ISSUE

Sumatra's average power deficit of 250 MW, as a hindrance to its industrial development.

The energy sector is key to future economic prospects in Indonesia. The government has been seeking to diversify the country's energy mix, reduce its dependence on imported fuels, move toward cost-reflective electricity and energy prices, rely more on indigenous sources of energy, and lower GHG emissions. It has also been improving the regulatory framework and strengthening the enforcement of existing regulations. This required 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. At the time of the project, the overall investment needs for generation, transmission, and distribution were $83.5 billion. $43.5 billion of that was to come from the private sector, with the balance of $40 billion to be covered by PLN. The government and PLN were not able to meet these investment needs on their own. Indonesia's electric power system is made up of separate island grids comprising eight interconnected networks and 600 isolated grids. Sumatra accounted for about 25% of Indonesia's GDP and had the second-largest electricity system in the country with an installed capacity of about 6,000 MW in 2013. Despite that, it suffered from an average power deficit of 250 MW. The government was keen to boost Sumatra's productivity, which implied strengthening its existing power grid and increasing the generating capacity to around 15,000 MW.