Creaking Indonesia power grid drags on business

By Muklis Ali and Ed Davies

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".

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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.