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.

Source: http://www.thejakartapost.com.

A’an Suryana, The Jakarta Post, Jakarta

A coalition of non-governmental organizations (NGOs) has strongly rejected the government’s electricity pricing policy, saying it as unfair.

Under the policy, state-owned electricity company PLN has been allowed to increase its charges by an average of 6 percent per quarter since 2001 with the aim of bringing the price to 7 U.S. cents per kilowatt hour by 2005 so that the company can enjoy profits and make new investments.

But the NGO grouping, called the Working Group on Power Sector Restructuring (WG-PSR), said on Monday that the target was unacceptable because neighboring countries in the region only charged between 5 cents and 6 cents per kWh for electricity.

“”The increase in charges will only burden the people,”” said Fabby Tumiwa, an official at WG-PSR.

The WG-PSR is a coalition of NGOs which includes high profile NGOs such as the Indonesia Corruption Watch (ICW), the Indonesian Consumers Foundation (YLKI) and the International NGO Forum for Indonesian Development (Infid).

The coalition has consistently waged a public campaign to reject the power pricing policy.

The government increased electricity charges earlier this month as the first quarterly increase for the year. The increase in electricity charges coincides with the rise in fuel prices and telephone charges, prompting protests in several cities in the country.

Currently, the Indonesian people must pay between 5 cents and 6 cents per kWh.

Fabby challenged PLN to provide a rationale for the policy.

“”The 7 U.S. cents benchmark has raised some eyebrows. Where does this price come from? PLN has always failed to provide a credible explanation for the public,”” said Fabby.

Fabby demanded the government and PLN establish an independent team to find a more fair electricity rate.

PLN president Eddie Widiono could not be reached for comment.

On previous occasions, the PLN management has said that the company could not make a profit with the current price level.

The company said that since the economic crisis hit the country in late 1997, PLN had been selling its power at a loss as the value of the rupiah had fallen against the U.S. dollar. PLN sells the power at a rupiah price, while its expenses are mostly in dollars. If the current price level is maintained, PLN would fall into bankruptcy in no time, it claimed.

The profit will also be used by PLN to cover its financial obligations to independent power producers (IPPs).

But critics have said that PLN’s financial mess is a result of massive corruption in the past including the power purchase deals with a number of IPPs, and this burden should not be passed on to the public.

Source: http://www.thejakartapost.com.

A’an Suryana, The Jakarta Post, Jakarta

A group of non-governmental organizations (NGOs) said that the cost of seven power projects that were recently relaunched by President Megawati Soekarnoputri was still too expensive, and demanded that the government renegotiate the deals with the independent power producers (IPPs).

The NGOs, grouped in the Working Group on Power Sector Restructuring*, pointed out as an example that the power purchase price agreed recently between the government and PT Paiton Energy was still considered too high.

Under the deal, state-owned electricity company PLN will purchase power from the Paiton I project at 4.93 U.S. cents per kilowatt hour (kWh).

The government has been trying to renegotiate the power purchase agreements (PPAs) with a number of IPPs over the past couple of years. It has clinched a new deal with seven IPPs. The agreement with Paiton was reached a day before Megawati relaunched 13 megaprojects last week. The seven power projects are part of these megaprojects.

But Fabby Tumiwa, a member of the working group, told a press conference on Thursday that the 4.93 cent per kWh price deal with Paiton was still expensive, because in reality PLN would have to pay Paiton more.

He explained that under the deal, PLN was also obliged to cover the restructuring costs and had to purchase the Paiton electricity at higher volumes than it actually needed.

Citing a study made by energy expert I Nengah Sudja, he said that in reality PLN would have to pay Paiton 6.62 cents per kWh.

“”This is because in addition to paying the power price, PLN is also obliged to pay arrears (restructuring costs) amounting to US$4 million … and other payments including the raising of the capacity factor from 83 percent to 85 percent,”” said Fabby.

Meanwhile, Nengah Sudja also said that the Paiton I power purchase price was much higher compared to the price for similar projects in neighboring countries.

He pointed out that in Malaysia and Vietnam, the tariffs were cheaper at 3.2 cents per kWh and 2.0 cents per kWh respectively.

“”We should also learn from domestic experience such as the Suralaya gas-fired power project case, where PLN was able to get them down to 3.7 cents per kWh,”” Nengah Sudja said.

Based on these considerations, say the NGOs, the government should renegotiate the power purchase price to between 3.64 cents and 4.09 cents per kWh.

Nengah Sudja believed that the government could have succeeded in reducing the power purchase price to more reasonable levels should the government negotiators have had the courage to stand their ground.

He said that reducing the power price to the 4 cents per kWh level would help avoid the state suffering some $238 million in financial losses per year just from the Paiton I project.

“”This is only from Paiton I, and the savings could be bigger if we could achieve success with the other six IPPs,”” he said.

“”Renegotiating the contracts is important so that the public will not have to bear a greater financial burden,”” said Tulus Abadi from the YLKI consumer organization.

Another NGO grouping called the Defense Committee for Indonesia’s Economic Recovery had also earlier demanded that the government seek a lower power purchase price from the IPPs.

The group questioned the obligation of PLN to purchase more power than it actually needed.

It said that based on the Paiton I contract, the capacity factor was 85 percent, while the NGO grouping said that the realistic capacity factor should be set at only 75 percent.

Because of the higher capacity factor, PLN would be effectively paying Paiton at 6.03 cents per kWh, according to the group.

In response to the committee, Paiton president Ronald P. Landry told The Jakarta Post: “”Additional information that the committee will not publish is the fact that PLN needs so much power that PLN is dispatching Paiton Energy at levels above the 85 percent contracted factor and Paiton Energy is satisfying PLN’s requests.

“”There’s a totally separate payment made by PLN to Paiton Energy for the amount PLN contractually owes to Paiton for arrears. This payment settles the total amount owed by PLN to Paiton Energy for the period from May 1999 through December 2001 in which PLN did not pay Paiton Energy in accordance with the contract. This payment has absolutely nothing to do with electricity produced and delivered today, and this payment is not included in the tariff,”” he said in an e-mail.

Source: http://www.thejakartapost.com.

* Note: The Institute for Essential Services Reforms (IESR) emerged from this organisation