The World Bank has approved a $500 million results-based loan programme for state-owned electricity company PT Perusahaan Listrik Negara (PLN) as part of its efforts to help boost the Indonesian economy by providing much-needed infrastructure in parts of Sumatra.
Complementing existing power generation investments on the island, the Power Distribution Development Programme for Results will support the expansion of the distribution network, including more than 40,000 circuit kilometres of distribution lines and some 28,300 transformer units.
Power distribution lines and substations will be built, rehabilitated or upgraded, and customer outage management improved in order to reduce the frequency and duration of service interruptions.
This is the World Bank’s first foray in Indonesia with “results-based” lending- where disbursements would be linked to results rather than expenditure. “The programme can be an example of how to improve the effectiveness and efficiency of their spending in order to achieve better results,” said Joel Maweni, World Bank Energy Adviser and also a Program team leader.
The assessment of PT PLN’s technical, fiduciary, and safeguards systems for Programme delivery was partly funded through grant financing from the Asia Sustainable and Alternative Energy Programme.
The World Bank loan comes after PLN received a $600 million loan from the Asian Development Bank last year, also to carry out major power transmission and distribution system upgrades in Sumatra. This programme also uses the results-based lending approach to financing. This was the first time this approach was used in the energy sector. It was also the first direct loan by an international financial institution to an Indonesian state-owned enterprise with a sovereign guarantee.
This loan will fund the enhancement of the existing 150kV transmission lines, extension of substations, and the installation of new and upgraded equipment, including switchgears. On the distribution side, work will be carried out to expand and reinforce the medium voltage and low voltage networks, including the installation of distribution transformers, service connections, and customer meter boxes. The programme will also provide capacity building and institutional strengthening for PLN.
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Connecting Indonesia’s millions to the grid
Power Distribution Development Programme for Results has been developed with the aim of bringing electricity to parts of Sumatra that are not yet connected to the national grid. According to the Central Statistics Agency (BPS), Indonesia's population stood at more than 250 million at the end of 2015. While good progress has been made in improving access, still 39 million still do not have proper access to electricity, 9 million of whom live in Sumatra. The programme aims to boost Sumatra island’s electrification ratio to 90%.
"The lack of access to electricity by millions of people in Sumatra has proved a major constraint to the region's economic potential. The Power Distribution Development Programme will help close the infrastructure gap that prevents Indonesia from achieving higher growth," World Bank country director for Indonesia Rodrigo Chaves said.
By getting access to electricity, local residents can improve their productivity and competitiveness, said Dhruva Sahai, a senior analyst at the World Bank as well as one of the programme leaders.
PLN’s grid plans
PLN plans to spend Rp 60 trillion (US$5.24 billion) building power transmission facilities in Sumatra to improve the company's electricity network on the country's largest island which has for years experienced frequent blackouts due to inadequate facilities.
According to Rehan Kausar, Unit Head for Project Administration in ADB’s Southeast Asia Department, the power sector has been expanding in Indonesia but it hasn’t kept pace with increased demand. System reliability and stability have deteriorated, with both Sumatra and Java recently experiencing blackouts.
Kausar says, “PLN has a long-term development programme to strengthen and expand power systems across the country. The loans will certainly go a long way to delivering a sufficient and reliable electricity supply to Sumatra, thereby improving the quality of life and supporting efforts to make the region a major industrial centre.”
Notably Indonesia is one of the top 10 countries in terms of employment in the renewable energy sector and so the loan will also go a long way toward supporting the growth and development of this local industry.