Trading anti-pollution controls for low cost

For all the problems over financing, the good news is that Indonesian power utility Perusahaan Listrik Negara (PLN) will finally see the completion of its 10,000MW coal-fired First Crash Programme in 2012 - three years behind schedule.

The bad news is that none of the Chinese-built stations on the main Java-Bali grid will be equipped with anti-pollution scrubbers or high-tech boilers and that somewhere down the road, PLN will find itself saddled with inevitable breakdowns and a heavy maintenance bill.

The state-run utility has also announced a hugely ambitious US$17.3 billion (S$24.2 billion) Second Fast-Track Programme, scheduled for completion in 2014, which will focus mainly on geothermal and natural gas - coal’s two poor country cousins.

In this case, Java will be the location for only 18 of a laundry list of 83 planned stations spread across the country, many of them in the 5MW to 55MW range and unlikely to get off the drawing board because of poor economies of scale.

Only one of the new Chinese-built stations, the 600MW Labuan plant in western Java, was completed on time in December last year - and then only because three local banks came to the rescue when Chinese institutions demanded sovereign guarantees.

At the time they bid for the plants, Chinese developers convinced officials there would be no problem raising the money for the dozen or so stations. Then once they had won the contracts, it turned out to be an entirely different story.

Just like their Western counterparts, the Chinese decided they needed guarantees of PLN’s ability to pay back the loans. The Finance Ministry baulked, but faced with unacceptable delays, it finally had to relent.

The sole interest of Japanese and Western independent power producers is to build, own and operate. The Chinese walk away once their stations are finished, apparently without having to worry about performance guarantees. From then on, PLN bears the sole responsibility for the many things that can go wrong.

Its first taste of that is the 400MW Chinese-built plant in Cilacap on Java’s southern coast, which has been the target of angry anti-pollution protesters and is still experiencing mechanical problems four years after it was commissioned.

Now attention will focus on the operations of the Labuan plant and six other Chinese-built stations - East Java’s Paiton 9 (660MW) and Pacitan (315MW), and western Java’s Suralaya (625MW), Indramayu 1 and 2 (660MW) and Pelabutan Ratu (350MW) - all due to be completed this year.

The only non-Chinese project to come on stream this year will be the 630MW Rembang plant in Central Java, which is being built by a Malaysian-Indonesian consortium at a cost of US$726 million, with some of the funding supplied by the China Development Bank.

A further 1,650MW of Chinese-supplied power is due for commissioning next year and the completion of the coal-fired 700MW Awar-Awar and a second 660MW Cilacap facility will round out the schedule in 2012.

When the fast-track programme was conceived in the early 2000s, the emphasis was on low cost and speed. One was achieved, the other clearly was not. Financing delays were one reason. Another was slip-shod geo-technical planning.

Japanese, Korean and European consortia never stood a chance against Chinese predatory bidding and the supporting political muscle of then Vice-President Jusuf Kalla and then Economic Coordinating Minister Aburizal Bakrie.

The China National Technical Import and Export Corp, for example, won the tender for the Suralaya plant with a bid of US$377.9 million, compared to a Marubeni-led venture’s US$623 million.

Officials will not talk about the fact that none of the plants has the technology needed to remove sulphur dioxide, despite Indonesia’s stated commitment to a target of 26 per cent reduction in greenhouse gas emissions by 2020.

As in other developing nations, economic trade-offs will always be a factor. While the capacity of the grid is now listed at 27,000MW, experts estimate only 20,000MW to 22,000MW will be available at any one time - still barely enough to meet peak demand which continues to grow at 9 per cent to 10 per cent a year.

Three independent projects are due to come on line in 2011 to 2012, including Paiton Energy’s giant 815MW unit and Sumitomo’s 660MW Cirebon plant, both with super-critical boilers, and the 1,320MW Tanjung Jati B Extension on the northern Java coast. Further down the road is the planned 2 x 1,000MW Indramayu station on the Central Java coast, a showcase enterprise which could be put out to tender as early as the end of this year with commissioning in 2015 or 2016.

Unlike the new Chinese stations and PLN’s own coal-fired plants, the independents are required to have anti-pollution controls. So that means while 75 per cent of the 4,600MW Paiton complex will have clean emissions, the rest will not. It all makes little sense.

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