Indonesia : Electricity Grid Strengthening—Sumatra Program

Energy / Electricity transmission and distribution

Having realized that the energy sector may well become an impediment to the country's future economic prospects, the government is refocusing its efforts on the sector. Expanding energy infrastructure and increasing investments in the sector is a key mandate of the incumbent government which is taking the necessary steps to diversify the country's energy mix, reduce its dependence on imported fuels, move towards cost-reflective electricity and energy prices, rely more on indigenous sources of energy, and lower greenhouse gas emissions. It is also improving the regulatory framework and strengthening the enforcement of existing regulations. This will therefore also require a substantive and sustained multi-year effort to improve and strengthen the country's power transmission and distribution networks and regional grids to deliver the power from its generation points to the load centers across the country and promote industrial development of the regions.

The overall investment needs for the 35 GW program covering generation, transmission, and distribution are $83.5 billion of which $43.5 billion is to come from the private sector and the balance $40 billion to be covered by PLN. The government and PLN will not be able to meet the investment needs on their own. For achieving the expansion targets by 2019, PLN has a funding gap of $30.3 billion of the $40 billion required which will have to be borne by other financing sources such as the private sector, commercial banks, and other development partners. The electric power system is made up of separate island grids comprising eight interconnected networks and 600 isolated grids. Sumatra currently accounts for about 25% of Indonesia's gross domestic product and has the second-largest electricity system in the country with an installed capacity of about 6,000 megawatts (MW) in 2013 but despite that, it suffers from an average power deficit of 250 MW. The government is keen to boost Sumatra's productivity which implies strengthening its existing power grid and increasing the generating capacity to around 15,000 MW.

According to the RUPTL 20152024 and PLN's estimates, the total investment needed for this program focusing on the expansion and strengthening of Sumatra's transmission and distribution systems for 20152019 is $7.36 billion and adding program management, social and environmental safeguards implementation, and taxes and duties puts the overall Sumatra program expenditure at $10,835 million. In light of the large investment needs, a focused programmatic approach by the Asian Development Bank (ADB) against the backdrop of the government and PLN's strong nationwide 35 GW program will promote a longer and broader engagement and enhance collaboration to achieve the intended results. Due to the size of this program, cofinancing is needed and the World Bank is also stepping in with a $500 million loan for Sumatra using a program for results (PforR) modality to further complement ADB's support. A series of ADB financed results-based loans with a commitment of at least $2 billion focusing on the Sumatra program during 20152019 will help achieve the objectives set by the RUPTL 20152024, which are to further expand access to electricity in Sumatra and stimulate greater investments in the region. This will contribute to the overall government vision of developing Sumatra as a major industrial center, enhancing regional growth, and connecting it to both Java and Peninsular Malaysia by 2020. Additional RBL loans to support programs for the Java-Bali and Easter Indonesia power grids are also being discussed between ADB and PLN.

The proposed Electricity Grid Strengthening - Sumatra program will take a results-based lending (RBL) programmatic approach in consultation with PLN and government over the five-year RPJMN period with a series of programs anchored to PLN's RUPTL 20152024. This will ensure a long-term continuous engagement for the strengthening of the Sumatra power grid and ensuring reliable and uninterrupted provision of electricity. The RBL modality is appropriate, given (i) ADB's long-term assistance to PLN in financing generation, transmission, and distribution; (ii) its capacity for implementation; (iii) the alignment of the RBL with the national planning frameworksRPJMN and RUPTL; (iv) PLN and the government's strong ownership of the 35 GW program; (v) the government's shift to direct lending to state-owned enterprises backed by a government guarantee, in order to increase efficiency and simplify the project approval process; (vi) lower transaction costs associated with program implementation; and (vii) the potential to stimulate cofinancing and donor harmonization with other development partners. The program will be included in the draft country operations business plan 20152017 and complements the proposed Sustainable and Inclusive Energy Program Subprogram 1 policy-based loan which will promote a more inclusive and sustainable energy sector in Indonesia with targets for renewable energy and energy efficiency.

The quality of life in Indonesian society enhanced by the sustainable use of electricity as a key driver of increased economic activity.

Adequacy and reliability of power supply are achieved for Sumatra

The IVA Final report for achievement as of 31 December 2019 shows the following:

- DLI 1, PLN's customer base has reached 14.98 million. This is an overachievement from 2019 target of 13.88 million.

- DLI 2, PLN's annual residential energy sales in Sumatra is 20,102 GWh. This has exceeded 2017 target (19,156 GWh), but below 2018 target (20,496 GWh).

PLN has provided analysis on the low energy sales and has been implementing program to boost electricity sales. The program has shown positive impact to PLN residential energy sales in Sumatra that grew 6.23% in 2019 from 3.56% in 2018, although this was still lower than 2019 target set by ADB. PLN will continue the efforts to increase annual growth of energy sales beyond RBL program implementation.

- DLI 3, Number of MV feeder permanent interruptions is 16.04 per 100 km. This is within 2019 threshold of 21.02 interruptions

per 100 km

- Non DLI 7, number of technical complaints is 8.40 complaints/1000 customers/month. This is above 2019 threshold of below 4.83 complaints/1000 customers/month. PLN will strengthen operation and maintenance of distribution networks to improve power supply reliability.

Existing transmission system strengthened and expanded.

Existing distribution system strengthened and expanded.

Performance management and implementation improved.

Other results (financing for prior results)

As of 31 December 2019:

- DLI 4, cumulative length of 150kV transmission line is 2,578.43 ckm. This is an over-achievement from 2019 target of 2,361 ckm.

- DLI 5, additional 5,474 distribution transformers were installed. This is above 2019 target of 4,160 additional transformers.

- DLI 6, additional 4351.52 ckm of MV distribution lines were installed. This is above 2019 target of 3,887 ckm of MV distribution lines.

- Non DLI8, percentage of PLN staff who are competency certified is 75.61% (below 2019 target of above 95%). PLN will further review the annual target set up on staff competency certification against capacity of the Certification Unit.

- Non DLI9, 85% of distribution contracts are timely implemented (above 2019 target of 75%)

- Financing for Prior Results indicators are Achieved in 2015