Indonesia’s Economicenergy-indonesia.com/07basicinfo/0140212keizai.pdf · Toward 2014: SWOT Analysis of Indonesia ... Indonesia's economic dependence on commodities ... China, Japan,

Indonesia’s Economic Projections for 2014 and Electricity Condition in

Indonesia

Aviliani

17 Januari 2014

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Toward 2014: SWOT Analysis of Indonesia

Strengths Weaknesses

Indonesia’s population that reaches 250 million people with income levels that tend to increase is a very high domestic market potential Indonesia’s economy is relatively stable in spite of the global economic shocks. Practice of democracy in Indonesia has been relatively conducive. Banking performance is relatively solid. Major banks in Indonesia are considered to be resilient against global economic shocks.

Opportunities

Current account deficit is expected to continue in 2014, due to weak exports and high imports, especially oil and gas import. Corruption remains a major problem in Indonesia. This issue has the potential to be politicized prior to the 2014 general election, which can heat up the condition. Indonesia's economic dependence on commodities leads to volatility in global commodity prices and this has a significant effect on export performance and economic growth.

Threats

Activities of pre-election and election in 2014 are predicted to increase domestic economic activities. According to the analysis of various experts, the election has the potential to increase community revolving funds up to Rp 50 trillion for various activities including infrastructure development. The

general election is expected to contribute as much as 0.2% to the economic growth (Bank Indonesia). Inflationary pressures in 2013 are estimated to have subsided in 2014. This will increase the public purchasing power. With high returns and huge market, Indonesia is still seen as an attractive investment destination in the eyes of investors. World commodity prices are expected to gradually improve in 2014. There is the potential for capital inflows to developing countries if Japanese financial stimulus continues.

High uncertainty ahead of the election. This will encourage investors to put the brakes on investments, both direct investments in the form of foreign investment (PMA) or domestic investment (PMDN) and portfolio investments (wait and see). Although the potential for political unrest is relatively low, such potential remains to exist. Potential outflows (capital outflow of hot money) due to the tapering off of U.S. financial stimulus persist in 2014 (around the end of the first quarter of 2014). The rising prices of many industrial basic components (basic electricity rate, provincial minimum wage/UMP, district minimum wage/UMK) has the potential to undermine investment interest in Indonesia 4 Source: Kiryanto, 2013

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• The national economy still relies on household consumption in the midst of inflation surge.

• Government consumption is not moving much due to its hampered realization.

• Investments will tend to slow down due to the emergence of risks in external sector and poor investment climate

• Exports slightly improve (especially to the US and Europe), which are expected to move into other countries, especially the ASEAN countries, China, Japan, and India.

• Imports are still high but potentially decrease if the exchange rate does not strengthen.

• In businesses, the growth of non-tradable sectors is still dominating.

a. State revenues are set at Rp1.662,5 trillion. Tax revenues are still dominating at around Rp1 .310.2 trillion. International tax revenues are expected to decline due to the ongoing slowdown in exports.

b. State expenditures are planned to amount to Rp1.816,7 trillion, leading to a deficit of Rp154,2 trillion (1,49% of GDP).

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Summary of the 2013 State Budget and the 2014 Draft State Budget

2013

Revised

2014

Draft

Change

(yoy)

State

Budget

State

Budget

A. State Revenues and Grants 1.502,0 1.662,5 10,69

I. Domestic Revenues 1.497,5 1.161,1 (22,47)

1. Tax Revenues 1.148,4 1310,2 14,09

2. Non-Tax Revenues 349,2 350,9 0,50

II. Grants 4,5 1,4 (68,78)

B. State Expenditures 1.726,2 1.816,7 5,24

I. Central Government 1.196,8 1.230,3 2,80

1. Ministries/Agencies 622,0 612,7 (1,50)

2. Non-Ministries/Agencies 574,8 617,7 7,46

II. Transfers to Local Governments 529,4 586,4 10,77

1. Balancing Fund 445,5 481,8 8,14

2. Special Autonomy Funds and Adjustments 83,8 104,6 24,77

C. Primary Balance (111,7) (34,7) (68,93)

D. Budget Surplus/Deficit (A-B) (224,2) (154,2) (31,22)

% of GDP (2,38) (1,49) (37,39)

E. Financing 224,2 154,2 (31,22)

I. Domestic Financing 241,1 173,2 (28,15)

II. Foreign Financing (nett) (16,9) (19,00) 12,63

Financing Surplus/(Deficit) 0,0 0 -

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Growth of Central Government Expenditures 2013-2014

Personnel expenditures actually rise more sharply in the 2014 Draft State Budget, reaching up to 18,76 percent. Capital expenditures only rise by 6.85 percent.

2013 2014 Growth

Revised % % Draft % % (yoy)

State Budget GDP Total State Budget GDP Total

Employee Expenditures 233 2,5 19,47 276,7 2,7 22,49 18,76

Goods Expenditures 206,5 2,2 17,25 203,7 2 16,56 -1,36

Capital Expenditures 192,6 2 16,09 205,8 2 16,73 6,85

Interest Payment on Debt 112,5 1,2 9,40 119,5 1,2 9,71 6,22

Subsidies 348,1 3,7 29,09 336,2 3,2 27,33 -3,42

Grant Expenditures 2,3 0 0,19 3,5 0 0,28 52,17

Social Aids 82,5 0,9 6,89 55,9 0,5 4,54 -32,24

Other Expenditures 19,3 0,2 1,61 28,9 0,3 2,35 49,74

Total 1196,8 12,7 1230,2 11,9 2,790,775,401

Source: Ministry of Finance, 2013, re-processed .

Improvement of Indonesia’s

Competitiveness

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Perbaikan Daya Saing

Indonesia

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The Role of Energy Sector in Economy

SUSTAINABLE NATIONAL DEVELOPMENT

ECONOMIC DEVELOPMENT

GROWTH DRIVERS

CREATING A CHAIN OF EFFECTS

SOURCES OF ENERGY AND

INDUSTRIAL RAW MATERIALS

SOURCES OF STATE

REVENUES

ENERGY SECTOR Current approach:

People’s welfare 11

(Pro Poor - Pro Job - Pro Growth)

Past approach:

Maximizing state revenues

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GDP Growth and GDP per Capita

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Final Energy Consumption in Asia Pacific

Until 2035, final energy consumption in Asia Pacific is

projected to still be dominated by oil (36 percent), followed by

electricity (25 percent) and gas (17 percent). The use of coal

(10 per cent) and other types is still very low. 13

Final Energy Consumption in Asia Pacific by Sector

In 2035, the industrial sector is the major consumer of energy

consumption in Asia Pacific, followed by domestic transportation.

Such a format is not much different from the previous periods.

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Energy Intensity by Individual Country

Russia, Canada, and Venezuela reached the highest rank, followed

by Thailand and Indonesia.

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Energy Consumption Structure in Asia Pacific by Country

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Energy Demand by Sector and Individual Country

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Number of Vehicles per 100 Inhabitants

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Electricity Demand Projection by Country

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Throughout 2009-2035, The growth of electricity deman in Indonesia is 5,5 percent; the highest level after Vietnam (6,4 percent).

Electricity Ratio by Country

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Indonesia has the lowest electricity ratio compared to other countries, which is only 67,2 percent. Countries with electricity ratio of 100 percent are Australia, Canada, Hong Kong, Japan, Korea, New Zealand, Russia, Singapore, Taipei and the US.

Subsidy Calculation of Several Countries

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Indonesia’s energy subsidies account for 2,3 percent of its GDP, while Brunei’s is

2,6 percent ; Malaysia 2,5 percent ; Russia 2,7 percent ; Thailand 2,7 percent and Vietnam 2,8 percent .

The highest amount of subsidy per individual is in Brunei, which is USD840 per

person; followed by Russia (USD274); Malaysia and Thailand (USD200 and USD123). In Indonesia, this indicator reaches to USD66.

Projection for Renewable Energy Use

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Pressure for the Fulfillment of Energy Needs

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The study of Energy Management Indonesia (2010) explained that there is a significant relationship between the fulfillment of energy needs and economic growth. In 2010, energy elasticity in Indonesia reached a level of 1,84. This means that in order to encourage an economic growth of 1 percent, it is necessary for energy supply to rise up to 1,84 percent.

Such condition describes that to reach an average economic growth of 7

percent per year requires an average energy supply of 14 percent a year. The same elasticity in other countries show lower numbers. Energy elasticity in

Malaysia amounts to 1,69 percent; Thailand 1,16 percent; Singapore 1,1 percent; and Japan 0,1 percent.

In some European countries, the figures for energy elasticity are even negative.

That is, when the economy grows, the rate of energy consumption decreases. It suggests that the efforts of energy conservation and diversification are running very well.

Availability of National Energy

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Indonesia has currently become a net oil importer, although it still has enough reserve of gas for the next 50 years.

Therefore it is necessary to make a change in the energy policy from the current condition, which emphasizes on the sale of energy to obtain foreign exchange and State Budget revenues, to the fullf illment of national energy .

It is necessary to compile a comprehensive energy balance along with economic growth targets (we currently do not have energy balance yet).

It is necessary to change the energy policy from the fulfillment of

foreign exchange target toward national energy security that will ensure the availability of energy nationally.

This policy should also be supported by the provision of incentives for renewable energy that is environmentally friendly as well as the securing of energy for the future. This also reduces energy dependence on other countries

National Primary Energy Resources

Relatively ‘Abundant’

Source: Kurtubi, 2012

If Managed Properly: Indonesia should be free from the threat of energy crisis. These natural wealth of Fossil/Hydrocarbon Energy can even become a powerful source of funding for the National Development.

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Petroleum (billion barrels)

Natural Gas (TSCF)

Coal (billion tons)

Coal Bed Methane/CBM (TSCF)

Shale Gas (TSCF)

NON-RENEWABLE ENERGY

RESOURCES RESERVES PRODUCTION

RESERVES/PRODUCTION

RATIO (YEAR) *)

RESOURCES/RESERVES RATIO (%)

*) Dengan asumsi tidak ada penemuan cadangan baru: Assuming there is no discovery of new reserves **) Termasuk Blok Cepu: Including Cepu Block Sumber: DITJEN EBTKE-2011 : Source: Directorate General of New, Renewable Energy and Energy Conservation (NREEC/EBTKE) - 2011

National Primary Energy Mix Target 2025

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Energy Mix 2007 - 2011

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Geothermal Water Natural Gas Coal Fuel Purchase

Energy Policy Development 1981 1987 1991 1998 2003

General Policies General Policies General Policies General Policies "National Energy in Energy in Energy in Energy in Energy Policy"

Main Policies Main Policies Policies 1. Intensification 1. Intensification 1. Intensification 1. Diversification 1. Intensification 2. Diversification 2. Diversification 2. Diversification 2. Intensification 2. Diversification 3. Conservation 3. Conservation 3. Conservation 3. Conservation 3. Conservation 4. Indexation 4. Energy Prices 5. Environment Supporting Policies Supporting Policies Supporting Policies Supporting Policies Supporting Policies 1. Research and 1. Energy Industries 1. Energy Industries 1. Investments 1. Infrastructures Development 2. Investment 2. Investment 2. Incentives & 2. Determination of 2. Energy Industries Climate Climate Disincentives economic price 3. Investment 3. Energy Prices 3. Energy Prices 3. Standardization & mechanism Climate Certification 3. Protection of the 4. Infrastructure poor

Final Utilization Policies Final Utilization Policies Final Utilization Policies Development 4. Environment 1. Industries 1. Industries 1. Industries 5. Human Resource 5. Government and 2. Transportation 2. Transportation 2. Transportation Quality Improvement Private Sector 3. Households 3. Households 3. Households 6. Information System Partnership 7. Research and 6. Community Development Empowerment 8. Institutions 7. Research & 9. Management Development and Education & Training 8. Coordination for energy mix optimization

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Measuring the Role of Electricity in Economy

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Elasticity of Infrastructure Development on Economic Growth (10 percent Growth Stock)

*The higher the elasticity, the more crucial it is

Location Telecommu

nication Electricity Road Water Port Irrigation

National

Java-Bali

Sumber: Studi LPEM-UI (Dampak Pembangunan Infrastruktur terhadap Pertumbuhan Ekonomi), 2005 : Source: A Study by the Research Institute for Economy and Community, University of Indonesia / LPEM-UI (Impacts of Infrastructure Development on Economic Growth), 2005

Electrification Ratio Target

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No. PROVINCE 2012 2017 2022 2027 2035 1 Aceh 89,79 97,24 99,99 100,00 100,00

2 North Sumatera 87,01 95,85 99,99 100,00 100,00 3 West Sumatera 80,19 92,44 99,99 100,00 100,00 4 Riau 79,09 91,89 99,99 100,00 100,00 5 Riau Islands *) 91,68 98,19 99,99 100,00 100,00 6 South Sumatera 74,83 88,96 99,99 100,00 100,00

7 Jambi 78,17 91,43 99,99 100,00 100,00 8 Bengkulu 73,23 89,76 99,99 100,00 100,00 9 Lampung 72,88 94,04 99,99 100,00 100,00

10 Bangka Belitung Islands 83,39 88,79 99,99 100,00 100,00

11 Bali 71,56 87,35 100,00 100,00 100,00 12 East Java 74,98 100,00 100,00 100,00 100,00 13 Central Java 80,74 88,97 100,00 100,00 100,00

14 Special Region of Yogyakarta 77,96 92,95 100,00 100,00 100,00 15 West Java 72,77 91,56 100,00 100,00 100,00 16 Banten 69,53 90,07 100,00 100,00 100,00

17 Special Capital Region of Jakarta 99,99 88,36 100,00 100,00 100,00 18 East Kalimantan 64,02 86,28 99,99 100,00 100,00 19 South Kalimantan 77,70 86,95 99,99 100,00 100,00 20 Central Kalimantan 69,20 91,20 99,99 100,00 100,00

21 West Kalimantan 67,87 84,36 99,99 100,00 100,00 22 North Sulawesi 75,68 87,69 95,91 98,18 100,00 23 Central Sulawesi 66,60 80,29 99,99 100,00 100,00 24 Gorontalo 55,88 83,15 95,91 98,18 100,00 25 South Sulawesi 76,86 84,98 99,99 100,00 100,00

26 Southeast Sulawesi 57,90 90,78 99,99 100,00 100,00 27 West Sulawesi 65,26 78,80 95,91 98,18 100,00 28 West Nusa Tenggara 54,77 74,74 91,82 96,36 100,00 29 East Nusa Tenggara 44,49 69,60 91,82 96,36 100,00 30 Maluku 72,01 83,36 91,82 96,36 100,00 31 North Maluku 71,68 83,19 91,82 96,36 100,00 32 Papua and West Papua 40,84 67,77 91,82 96,36 100,00

Indonesia 75,30 86,37 99,33 99,69 100,00

*) Electrification ratio is high because it includes the Batam area.

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Electricity Elasticity Projections for 2010-2019

PLN explained that after 2014, the total elasticity in Indonesia is predicted to decline as more and more consumers are using electrical equipment with more efficient technologies, especially in the industrial, business and public sectors.

Electrification Ratio Projections

Meanwhile electrification ratio reaches 90.9 percent in 2019, rising from 66,1 percent in 2010.

Source: General Plan of Electricity Supply, 2010-2019

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Targeted Electricity Growth & Electrification Ratio

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Electricity Demand, Growth Rate and Electrification Ratio Forecasts

o Electrification ratio in 2015 is expected to increase to 79,5 percent with focus on spurring electricity growth in the eastern Indonesia region.

Source: Electrical Power Supply Business Plan (RUPTL) 2010-2019 , State Electricity Company (PLN)

Details

Java-Bali

East Indonesian West Indonesian

East Indonesian

West Indonesian

Java-Bali

Java-Bali

East Indonesian

West Indonesian

Electricity Supply Electricity Supply Growth (%)Growth (%)

Electrification Ratio (%)

Electricity and Decomposition of Inflation

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Government-arranged inflation throughout 2006-2012 was relatively low; only in 2008 did it break through a level of 15.99% due to the rise in fuel prices.

Source: Processed from Statistics Indonesia (Badan Pusat Statistik)

Electricity Demand, Growth Rate and Electrification Ratio Forecasts

Consumer Price Index (CPI) Inflation

Core Inflation

Volatile

Government-arranged

Sold Energy by Consumer Group (2011)

34 Source: State Electricity Company (Perusahaan Listrik Negara), 2012

Households Businesses

Others

Industries

Total

Number of Consumers per Consumer Group

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Average Growth Rate of Consumers per Year (%)

Year Household Industry Business Social Government Public Road Lighting Total Office Building

Type of Consumer

Household

Industries

Businesses

Others

Total Until the end of 1999

Comparison of Installed Capacity and Population

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Energy Mix 2007 - 2011

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Purposes of Electricity Subsidies

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Some of the purposes of electricity subsidies are as follows:

Electricity subsidies are allocated because the average

price of electricity is lower than the basic supply cost of

electricity for the categories with such rates.

Electricity subsidies are also allocated in order to support

electricity supply for industrial, commercial , public service

sectors. The provision of electricity subsidies is expected to ensure

investment programs and facility/infrastructure rehabilitation in electricity supply

Government Efforts to Reduce the Basic Supply Cost

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The Government and the State Electricity Company (PLN) are taking several steps to reduce the basic supply cost of electricity, which are as follows:

Network loss reduction program Diversification of primary energy in power plants by optimizing

the use of gas, geothermal, coal, biodiesel, and the replacement of high speed diesel (HSD) to marine fuel oil (MFO).

Increased use of coal, utilization of biofuels and geothermal. From the internal side of the government is also seeking to

improve PT PLN in order to avoid liquidity and funding difficulties. The government undertakes this measure by providing an operating margin of 7 percent to PLN.

Development of Electricity Subsidy Realization

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Throughout 2007-2012, the realization of electricity subsidy expenditure in nominal terms increased by Rp31,9 trillion (with average increase of 14.5 percent per year). The number includes 0.8 percent of GDP.

Several factors that influence the realization are:

increase in the basic supply cost for electricity as an impact of the dominating use of fuel in the national power generation system;

changes in exchange rates and ICP; and

Increased sale of electricity that had reached 167,2 terawatt hour (TWh) in 2012, compared to the sale of electricity in 2007 which amounted to 119,0 TWh

Electricity Indicators in the 2012 Revised State Budget and the 2013 Draft State Budget

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Assumptions in the preparation of electric subsidies in 2013 are: ICP amounts to USD100,00

per barrel Rupiah exchange rate is

Rp9.300,0 per US dollar Average electricity rate

adjustment is around 15 percent;

PT PLN’s operating margin is 7 percent;

Improvement in the sale of electricity and (6) network losses as much as 8,5 percent

Electricity subsidies in the 2013 Draft State Budget is planned to amount to Rp80,9 trillion (0,9 percent of PDB)

No PARAMETER 2012 REVISED

STATE

BUDGET

2013 DRAFT STATE

BUDGET

1

2

3

4

5

6

7

8

ICP (US$/barrel)

Exchange Rate (Rp/US$)

Electricity Rates (%)

Growth Sales (%)

Energy Sales (TWh)

Losses (%)

Fuel Mix

- High Speed Diesel/HSD (million KL)

- IDO (million KL)

- Marine Fuel Oil/MFO (million KL)

- Coal (million tons)

- Gas (million BBTU)

- Geothermal (TWh)

- Bio Diesel (million KL)

Margin (%)

105,0

9.000,0

-

7,0

167,2

8,50%

5,5

1,7

38,1

0,3

3,4

0,01

7%

100,0

9.300,0

15,0

9,0

182,3

8,50%

4,3

1,4

-

48,8

0,4

4,2

0,01

7%

Current Year Subsidies (Billion Rp)

Previous year deficit (billion Rp)

Subsidies (accrued and cash) (Billion Rp)

Carry over to the next year

60.466,6

4.506,8

64.973,4

78.627,1

7.310,7

85.937,8

(5.000,0)

TOTAL SUBSIDIES (Billion Rp) 64.973,4 80.937,8

Source: Ministry of Finance

Development of National Electricity Indicators

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No. PARAMETER 2007 2008 2009 2010 2011 2012 REVISED

STATE BUDGET

1 ICP (US$/barrel) 78,0 96,8 61,5 79,4 111,5 105,0

2 Exchange Rate (Rp/US$) 9.419,0 10.950,0 10.408,0 9.087,0 8.776,0 9.000,0

3 Electricity Rates (%) - - - 10 - -

4 Growth Sales (%) 5,7 3,8 4,3 9,4 4,1 7,0

5 Energy Sales (TWh) 119,0 124,3 134,9 145,7 151,7 167,2

6 Losses (%) 11,11 10,45 9,96 9,74 9,44 8,50%

7 Fuel Mix

- High Speed Diesel/HSD

(million KL)

7,9 8,1 6,3 6,9 8,0 5,5

- IDO (million KL) 0,01 0,03 0,01 0,01 0,01 -

- Marine Fuel Oil/MFO

(million KL)

2,8 3,2 3,3 2,43 2,5 1,7

- Coal (million tons) 21,5 21,0 21,6 23,96 29,1 38,1

- Gas (million BBTU) 0,2 0,2 0,3 0,28 0,3 0,3

- Geothermal (TWh) 3,2 3,4 3,5 3,40 3,4 3,4

- Bio Diesel (million KL) - - - - - 0,01

8 Margin (%) - - 5% 8% 8% 7%

Current Year Subsidies (Billion Rp) 33.073,5 80.395,6 45.139,3 53.601,6 92.867,0 60.466,6

Previous year deficit (billion Rp) - 3.510,9 4.407,1 4.000,0 4.580,5 4.506,8

Subsidies (accrued and cash) (Billion

Rp)

33.073,5 83.906,5 49.546,5 57.601,6 97.447,5 64.973,4

Carry over to the next year - - - - (7.000,0) C

TOTAL SUBSIDIES (Billion Rp) 33.073,5 83.906,5 49.546,5 57.601,6 90.447,5 64.973,4

Source: Ministry of Finance

Development of Energy and Non-Energy Subsidies

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In 2013, details of energy and non-energy subsidies are as follows:

1. Energy subsidies amount to Rp274,7 trillion, consisting of fuel subsidies (193,8 trillion) and electricity subsidies (Rp80,9 trillion).

2. Non-energy subsidies amount to Rp41,4triliun, consisting of: (1) food subsidies amounting to Rp17,2 trillion; (2) fertilizer subsidies amounting to Rp15,9 trillion; (3) seed subsidies amounting to Rp0,1 trillion; (4) PSO subsidies amounting to Rp2,0 trillion; (5) program credit interest subsidies amounting to Rp1,2 trillion; and (6) tax subsidies amounting to Rp4,8 trillion.

DESCRIPTION 2007 2008 2009 2010 2011 2012 REVISED STATE

BUDGET

A. ENERGY 116.865,9 223.013,2 94.585,9 139.952,9 255.608,8 202.353,2

- Fuel 83.792,3 139.106,7 45.039,4 82.351,3 165.161,3 137.379,8

- Electricity 33.073,5 83.906,5 49.546,5 57.601,6 90.447,5 64.973,4

B. NON-ENERGY 33.348,6 52.278,2 43.496,3 52.754,1 39.749,4 42.723,1

- Food 6.584,3 12.095,9 12.987,0 15.153,8 16.539,3 20.926,3

- Fertilizer 6.260,5 15.181,5 18.329,0 18.410,9 16.344,6 13.958,6

- Seed 479,0 985,2 1.597,2 2.177,5 96,9 129,5

- PSO 1.025,0 1.729,1 1.339,4 1.373,9 1.833,9 2.151,4

- Program Credit Interest 347,5 939,3 1.070,0 823,0 1.522,9 1.293,9

- Cooking Oil 24,6 103,3 - - - -

- Soybean - 225,7 - - - -

- Government-borne 17.113,6 21.018,2 8.173,6 14.815,1 3.411,8 4.263,4

- Other Subsidies 1.514,0 - - - - -

TOTAL 150.214,5 275.291,4 138.082,2 192.707,1 295.358,2 245.076,3

Source: Ministry of Finance

Development of Government Guarantee Fund Allocation

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Government Guarantee Obligations in 2012-2013 (Billion Rupiahs)

Guarantee 2008 2009 2010 2011 2012

1. Acceleration of Coal-powered Electric Generator

Development by PT PLN (Persero)

283,0 1.000,0 1.000,0 889,0 623,3

2. Acceleration of Drinking Water Supply by PDAM - - 50,0 15,0 10,0

Total 283,0 1.000,0 1.050,0 904,0 633,3

Source: Ministry of Finance

Guarantee Activity Basis of Regulation 2012 Revised

State Budget

2013 Draft

State Budget

1. PT. PLN (Persero) Acceleration of Coal-powered Electric

Generator Development for First Phase

10.000 MW Project

Presidential Regulation

Number 86 of 2006

623,3 611,2

2. PDAM Drinking Water Supply Acceleration

Project

Presidential Regulation

Number 29 of 2009

10,0 35,0

3. Public Private Partnership in

Infrastructure Development

Central Java steam-powered electric

generator

Presidential Regulation

Number 78 of 2010

0,0 59,8

Total 633,3 706,0

Source: Ministry of Finance

Electricity Investment Needs

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Source: General Plan of Electricity Supply, 2010-2019

In total, the needs for investments in power generation, transmission, and distribution during the period of 2010-2019 in order to fulfill the need for power facilities in Indonesia amount to US$97,1 billion.

Consisting of investments for power plants (including IPP) amounting to US$70,6 billion, investments for transmission amounting to US$15,2 billion and investments for distribution amounting to US$11,3 billion.

Realization of Domestic Investments in Paper Industry

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Realization of Foreign Direct Investments in Paper Industry

Electricity Investment Models in Other Countries

47

1. Government Monopoly Model

1. The Government produces electricity and sells it to the public (households, businesses, and other sectors). The government carries out public service

obligations.

2. The Government usually provides subsidies since the electricity is sold below its

economic price.

2. Private Sector Involment Model (Private Public Partnership)

1. A study by the International Energy Agency (2003) concluded that it is necessary to reduce government monopoly in the supply of electricity

(involving the private sector). This has been implemented by OECD countries.

2. In addition to the reason of limited government funds, effectiveness and efficiency

also play a role as influencing factors.

3. The requirement is that it needs to be supported by a conducive investment climate.

4. Nevertheless, the Government must set a maximum price (price floor) to protect the consumers.

5. The Government must require the transfer of technology

Electricity Investment Models in Other Countries

48

3. Alternative Model (exchange)

For example, in order to be able to invest in a particular sector, an investor is required to make an investment in electricity (at least capital deposit).

Incentives can be given for both fiscal and non-fiscal.

Appendices

Study of Effects of Electricity Rate Increase on Inflation

50

A study conducted by Pri Agung and Komaidi (2010) describes the effects of the increase in basic electricity rate on inflation through the cost of production.

Source: Pri Agung and Komaidi, 2010

This study concludes that Basic Electricity Rate increases of 10 percent, 15

percent and 20 percent would raise production cost by 2,13 percent; 3,19

percent; and 4,25 percent, respectively.

Such condition explains that the effort to obtain the same profit (before Basic Electricity Rate increase) would be responded by raising the product selling price by at least 2,13 percent; 3,19 percent; and 4,25 percent, respectively.

No Sector Portion of Electricity

Cost of the Total Cost

(%)

Additional Production Cost

Basic Electricity Rate

10%

Basic Electricity

Rate 15%

Basic Electricity Rate

20%

1 Textile 8.78 0.88% 1.32% 1.76%

2 Electronic goods, communications, and

equipment

11.20 1.12% 1.68% 2.24%

3 Cosmetic goods 13.23 1.32% 1.98% 2.65%

4 Metal household and office furniture 16.49 1.65% 2.47% 3.30%

5 Ready-made garment 19.10 1.91% 2.87% 3.82%

6 Wooden, bamboo, and rattan household

furniture

24.38 2.44% 3.66% 4.88%

7 Individual and household services 26.57 2.66% 3.99% 5.31%

8 Knitted goods 27.18 2.72% 4.08% 5.44%

9 Railway transport services 29.21 2.92% 4.38% 5.84%

10 Footwear 36.55 3.66% 5.48% 7.31%

Average 2.13% 3.19% 4.25%

Basic Electricity Rate Increase and Inflation

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Referring to the results of the same study, an increase in basic electricity rate at a range between 10 percent to 20 percent will cause a rise in inflat ion. However, the effects will be different, depending on the model used. The study explains that electricity basic rate increase between 10 percent to 20 percent through the FSAM model (assuming that consumption of electricity as well as goods and services will decrease if the basic electric ity rate increases) will cause inflat ion to rise at a range between 0,63 percent to 0,70 percent.

Meanwhile, if using the WAP model (assuming that there is no shift in consumption pattern), an increase in basic electric ity rate at a range between 10 percent to 20 percent will cause a rise in inflat ion of about 0,68 percent to 1,36 percent.

Basic Electricity Rate Increase and Manpower

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The increase in basic electricity rate will in turn cut down manpower. Referring to the research by Pri Agung and Komaidi (2010), the increase in basic electricity rate at a range between 10 percent to 20 percent will lead to a decline in industrial electricity consumption by 6.7 percent to 13.40 percent.

In terms of manpower condition, basic electricity rate increase at a level of 10 percent to 20 percent will lead to a cut-down on the use of manpower by 1,17 percent to 2,35 percent.

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