Power plant megaproject could fail

JAKARTA. Bunch of big issues facing the government's plan to build a power plant with a capacity of 35,000 Megawatt (MW) within five years. National Development Planning Agency (Bappenas) identified, the government must answer a stack of big problems if they want this priority project is completed in 2019.

Deddy S. Priatna, Deputy of Infrastructure of Bappenas, revealed, the first problem is the licensing that are layered and convoluted. "This issue has the potential to make private investors who will take part in this project changed their minds," he told KONTAN, Sunday (13/12).

Currently, private companies’ alias independent power producer must pass a series of lengthy licensing process. Among others: principle permission from regents/mayors, public works technical recommendations, location permit from the county or city government and the National Land Agency (BPN), and the environmental permit from local environmental agencies. The process to obtain this series of permits could take up to 4 years if there is no improvement.

The second problem is the financial condition of the State Electricity Company (PLN), which is not healthy. For example, PLN debt-to-equity ratio (DER) was estimated at 257%. The problem is, PLN should build 16,400 MW of generating capacity of 35,000 MW in total. With that ratio it is difficult for PLN to seek new funding.

The third problem is land acquisition, especially in forest areas. Fourth, issues relating to the protection of law and political guarantees for investors who will build the plant. They are afraid, if the regime change, the project did not proceed. "Another problem is the procurement of goods and services that are complicated and time consuming," said Deddy.

Because of that, Bappenas ask The Coordinating Team for Accelerated Development of The National Power that was formed last November to work immediately. Additionally, Bappenas would recommend to the president that the electricity tariff (TDL) will have to consider the power plant investment cost. Bappenas propose this policy applies in 2017.

To solve the financial problems of PLN, Bapenas propose to increase state capital to PLN to $ 134 billion in five years. PLN President Director Nur Pamudji claimed, PLN is able to work on power plant projects even though the funds needed to finish the projects reach Rp 545 trillion. Aside from its own cash, PLN believe it can attract international financial institutions such as the the World Bank, as well as from multilateral institutions.
 
Finance Minister Bambang Brodjonegoro admitted the government had to add equity to PLN to support this project. Unfortunately, Bambang could not comment on the additional capital to PLN. Without swift and hard work, this mega project could fail.