One hundred percent electrification coverage across the entire archipelago— this is the vision for Indonesia, whose electricity demand has been a key driver of its economic growth toward becoming the largest economy in Southeast Asia. Soon, more than 900,000 new users can be electrified and 13 million people will have a stable power supply.
Indonesia's 17,000 islands is home to about 270 million people. In 2019, around 98.9 percent of the total population had access to electricity. In East Java province, electrification coverage in 2018 was 98 percent. The province is the second most populous in the country and is home to more than 40 million people.

The Government of Indonesia, through the rolling 10-year Electricity Supply Business Plan (RUPTL 2019-2028), has set the target of 100 percent electrification ratio in East Java. The Ministry of Energy and Mineral Resources tasked the state-owned power utility firm PT Perusahaan Listrik Negara (Persero) (PLN) to execute the RUPTL.
PLN is the country’s dominant electricity infrastructure provider and has been the sole provider for the transmission and distribution of electricity. They decided to seek external financing from the Asian Infrastructure Investment Bank (AIIB) to electrify islands in East Java such as Madura and upgrade the system in Bali to accommodate new consumers.

PLN began discussions with AIIB in early 2019 when the company was in the early stages of executing RUPTL 2019-2028. The plan was to use AIIB financing to retrofitting its existing distribution systems.

AIIB approved a USD310-million in sovereign financing to PLN for the East Java and Bali Power Distribution Strengthening Project in January 2021 to improve access to and quality of power services in East Java and Bali.

The project will improve the quality of power supply by reducing the frequency and duration of power interruptions. PLN will be upgrading the system to meet increasing demand from existing and additional customers by replacing low-voltage and medium- voltage distribution lines as well as associated equipment and transformers.

The remaining two percent of consumers in East Java without access to grid electricity will be connected through this project. PLN will be able to achieve the government’s 100-percent electrification target by 2022. It will also ensure that any new customers will have access to a reliable power supply.

The project aims to provide reliable electricity to around 920,000 additional customers—around 860,000 of which are households—with the remaining users coming from the business, public and industrial sectors. More than 13 million residents will benefit from a more reliable distribution network and stable power supply.

"This is AIIB's first energy project in Indonesia," said AIIB Senior Private Sector Operations Specialist Ziwei Liao, who leads the project team at AIIB. "AIIB's Sustainable Energy for Asia Strategy sets out a clear framework for us to invest in energy projects that will improve access to clean and reliable electricity for people in Asia," she said. "Lack of access or unreliable access to energy services deprives the most vulnerable people of economic and other opportunities to improve their lives."

"The project also aligns well with AIIB's thematic priority of Green Infrastructure," said AIIB Investment Operations Specialist Amanda Dompas, who is part of the project team and also from Indonesia. "It will improve the stability and reliability of the distribution network and reduce the power losses, and hence can be considered as climate mitigation finance."

Since being approved in early 2021, the implementation of the project has encountered some challenges brought about by the coronavirus disease (COVID-19) pandemic.

Over the past year, the project has made steady progress toward the achievement of its objectives, but with some slowdown because of the pandemic situation. However, thanks to AIIB's timely support, PLN was able to make the first withdrawal in November 2021. The restrictions on field access in Java and Bali regions and the limited availability of material distribution materials made it challenging for PLN to complete the planned work. This results in missing some results indicators by the end of 2021.

Activity is expected to pick up again and recover in 2022, although still much lower than pre-pandemic levels. PLN, together with AIIB, will examine the results indicators for the future implementation years to evaluate the progress toward achieving the project targets.
Indonesia: Strengthening Power Distribution in East Java