BEIJING, August 10, 2021

Giving Power to Others: How AIIB Is Strengthening Power Distribution in Indonesia

Electricity demand has been a key driver of Indonesia’s economic growth, the largest economy in Southeast Asia having maintained an annual growth rate of around five percent over the past five years.

By 2019, about 98.9 percent of the population had access to electricity nationwide.1 The Java-Bali region had a total installed power capacity of 41 GW in 2019, representing over 62 percent of the national installed power capacity.2 Today, the target is to reach 100-percent electrification ratio for East Java (up from more than 98 percent in 2018) by electrifying islands such as Madura, and in Bali (where the electrification ratio is already 100 percent) to help new consumers access electricity. These new consumers are expected to increase due to the growth of industry and tourism. Another target is to improve power service quality and reduce power interruptions by strengthening the distribution network by installing replacement powerlines and transformers and rehabilitating old ones.

To do this, the Asian Infrastructure Investment Bank (AIIB) Board of Directors approved a loan of USD310 million to PT Perusahaan Listrik Negara (Persero) (PLN) for the East Java & Bali Power Distribution Strengthening Project early this year.

PLN is the only state-owned enterprise in the power sector which is 100-percent owned by the Government of Indonesia. Established as Jawatan Listrik dan Gas under the Department of Public Works and Energy on Oct. 27, 1945, it has a dominant share of the generation and transmission businesses and is currently the major distributor of electricity to customers in Indonesia. As the only vertically integrated electricity utility, PLN is strategically important in the power sector. By end-2018, its generating capacity was 42 gigawatts (74 percent of Indonesia’s total).

In the second installment of the Meet the Specialist series, AIIB Senior Private Sector Operations Specialist Ziwei Liao shares her views on AIIB’s collaboration with PLN on this project and her insights on the development of the energy sector in Indonesia.

What brought AIIB and PLN together to work on this Project?

Ziwei: This stand-alone project is AIIB’s first energy project in Indonesia. AIIB and PLN began discussions in early 2019. At the time, PLN was in the initial stages of executing the country’s rolling 10-year Electricity Supply Business Plan (RUPTL 2019-2028) and expressed interest in seeking external funding from development finance institutions to support its implementation.

AIIB helps its members finance infrastructure projects that fit the Bank’s mandate. Our Sustainable Energy for Asia Strategy sets out a clear framework for us to invest in energy projects that will increase access to clean, safe and reliable electricity for people in Asia. AIIB recognizes that lack of access or unreliable access to energy services deprives the most vulnerable people of economic and other opportunities to improve their lives. AIIB places emphasis on, among others, promoting, directly or indirectly, access to modern energy for those who currently have little or no access and improving the reliability of electricity supply, both of which will be achieved by the East Java & Bali Power Distribution Strengthening Project.

The Project will improve the quality of power supply by reducing the frequency and duration of power interruptions. Not only will it upgrade the system to meet increasing demand from existing and additional customers by replacing LV and MV distribution lines as well as associated equipment and transformers, it will also connect the remaining two percent of consumers in East Java without access to grid electricity to achieve the government’s 100-percent electrification target by 2021. It will also ensure that any new customers will have access to a reliable power supply.

Who are the Project beneficiaries? What kind of impact will the Project have on local communities?

Ziwei: The Project will benefit East Java and Bali residents who are not currently connected to the PLN network. The Project targets around 920,000 additional customers—863,765 of which will be households—with the remaining users coming from the business, public and industrial sectors. In addition, more than 13 million residents will benefit from a more reliable distribution network and stable power supply. Efficient power connections will help reduce time spent on energy-consuming household work such as cooking, fuel collection and laundry—work that traditionally falls to women—and will allow them to spend more time doing rest and leisure activities.

There are further benefits to having a reliable power source. For example, a rural village in Madura Island, East Java reported that because of PLN’s ongoing program to upgrade the electricity supply from LV (80V) to MV (220V), they can now use household electric appliances such as refrigerators and air conditioners and have set up a mechanical workshop for repairing cars, providing opportunities for improved livelihood and quality of life. The welfare benefit from the reduced cost per unit of power consumption is significant, as the cost of diesel power generation is over two times that of electricity. There are additional benefits of reduced greenhouse gas emissions from switching from diesel to grid electricity.

How do you see the future of Indonesia in terms of green energy?

Ziwei: Indonesia has achieved great success in increasing electrification levels and meeting the rapid growth of electricity demand in the past decade. It is encouraging to see that Indonesia has recently made stronger commitments to decarbonization. Indonesia’s long-term strategy for low carbon and climate resilience 2050 sets a target of 43% renewables by 2050, achieving carbon neutrality by 2060 or sooner, and carbon peaking by 2030.

To achieve the above targets, increased investment in renewable energy is required, especially from the private sector. Securing financing for these projects would support this energy transition and provide open opportunities in looking for innovative solutions. AIIB hopes to work closely with both the public and private sectors in Indonesia towards a greener future of energy.

We see great potential in green energy in Indonesia, and by partnering with PLN in the green energy field, we hope to contribute our multilateral bench strength in helping the country achieve its green development goals. As a key player in Indonesia’s energy sector, one of PLN’s key strategic objectives is the use of green energy to protect the country’s future generations. This resonates strongly with AIIB’s mission of financing Infrastructure for Tomorrow—infrastructure with sustainability at its core.

What is the most exciting part in working on energy sector projects?

Ziwei: More than one billion people worldwide still live without access to electricity. Lack of access to energy limits opportunities and hampers economic and social development. Thus, promoting access to affordable and reliable green energy is fundamental to driving sustainable economic growth and improving people’s life standards. I feel excited to see our energy projects provide value to the local communities, knowing that millions of people will benefit from green energy.

How did AIIB adapt to the pandemic restrictions while implementing the project?

Ziwei: Because of the travel restrictions in place, AIIB used virtual means to engage with PLN and actively mobilized local consultants on the ground to monitor the project’s implementation progress. Instead of field visits, the AIIB team looked into conducting virtual supervision missions.

How else is AIIB supporting Indonesia?

Ziwei: For the past five years, AIIB has been helping support Indonesia with a total of USD2,900 million in investments. The Bank currently has 10 approved projects across sectors that will provide benefits to multiple regions and communities across the Indonesian archipelago.

For example, one of the projects is the first telecommunication satellite public-private-partnership project approved in Indonesia that will provide internet connectivity to around 45 million people in some of the remotest parts of the country. Another example is AIIB’s dam improvement project, which aims to support the country in improving the safety, functionality and management of 140 existing dams.

Most recently, AIIB’s Board of Directors approved additional financing to help the Indonesian government prevent, detect and respond to the threat posed by COVID-19 and strengthen its national systems for public health preparedness. A loan of USD500-million, cofinanced with the World Bank in July 2021, will help the government strengthen the health system to support the safe and effective deployment of vaccines. This is the third financing (total of USD1.5 billion) by AIIB to the Government of Indonesia under the AIIB COVID-19 Crisis Recovery Facility.

These investments, which span the energy, urban development, transport and health sectors, will help bridge Indonesia’s critical infrastructure financing gap and strengthen regional connectivity, improving the lives of the millions of people in the country.

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1 ESDM. 2020. Handbook of Energy and Economic Statistics of Indonesia 2019.
2 PLN. 2020. Statistical Report 2019. Note that compared to ESDM statistics, PLN statistics do not include non-PLN managed areas, captive power plants and off-grid capacities.

 

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Ziwei Liao

Senior Private Sector Operations Specialist, AIIB

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