In Brief
How did it come to this? Blackouts are spreading across Java, and are increasingly common in the Outer Islands as well. But policy-makers in Indonesia have known for at least five years that a power shortage was looming. Why was so little done?
The short answer is that there has been an extended period (for over five years!) of foot-dragging in Jakarta over planning for new investment in power. It has been widely known that around 10,000 MW of new generating capacity is needed (compared to existing capacity of close to 30,000 MW). But there have been extended delays for all sorts of reasons – technical, financial, political – with different planners, financiers and officials all busy blaming each other. Strong ministerial intervention was needed to coordinate plans for new investments, but the required action was never taken.
This is all going to be very costly for Indonesia. The Philippines went through an electric power crisis in the early 1990s so we have a good idea from the experience in the Philippines of what is likely to happen. First, various “crash programs” will be announced (this has already occurred in Jakarta). Second, blackouts will become more and more common. In Manila, the “brownouts” (as they were euphemistically called) sometimes lasted for up to 10 hours across the capital. Third, the inconvenience and lost productivity caused will be great. Traffic lights, for example, will fail for long periods, and traffic jams will become worse. Food will go bad in restaurants and homes. Blood supplies in hospitals will warm up as refrigeration fails.
And there will be lots of black humour as people try to cope. In the Philippines in 1993 one popular joke was to ask: “What did people use for lighting in the Philippines before they used candles?” Answer: “Electricity.”
Peter – interesting. What do you put the foot dragging down to? Inadequate leadership from the President/relevant minister? Inability to line up political deals within the parliament or at the regional level? A lack of funds?
Why has there been foot-dragging? Hard to know. I’m not sure that it is easy to say. However let me try to suggest some answers.
At one level, reasons for the foot-dragging (superficial reasons, anyway) are clear enough. Nobody with sufficient clout has stepped in to coordinate a policy response to the slowly-emerging crisis. Why? My own guess is that it’s an institutional problem. The top levels of Indonesian Government are not yet sufficiently well-organised to handle these sorts of problems very well. The Vice President, Jusuf Kalla, has been taking a well-publicised interest in the power situation, it’s true. But it is not clear that he has been senior enough to force the coordination that is needed.
At a deeper level, the reasons are more complex. One needs to consider the history, and the interplay of lobbies, that influence the issue. For at least the past ten years (much longer, really) there has been a tug-of-war over the issue of financing for infrastructure in Indonesia. The whole issue has been messy. On one hand, are those (call them the “financiers”) who have sceptical about the idea of providing public funding for infrastructure (including electric power). On the other hand, there are those (call them the “engineers”) who have been inclined to call the bluff of the “financiers” and have said that without money, there will be a crisis.
There have been many twists and turns in the tug-of-war between these two group. Tensions between “financiers” and “engineers” is common in infrastructure sectors the world over. Judith Tendler wrote a ripping yarn about precisely these issues in Latin America around 40 years ago (“Electric Power in Brazil”, 1968). When the lights are on, policy-makers in Jakarta might find it quite useful to refer to Tendler’s book. Amazon has copies.
Peter – helpful response. thanks. Triggers wider thoughts in me about glaringly important pulic-good type policies going radically under-provided. Travelling in Thailand at the moment and India last week. In both places profound problems in education systems seem to looming as a big drag on development. Not as dramatic as the electricity going off, but also, probably, harder to fix in the long run. And thinking of Australia, hard to think of many things more important than the water supply, and yet successive governments at the state level have not invested in water collection and storage.
And no doubt we could all come up with lists for different polities. Makes me wonder whether is anything we can say about some public-good type policies being more important than others and whether some systems of government do a worse job over time than others in providing them.
Another important reason for under-investment in Indonesia’s power generation is of course pricing. Electricity prices in Indonesia are fixed below cost, with the difference paid to the state electricity company PLN in subsidies. The operating losses (subsidies) are blowing out with fuel prices at the moment.
As we were told in recent fieldwork for our AIGRP project (http://www.aigrp.anu.edu.au/research/project.php?pid=1016), the subsidies used to be for capital investment, now they are needed to cover operating costs. And there is great uncertainty about future pricing which hinders private investment by independent power producers.
Indonesia’s ‘crash program’ for power generation also creates a potentially huge liability in terms of carbon emissions and air pollution. The program essentially consists of quickly installing low-cost Chinese plants to burn very low-grade coal. It’s the option with the lowest up-front investment cost and that seems to be all that counts. More advanced coal plants would reduce operating costs and the environmental liability, renewable options like geothermal eliminate it.
Andrew MacIntryre points to the glaring shortage of public goods in infrastructure in many poor countries in Asia; Frank Jotzo points to the problem of electricity pricing in Indonesia; the two issues are certainly closely related.
Across most of developing Asia, infrastructure prices in the regulated formal sector are suppressed. But dualism is common than often realised. Many infrastructure services are provided in largely unregulated informal sectors. Discussion about infrastructure policy in developing Asia needs to pay far more attention to what is going on the in unregulated informal sector than is currently the case.
As Andrew points out, the supply of public goods in infrastructure in the region is generally very unsatisfactory. There is an acute shortage of infrastructure. This can be measured in all sorts of ways. My own favourite measure is the supply of kwh per person per year: in most western counties, average annual consumption of electricity is around 10,000 kwh while in Indonesia the figure is around 450kwh.
The result of this extreme shortage of infrastructure goods is two-fold. First, thriving unregulated informal sectors often spring up. In Manila, huge amounts of water are delivered by hand on large trolleys across the city every day. Services in the unregulated informal sector are generally expensive and of lousy quality. But no matter! People are desperate to get access to even modest supplies of services so they are prepared to put up with these things.
Second, under intense political pressure, governments are sometimes prepared to take fairly desperate measures to increase the supply of infrastructure in the regulated formal sector. As Frank points out, the current “crash program” to supply around 10,000 MW of power is largely coal-based. Much of this is financed by soft credits from China. Faced with extreme power shortages, neither Indonesia nor China are all that interested in discussions about climate change. Indeed, there is already talk of the need for second crash program in Indonesia, involving another 10,000 MW, to begin in 2012 when the current program is finished. And it’s a fair bet that the second 10,000 MW won’t be powered by solar or wind!
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