricity business carried out within their respective Umum/IUKKU, license to conduct electricity provision jurisdiction which are not connected to the National Transmission for public use. Network Licenseforself-useelectricityprovisioncanbegrantedif The Law also stated that the license right on electricity provision PLNorPIUKKisnotpresentinthearea,oriftheirservices for private sector and cooperative lies on the Central and Local arenotreliableorlesseconomicalthanwhatcanbe Government depends on the jurisdiction. In the competitive areas producedbyPIUKKS.Thisprovisioncanbedepredating EMSA is responsible for granting the electricity license. towardsPLNasPKUK,especiallyifthegovernment subsidiesarenolongeravailable. UnlikeforIUKKS,thereisnoclarityonthecircumstances whereIUKKUcanbegrantedandhowitrelateswithPLN roleasPKUK. The World Bank Electricity for All Options for Increasing Access in Indonesia CURRENT LAW: Law 15/1985 Issues ANNULLED LAW: Law 20/2002 (plus interim regulation 3/2005) Classification The electricity provision is divided into three activities: The electricity provision is separated into 7 activities: of the · generation · generation Electricity · transmission · transmission Provision · distribution · distribution Business · sales · retails (sales agents) · market operation · system operation Competition There is no competition principle regulated in Law This law promotes fair competition. Article 16 unbundled the Issues 15/1985, instead it put most of the authority to PLN as the electricity provision on businesses and Article 17 promotes authorization holder. competition, prohibition on monopolies and unfair competition. PP 3/2005: Specifically, monopolies are not allowed for electricity generation. However, GR 3/2005 has adopted some competition The competition is not applicable for the transmission or principles including the licensing for self-use electricity distribution, of which the state owned enterprise is given the first provision. The self-use electricity license (IUKKS) can priority right to do these businesses. There is equal access (third be granted if the electricity provision by PKUK or holder party access) for the National Transmission Network for all electricity of IUKKU is not present or the quality of the services is generation providers. Operators of distribution business are obliged unreliable or the cost is less economical. This provision is to provide equal access to the electricity retailers and agents. potentially detrimental to PLN business especially once the subsidy channeled via PLN is no longer available. Subsidy This issue is implicitly stated under GR 3/2005 relating to This law focuses subsidy only for social mission. Article 7 of this law Central and Local Government obligation to allocate social stipulates that subsidy for social mission provided in the budget electricity funds to specific targeted beneficiaries. of Central/Local Government. With PLN is no longer recognized as PKUK with both commercial and social missions, the subsidy can go directly to the beneficiary. Tariff The law governs the tariff setting for PLN. The tariff is This law encourages the application of regional tariffs to take into regulated by the President, based on input from the account the disparity of cost of supply across the region as well as Minister. While the tariff setting for electricity business fair and reasonable competition. license holders rests with the Minister, Governor or Bupati/ Walikota, according to their jurisdiction. In principle the price setting is determined by market system and supervised by BAPEPTAL, with the following exception: As further implementation of Law 15/1985, under the · price setting for low voltage electricity consumers to be set up presidential decree that regulates PLN tariff, the GOI by BAPEPTAL; adopted the concept of universal tariffs across the region, · rental price of transmission and distribution network to be set despite the disparity of costs in various regions. up by BAPEPTAL; · if the market-based price only covers the generation aspect, then the selling price to consumer shall be set up by BAPEPTAL; · electricity power market shall be set up by BAPEPTAL based on consensus made between the Operator of Electricity System (Pengelola Sistem Tenaga Listrik) and business entities for generation (Badan Usaha Pembangkitan Tenaga Listrik) and transmission (Badan Usaha Transmisi Tenaga Listrik). · selling price for consumers in regions where the competition has not been applied shall be set up by the central or local government accordingly to the jurisdiction in question (Article 41) · based on Article 38-40, BAPEPTAL defines tariffs on competitive regions (Java, Madura and Bali), while based on Article 41 the Government defines tariffs on non-competitive regions (outside Java Madura, Bali ANNEX 4. KEY AUTHORITY IN · to regulate the terms and conditions for the provision, operation, utilization, installation and ELECTRICITY UNDER PRESENT standardization of electricity (Article 17 of Law LAWS AND REGULATIONS 15/1985); · to supervise and control the implementation of electricity business provision, including work safety, general safety, business expansion, and Central Government compliance towards electricity standardization (Article 18 of Law 15/1985, Article 35 (1) and Included within the key authorities of the Minister (2) of PP 3/2005); for Energy and Mineral Resources are: · to determine, under certain circumstances, that the electricity distribution business in the · To formulate the National Master Plan on operation areas of national utility, to be carried Electricity by taking into account the inputs out by cooperatives as the license holder of from various stakeholders (Article 5 (1) of Law electricity business (Article 4 of PP 10/1989); 15/1985, Article 2 of PP 3/2005); · to determine the territorial areas for operation of · to determine the concession areas and/or the electricity business license holder that caters business sector of the national utility (Article the public interest (Article 10 of PP 10/1989); 3 (2) PP 3/2005) as well as of the business · to determine the requirements and the tariff for license holder of electricity provision for public electricity connection by public to access the interest (Article 10 of PP 10/1989); national utility or electricity business operators' · to issue electricity business license for public services (Article 29 and 30 of PP 10/1989); interest (IUKKU) to cooperatives or business · to request the national utility and license holder entities which will operate electricity business connected to national network or have cross- provision that either connect to the national province operation to submit report on their network and/or involves cross-province business performance every 3 months (Article operation (Article 6(4)c of PP 3/2005); 37A PP 3/2005); · to issue electricity business license for self- · to regulate the procedure for power purchase interest (IUKKS) to cooperatives or business or network rental between electricity business entities2 which facilities are located cross operators that falls within the minister province (Article 6(5) of PP 3/2005) jurisdiction4 (Article 11(9) of PP No. 3/2005) · to set out the guideline for national utility and and to authorize such transactions (Article 11 electricity business operators in formulating (3) for IUKKU and Article 13(1) for IUKKS of PP their business plan on electricity provision; 3/2005); · to validate the business plan for electricity · to propose the electricity tariffs for consumer as provision of national utility/electricity business input for President in determining the national operators for public interest as well as to impose tariff applicable to national utility (Article 32(2) sanction(s)3 if the respective entities do not of PP No. 3/2005) or to set up tariff for IUKKU prepare the business plan or do not implement holder that falls under the Minister authority5 it (Article 5 PP 3/2005) (Article 32 (3) of PP 3/2005). · to approve collaboration between National Utility with other electricity business operators (Article 10 of Law 15/1985); 1 Business entities under this context includes local government enterprises (BUMD), private enterprises, community businesses, and individual-owned busi- nesses (Article 6(2) of PP No. 3/2005) 2 Business entities under this context includes those mentioned in footnote number 6 above, with the addition of state-owned enterprises and other government institutions (Article 6(3) of PP No. 3/2005) 4 The minister jurisdiction shall cover electricity provision that connects to national 3 The sanction imposed may include issuing default notification, pending the network or which operation involves cross-provinces operation or invalidating the license (Article 5 (6) of PP No. 3/2005) 5 ibid The World Bank Electricity for All Options for Increasing Access in Indonesia Regional Government · to set up electricity tariff for IUKKU holder that falls under the jurisdiction of the respective The regional governments, within their respective regional government3 (Article 32 (3) of PP jurisdiction6, have the key authorities as follow: 3/2005); · to supervise and control the implementation · to provide input for the formulation of National of electricity business provision within the Master Plan on Electricity to the Minister (Article regional government jurisdiction, including work 2 (2) of PP 3/2005); safety, general safety, business expansion, and · to validate the business plan of electricity compliance towards electricity standardization business license holders operating within the (Article 18 of UU 15/1985, Article 35 (1) and (2) jurisdiction of the regional governments as of PP 3/2005); well as to impose sanction(s)7 if the respective · to request the electricity business license entities do not prepare the business plan or do holder that falls under the respective regional not implement it (Article 5 PP 3/2005); government jurisdiction to submit report on their · to issue electricity business license for public business performance every 3 months (Article interest (IUKKU) to cooperatives or business 37A PP No. 3/2005). entities8 that operates within the regional government's respective jurisdiction (Article The legal reference for regional government 6(4) of PP 3/2005)9; authority, which mainly are given by PP 3 of 2005, · to issue electricity business license for self- illustrate the significant role of PP 3 of 2005 to interest (IUKKS) to cooperatives or business adjust UU 15/1985 to comply with the current entities10 that electricity provision facilities decentralization policy adopted by the Government located within the regional government's of Indonesia. respective area (Article 6(4) of PP 3/2005); · to regulate the procedure for power purchase or network rental between electricity business operators that falls within the regional government respective jurisdiction2 (Article 11(9) of PP 3/2005) and to authorize such transactions (Article 11 (3) for IUKKU and Article 13(1) for IUKKS of PP 3/2005) as well as to set out the tariff for power purchase or network rental of such transactions (Article 32 A of PP 3/2005); 6 Bupati (head of district) have the jurisdiction over electricity business provision that operates within the respective district and off-grid from the national network; while the Governor (head of province) have the jurisdiction over electricity business provision that operates cross-district within the respective province and off-grid from the national network. While the electricity business provision that operates cross- province either connected to national network or not falls within the jurisdiction of the Minister 7 The sanction imposed may include issuing default notification, pending the operation or invalidating the license (Article 5 (6) of PP No. 3/2005) 8 Business entities under this context includes local government enterprises (BUMD), private enterprises, community businesses, and individual-owned busi- nesses (Article 6(2) of PP No. 3/2005) 9 Ibid 12 10 Business entities under this context includes local government enterprises (BUMD), private enterprises, community businesses, and individual-owned busi- nesses (Article 6(2) of PP No. 3/2005) 11 Ibid 12 12 Ibid 12 13 ibid ANNEX 5. ROLE OF GOVERNMENT INSTITUTIONS IN ELECTRIFICATION Government Policy makers and Authority on Electricity Sector Facilitators Operators Institution Regulation Department of Issue Policy and · Tariff Setting for TDL (Basic Electricity · Provide Subsidies for Energy and Mineral Master Plan on Tariff) ­ universal tariff apply across Electricity Connection Resources Electricity Sector, Indonesia and Consumption including on tariff and · Price Setting for National Basic Cost · Provide Funding for off- subsidy of Supply (HPP) grid energy projects in · Define working area of PLN rural or remote areas · Issue License for On-Grid Electricity · Develop clearing house. Business (including IPP) So far only renewable · Issue License for Off-Grid inter- energy province Electricity Business · Issue Concession (Working Areas) for license holders (PIUKKU-PIUKKS) Ministry of Finance Budget and subsidy approval BAPPENAS National Project Consolidate all government institutions' Coordinating Inter- Development Plan, planning Governmental Planning including budgeting, grant and loan policy Ministry of State Guideline policies Shareholder of PT PLN (Persero) Operated by PLN, as Own Enterprise for state-owned ­ Supervision towards PLN performance PKUK enterprises Head province At provincial level: At provincial level: At Provincial level: Can operate electricity (Governor) · Provide Input · Issue License for Inter-District Provide budget to support provision business for National Electricity Business that are off- electricity provision for: (PIUKKU) under its Electricity Master national grid (PIUKKU) low income people, regional-government Plan (RUKN). · Approval of transaction (power underdeveloped areas, enterprise (BUMD/BLU) No guideline on purchase or transmission rental) remote areas, border areas mechanism to between electricity business actors and rural areas. exercise this. · Supervision on electricity license Included under low income · Develop Regional holder (PIUKKU) people are those living in Plan for Electricity · Propose budget for subsidy and urban areas Development incentives · Tariff setting for PIUKKU off grid- inter-district Head of district At district level: At district level: At district level: Can operate electricity (Bupati) · Provide Input · Issue License for Off-Grid Electricity Provide budget to support provision business for National Business/PIUKKU within the district electricity provision for: (PIUKKU) under its Electricity Master · Approval of Transaction between low income people, regional-government Plan (RUKN) PKUK with PIUKKU or among PIUKKU underdeveloped areas, enterprise (BUMD/BLU) · Develop Regional operating within its jurisdiction remote areas, border areas Plan for Electricity · Supervise PIUKKU and rural areas. Development · Propose budget for subsidy and other · Tariff setting for incentives PIUKKU off grid- within the district Ministry of Issue License for the legal entity of Provides funding for Supervise Cooperatives and cooperative (general, not specifically electricity provision to Implementation SME related to energy/electricity) cooperatives Ministry of Marine Provides funding for Supervise & Fishery electricity provision to Implementation coastal communities Ministry of Provides funding for Supervise Agriculture electricity provision to Implementation farmers The World Bank Electricity for All Options for Increasing Access in Indonesia ANNEX 6. PLN TARIFF CLASSIFICATIONS No. Tariff Category LV/MV/HV Power Limit (Kva) Remarks 1. S-1 LV 0.22 Very small consumption 2. S-2 LV 0.25 - 200 Social Services, Small-Medium 3. S-3 MV > 200 Social Services 4. R-1 LV 0.25 - 2.2 Small Households 5. R-2 LV 2.2 < x < 6.6 Medium Households 6. R-3 LV > 6.6 Large Households 7. B-1 LV 0.25 - 2.2 Small Business 8. B-2 LV 2.2 < x < 200 Medium Business 9. B-3 MV > 200 Large Business 10. I-1 LV 0.45 - 14 Small/Home Industries 11. I-2 LV 14 < x < 200 Medium 1 Industries 12. I-3 MV > 200 Medium 2 Industries 13. I-4 HV >= 30.000 Large Industries 14. P-1 LV 0.25 - 200 Small & Medium Public Offices 15. P-2 MV > 200 Large Public Offices 16. P-3 LV Street Lightening 17. T MV > 200 Tariff for National Train Company 18. C MV > 200 Bulk Tariff for bulk sale to Power Generation for Public License Holder (Izin Usaha Ketenagalistrikan untuk Kepentingan Umum - PIUKU) 19. M LV, MV, HV Multi-purposes tariff (for consumer needs special quality and/or excluding class S,R,B,I, or P) Note: LV:LowVoltage MV:MediumVoltage HV:HighVoltage The classification was last updated in 2003, when the last tariff increase was approved ANNEX 7. PLN TARIFF SCHEDULE ELECTRICITY TARIFF FOR SOCIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh S-1 LV 0.22 - Monthly fee (Rp): 14,800 2 S-2 LV 0.45 10,000 Block I 0-30 23 Block II 3060 360 3 S-2 LV 0.9 15,000 Block I 0-20 200 Block II 2060 360 4 S-2 LV 1.3 25,000 Block I 0-20 250 Block II 2060 405 5 S-2 LV 2.2 27,000 Block I 0-20 250 Block II 2060 420 6 S-2 LV 2.2 < x <= 200 30,500 Block I 0-60 hours on 380 Block II > 60 hours on 430 7 S-3 MV > 200 29,500 Block WBP K x P x 325 Block LWBP P x 325 ELECTRICITY TARIFF FOR HOUSEHOLD/RESIDENTIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh R-1 LV <=0.45 11,000 Block I 0-30 69 Block II 3060 495 2 R-1 LV 0.9 20,000 Block I 0-20 275 Block II 2060 495 3 R-1 LV 1.3 30,100 Block I 0-20 385 Block II 2060 495 4 R-1 LV 2.2 30,200 Block I 0-20 390 Block II 2060 495 5 R-2 LV 2.26.6 34,260 62 The World Bank 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) Block kWh Rp/kWh B-1 LV <=0.45 23,500 Block I 0-30 254 Block II >30 420 2 B-1 LV 0.9 26,500 Block I 0-108 420 Block II >108 465 3 B-1 LV 1.3 28,200 Block I 0-146 470 Block II >46 473 4 B-1 LV 2.2 29,200 Block I 0-264 480 Block II >264 58 5 B-2 LV 2.2100 hours on 545 6 B-3 MV >200 28,400 Block WBP Kx452 Block LWBP 452 ELECTRICITY TARIFF FOR INDUSTRIAL CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh I-1 LV <=0.45 26,000 Block I 0-30 160 Block II >30 395 2 I-1 LV 0.9 31,500 Block I 0-72 35 Block II >72 405 3 I-1 LV 1.3 31,800 Block I 0-104 450 Block II >104 460 4 I-1 LV 2.2 32,000 Block I 0-196 455 Block II >96 460 5 I-1 LV 2.280 hours on 460 6 I-2 LV 14-200 32,500 Block WBP K x 440 Block LWBP 440 7 I-3 MV >200 29,500 Block WBP 0-350 hours on K x 439 >350 hours on 439 Block LWBP >350 hours on 439 8 I-4 HV >= 30.000 27,000 434 0 ELECTRICITY TARIFF FOR PUBLIC OFFICE & STREET LIGHTENING CATEGORY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh P-1 LV <=0.45 20,000 575 2 P-1 LV 0.9 24,600 600 3 P-1 LV 1.3 24,600 600 4 P-1 LV 2.2 24,600 600 5 P-1 LV 2.2200 23,800 Block WBP K x 379 Block LWBP 379 7 P-3 LV - - 635 ELECTRICITY TARIFF FOR NATIONAL TRAIN COMPANY No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh T MV > 200 23,000 Block WBP K x 360 Block LWBP 360 Note: *) Based on maximum monthly power ELECTRICITY TARIFF FOR BULK CONSUMPTION No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh C MV >200 kVA 25,000 Block WBP K x 375 Block LWBP 375 Note: Bulk Tariff is for bulk sale to Power Generation for Public License Holder (PIUKU) ELECTRICITY TARIFF FOR BULK MULTIPURPOSES No. Customer Category Voltage Power Limit Demand Charge Consumption Charge Kva (Rp/kva/month) Block kWh Rp/kWh M LV/MV/HV - - 1,380 Note P : Multiplying factor (For pure social services, P=1, For commercial social services, P=1.17, Pure/commercial category is defined by PLN Director) K : Dividing factor between WBP and LWBP ( 1.4 <= K <= 2 , according to local electricity load characteristic, defined by PLN director) WBP : Peak Load Time LWBP : Outside Peak Load Time Hours On : monthly kWh/connected kVA The World Bank Electricity for All Options for Increasing Access in Indonesia BIBLIOGRAPHY Agency for Assessment and Application of Central Bureau of Statistics. 2004. 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