Creaking Indonesia power grid drags on business

JAKARTA (Reuters) - From big Japanese manufacturers to small neighborhood restaurants, businesses in Indonesia are paying a price for a new round of rolling electricity blackouts, and there is little light at the end of the tunnel.

The latest power cuts --- brought in by state power monopoly firm PT Perusahaan Listrik Negara (PLN) this month in Java after a gas field supplying two power plants was shut for maintenance -- show again how Indonesia's power grid remains on a knife edge.

"If there is another blackout, I think we should sue PLN, because we pay for the electricity," said Nosa Normanda, a freelance translator living in Depok south of Jakarta, who said she had suffered losses from not being able to use her computer.

Newspapers have been carrying daily lists of areas facing the blackouts, due to run from July 11 for several weeks until the gas field operated by BP Indonesia, a unit of BP (BP.L), reopened.

Indonesia's energy watchdog said on Friday that gas supply from the offshore West Java field had resumed to PLN, although did not say whether this meant an end to the latest rotating blackouts.

PLN's president director, Fahmi Mochtar, has conceded that heavily populated Java and Bali islands, the industrial heartland of the country and top tourism areas, would remain particularly vulnerable to blackouts well into next year.

PLN has around 24,000 MW generating capacity but daily output is well below capacity due to old and inefficient plants, while demand is growing at 10 percent a year, threatening the sort of power crisis that has hit China and India in recent years.

Power plants with a total capacity of about 600 MW could come on stream from next March including Labuan in Banten province and Rembang in Central Java, Mochtar said, part of a crash program to add 10,000 MW of coal-fired power plants by 2010.

Mochtar said blackouts could occur because the firm was operating with a "very high risk" power margin reserve of about 20 percent, while to maintain secure power 30 percent was needed.

"From now until that time, there is a risk of blackouts in Java and Bali because our power supply and demand is tight," said Mochtar, adding the plan to add 10,000 MW of plants powered by the country's huge coal reserves was "basically on track".

JAPANESE FIRMS THREATEN TO LEAVE

But experts say the plan to build new power plants in Southeast Asia's biggest economy is behind schedule and decisions to go with the cheapest, often Chinese, bidders for the projects has often backfired amid concerns over quality and unrealistic deals.

"The deadline of end 2009 for the 10,000 MW of PLN-owned generation is now not achievable," a recent position paper on energy by the British Chamber of Commerce in Indonesia said.

Indonesia also plans an additional 10,000 MW of power using coal, geothermal and renewable energy resources from 2009-2012.

In order to keep power flowing now, authorities are forcing some manufacturers to shift production to weekends to cut peak demand in the week, prompting anger from some business groups. Among foreign investors, Japanese investors have been at the forefront of complaints.

Japan's ambassador sent a letter of complaint to the Indonesian government recently on behalf of about 400 Japanese firms operating in Indonesia, Mohammad Hidayat, chairman of the Indonesian Chamber of Commerce and Industry (KADIN), told Reuters.

Local media reported that members of the Jakarta Japan Club -- including Panasonic Lighting Indonesia -- were among companies which threatened to move production to other parts of Asia, such as China, if the situation did not improve.

In the power-hungry and crucial resources sector, some firms have their own power plants, including copper smelter PT Smelting in East Java, but others such as cocoa grinders face problems.

"We experienced blackouts last year but this year is worse because blackouts happen more frequently," said Aluisius Wayandanu, executive director of the Indonesian Cocoa Industry Association. Indonesia is Asia's second-largest cocoa grinder.

FIVE POWER CUTS A WEEK

On a more micro scale, Yanti, who owns a cafe in Depok, said that power cuts meant she could not blend spices for her dishes or use a mixer to blend fruit juice, one of her top sellers.

"Well, the blackouts are upsetting, but we can't do anything about it, can we?"

A recent business survey by the Asia Foundation and a local private body on regional autonomy said bad infrastructure including power was the most important constraint for business.

"The fact that 63 percent of large firms feel it necessary to have a generator is a good indication of the high cost which many firms face as a result of the unreliable supply of electricity," said the survey covering more than 12,000 firms

The situation in provinces outside Java and Bali was even worse with North Sumatra and North Sulawesi suffering an average of five power cuts a week, the survey showed.

Peter Fanning, head of the international chamber of commerce in Indonesia, said authorities appeared to be finally starting to listen more to business on the issue and in the meantime paid tribute to the power technicians for keeping the system afloat.

"Business continues to be amazed at the ability of the PLN technicians to keep the power flowing," he said.

(Additional reporting by Tyagita Silka, Harry Suhartono, Fitri Wulandari and Telly Nathalia; Editing by Jerry Norton)