Chinese poised to dominate RI power sector

The Jakarta Post, Jakarta | Mon, 10/08/2007 8:31 AM | Business

Ika Krismantari, The Jakarta Post, Jakarta

That “”Chinese products are everywhere”” is a statement few would deny, as you can find Chinese-made goods in just about every corner of the world at the present time.

The fact that Chinese products have proven themselves so successful in winning the hearts of consumers all over the world is largely due to their relatively low prices.

A similar situation also prevails in Indonesia. A wide variety of Chinese goods, including such things as electronics products, shoes, fabrics, children’s toys, kitchen utensils and clothing can be found almost everywhere.

Now, even our power plants are using Chinese technology.

Under the so-called fast-track program, state-owned power utility PT Perusahaan Listrik Negara (PLN) is building 35 coal-fired power plants to provide an additional 10,000 megawatts (MW) of power supply over three years up until the end of 2009.

Ten coal-fired power plants with a total capacity of 6,900 MW will be built in Java, while 25 others, with a total capacity of 3,100 MW, will be built outside Java as part of the US$8 billion fast-track program.

Of the 10 projects in Java, eight have been won by Chinese companies.

A consortium led by Shanghai Electric, for example, recently kicked off the construction of the 1,050-MW Pelabuhan Ratu power plant, which is the biggest project under the fast-track program.

Aside from Shanghai Electric, a number of other Chinese companies, including one of China’s largest power companies, Harbin Power Engineering, have won projects under the fast-track program.

PLN expects to sign one more contract with another Chinese company, China National Machinery Industry Corporation (Sinomach), for the construction of the 600-MW Tanjung Awar Awar plant in East Java.

With the Chinese known for their low prices, it is easy to guess why PLN has turned to Chinese firms rather than European or Japanese ones, which have built most of the state firm’s power plants over the last few decades.

It is estimated that for a power plant with a total capacity of 1,000 MW, Chinese companies are willing to submit bids in the region of between US$700 million and $800 million, while a European company, such as France-based Alstom or Germany’s Siemens, would charge between $1 billion and $1.1 billion for such a plant.

“”As part of this fast-track program, we don’t really need high-end technology. What we need is technology that can be applied right now. I believe we can upgrade the technology later on,”” PLN president director Eddie Widiono told The Jakarta Post recently.

Aside from the price issue, he said there was no reason why PLN should not pick Chinese companies as long as their technology satisfied all the requirements.

“”We must remember that in the past, power plants were built under G-to-G (government-to-government) collaborative arrangements with some European countries. We see now that China can also produce good-quality power technology, which is able to compete with other foreign products,”” Eddie said.

Time magazine has reported that the development of China’s power technology was driven by rapid domestic industrialization, which pushed demand for electricity up by almost 61 percent from 2002 to 2005, when the government of China ordered a massive push to modernize and expand power production. The upshot of this was that many new power companies emerged.

However, with the local market becoming saturated, these companies are looking overseas for new customers. According to a Citibank report, the rate of growth in China’s power-equipment industry is expected to slow to just 3.5 percent between 2006 and 2010, forcing power companies to look for new customers in other parts of Asia and Africa.

Given that Chinese power companies import most of the required equipment, analyst Fabby Tumiwa questioned the quality of the products themselves given the fact that they were mass-produced using template-design engineering.

“”The technology for electricity is not the same as other manufacturing industries; it needs to be produced specifically for each order so as to ensure that the technology is suitable for the location where the power plant will be sited,”” he said.

PLN project coordinator M. Dalyono told the Post on Thursday that before the commencement of construction, PLN would review the designs proposed by the Chinese contractors as they were often not suitable for the location.

He also admitted that price was the main consideration in choosing the winning bidders.

“”We invited all companies to bid, not just the ones from China. But it turned out that it was they who offered really competitive prices,”” Dalyono said.

Commenting on this, Fabby said that PLN should not be considering price alone. It also needed to have regard to efficiency and maintenance costs.

“”They should have learned from the Cilacap power plant, which was constructed by China’s Chengda, that Chinese technology is less efficient compared with the technology from Japan and Europe. As it has a lower heat rate, the plant needs more coal than its Japanese or European competitors to be able to produce the same amount of electricity,”” Fabby said.

However, for PLN, it seems likely that the price tag will continues to be the most important factor, with many of the power projects located outside Java also having being awarded to Chinese companies.

The head of the government’s power-sector development program, Yogo Pratomo, said that of the 25 projects to be built outside Java, Chinese contractors had already won seven projects. Other firms were still negotiating for the remaining 15 projects.

The economic relations attache of the Chinese Embassy in Jakarta, Fang Qiuchen, told the Post that besides taking part in the crash program, Chinese investors had also been vying for power projects under Independent Power Producer (IPP) schemes with PLN.

Under such a scheme, an investor builds and operates the power plant, and then sells the electricity to PLN.

One of the biggest IPP projects awarded to a Chinese firm to date is the 2,400-MW, coal-fired power plant in Bangko, South Sumatra, where China Hua Dian has been appointed as operator.

A Shanghai Electric representative, Mi Qi Ting, said recently that he believed that Indonesia’s power sector still had a lot of room for growth, which meant that it would continue to be attractive to Chinese firms.

Regarding product quality, he said that his company has 10 years of experience in the power industry, and its technology has been acknowledged in other countries, such as Iran, Pakistan, India and Vietnam.

He said that his company intended to help develop the Indonesian electricity market, either through national or IPP projects. Shanghai Electric is the contractor for the Pelabuhan Ratu project, which is the biggest one under the fast-track program.

Indonesia, a country of more than 220 million people with 9 percent growth in electricity demand per year, represents an attractive market for power firms as currently more than 40 percent of its population in rural and remote areas lacks access to electricity.