Rural Electrification Workshop February 23-25, 2005 Bangkok

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1 Session 8 Planning & Funding for Sustainable Rural Electrification Development in Indonesia Gumilang Hardjakoesoema, Andianto Haryoko, Syamsidar Thamrin Rural Electrification Workshop February 23-25, 2005 Bangkok Introduction Electricity has been defined as an infrastructure in stimulating the economic growth and as a commodity in providing direct benefits to commercial sectors Electricity supply shall be based on the principles of security and reliability Electricity tariff shall reflect the costs but not to exceed the affordability of the customers. Tariff in Indonesia doesn t reflect the cost (especially for rural people due to their low income and non-productive use at peak time) Electricity tariff shall be applied non-uniformly due to disparity of cost of power supply (generation and grid) and structured based on consumers group such as industrial, commercial, households, public Rural electrification program is pretty expensive because most of the customers are small scales and scattered (Indonesia has more that 18,600 islands and from 230 millions people, about 60% live in Java island). Furthermore, other costs such as for non electricity infrastructure like access road and lack of local human resources to operate various capacities or types of power generations cause high investment costs 2

shall be based on the principles of security and reliability Electricity tariff shall reflect the costs but not to exceed the affordability of the customers.

2 Existing Conditions Low electrification ratio: 53% (in 2003) There is a gap between Java-Bali System (JBS) and Outside JBS as well as Eastern and Western parts of Indonesian (KTI and KBI) on the electrification program Until Year 2003 (JBS and Outside JBS) : The number of villages electrified : and 27,120 Village-electrified ratio : 98.84% and 71% Power generation installed capacity : 74.62% (15,492 MW) and 25.38% (5,270 MW) Captive Power: MW and MW Low utilization of local renewable energy 3 Rural Electrification Development Target ( ) 2010) Région /Province Villages electrified villages until 2003 Plan to electrified villages electrified villages until 2010 Villages % Jawa-Bali Outside Jawa-Bali

84% and 71% Power generation installed capacity : 74.62% (15,492 MW) and 25.38% (5,270 MW) Captive Power: 7.324 MW and 7.

3 Government Roles on RE (1) Government has still major role in providing investment through either National Development Budget (APBN current national budget allocation is around USD 50 millions p.a and only able to increase 0.5% of electrification ratio) or multilateral/bilateral soft loan/grant for rural electrification through non-commercial scheme, such as: - 50 MW Solar Home System (WB, AusAID) - RE I and II (WB, JBIC) - PROLISDES (APBN, APLN) President Decree No. 7/2005 concerning Medium Term Development states the government put a high priority on rural electrification program Minister of Energy and Mineral Resources launched a Decree on Small-scale Power Generation for Private, Cooperative and Community that regulates the selling price of electricity at a level of 60% of Low Voltage distribution cost and 80% of Medium Voltage distribution cost Government provides micro loan scheme for Small- and Medium-scale Enterprises and Cooperatives to cover connection fee; sub loan/noncommercial funding for PLN from multilateral/bilateral lenders 5 Government Roles on RE (2) Government provides annual subsidy for electric sector, for example in years 2002 and 2003 for the amount of IDR 4,7 T and 4.1 T, respectively To reduce investment on RE, government assigned PLN to conduct a pilot project to utilize more local materials and human resources; to simplify the standards; and to levelize the load by introducing the off peak loading for small business units The government is still maintaining the tariffs for social and small residential categories in rural areas Government invites private sector participation through the Presidential Decrees No. 37/1992 and No. 7/1998 6

5% of electrification ratio) or multilateral/bilateral soft loan/grant for rural electrification through non-commercial scheme, such as: - 50 MW Solar Home System (WB, AusAID) - RE I and II (WB,

4 Objectives of RE Program Expanding access to electricity for rural population (increase the electrification ratio at least 2% per year) Developing and utilizing of locally available renewable energy resources. Preserving environmental conditions and achieving at least 5% of renewable energy in the national energy mix Increase private & local governments participation Equally distributing the electricity as a basic needs in KTI and KBI as well as JBS and Outside JBS. 7 Planning For Sustainable Rural Electrification Development (1) RE shall be extended from the existing and the nearest grid system RE shall empower the local capacity by utilizing appropriate technology and local human resources RE shall be supported by the local governments by allocating some portion of its budget as its public service obligation in order to improve the society welfare The investment should be a part of rural development program in order to promote RE successfully through unbundling the non-commercial electricity program and define the projects based on financially, economically viabilities or just for social purposes 8

Preserving environmental conditions and achieving at least 5% of renewable energy in the national energy mix Increase private & local governments participation Equally distributing the electricity as

5 Planning For Sustainable Rural Electrification Development (2) Electricity tariff structure for RE is designated to basic need consumption for residential group and to stimulate the off peak activities in the day time for productive uses Tariff structure for RE program should be based on cost recovery, but a direct subsidy to the beneficiary should be applied to maintain its affordability In RE program priority will be given to the projects that create positive economic benefits 9 Planning For Sustainable Rural Electrification Development (3) Public private partnership (PPP) is necessary due to the limited government funds. However, its implementation should be based on solicited scheme rather than the unsolicited one PPP should be based on the least cost with either BOO, BOT or BLT scheme and maintain the sustainability of the project Partnership project should be transparent, fair and competitive PPP is preferable to foreign direct investment (FDI) comparing to Loan-based investment. 10

affordability In RE program priority will be given to the projects that create positive economic benefits 9 Planning For Sustainable Rural Electrification Development (3) Public private partnership

6 Strategy For Sustainable Rural Electrification Development Collecting and updating the data based on government capability, local resources and local community capability In case of many energy alternatives, calculate each type of energy cost for each region or area by merit order Accumulate the energy consumption by type of energy based on least cost of energy Making master plan based on government policy (macro economic, regulation), funding policy (lender policy, soft loan/grant) and sustainability. The master plan has to be updated regularly Reviewing the master plan by type of energy Promoting public private partnership in order to meet the master plan above Improving regulations and law enforcement 11 Economic Formulation For Sustainable Rural Electrification Development Economic consideration in determining the viability of an RE program, for example, can be based on Revenue Requirement (RR): RR = cost + depreciation + tax + investment expansion + benefits. Cost is to cover repayment of investment, interest, O&M and other costs. Average tariff can be determined by the following: RR / amount of generated energy. In the case that average tariff is not affordable by the rural customers, then several modifications should be done on the components of RR. Government should facilitate the cheap financing resources to finance RE through grants, subsidy, paying some of investment costs such as for basic infrastructures, and so on. 12

government policy (macro economic, regulation), funding policy (lender policy, soft loan/grant) and sustainability.

7 Funding and Investment Policies A rural electrification master plan - that is strategic, fair, and also provide indication of economic, social, and environmental benefits will work as guidance for the government to determine priority Transferring part of authority to local governments through decentralization and regional autonomy is expected to increase local governments, cooperatives and local private businesses participation Loans can be obtained from domestic loans and foreign loans Type of projects that have possibility to get soft loans or grant are environmental-friendly, community development and poverty alleviation projects The funding resource alternatives above can be realized & implemented properly if local governments can prepare & manage all instruments needed 13 Conclusion GOI still has limited National Development Budget (APBN) to promote RE, therefore, GOI will support local government and private participation in RE development especially in off-grid system RE program will be integrated or coordinated with other rural development program The GOI will promote and socialize green development and green policies Need innovative thinking on non-conventional financing and subsidy for promoting RE Many financing instrument & institutions now available but first must get framework right Economic formulation will be used as the prerequisite in determining the sustainability of RE program 14

local private businesses participation Loans can be obtained from domestic loans and foreign loans Type of projects that have possibility to get soft loans or grant are environmental-friendly,

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