Privatisation in Indonesia
Genuine efforts to tackle poverty and unsustainable development would win wide praise for the Parties to the World Summit for Sustainable Development. Irreconcilable with these goals though is the persistence of a handful of governments in effecting the exact reverse through their direction of publicly financed institutions. Championed by the World Bank, regional development banks and export credit agencies, and inspired by the so-called 'Washington consensus' is unsustainable energy sector reform underway in developing countries.
Even as the WSSD opens this month, in Indonesia the dogma of privatisation further dictates deepened public debt, the exposure of protected forests and small islands to new oil and gas ventures. The insistence that Indonesia ramp-up power-plant construction and mining in protected areas is backed with threats of compensation claims and loan cancellations while, in more public arenas, donor governments lecture developing countries for their anticipated contribution to the global problem of climate change.
Power, people in crisis
Almost half - or around 90 million - Indonesians don't have access to quality energy or electricity. Grossly skewed in its' distribution, power is delivered in torrents to affluent urban centres along the mainline Java-Bali grid but barely trickles beyond that to rural areas. For those that have access to electricity, prices are soaring but services are increasingly unreliable and dangerous. Electricity and fuel prices will jump four times in 2002 in accordance with the rules of the US$43 billion IMF bailout package while real wages declined by more than 10 percent in some sectors since 2000.(1) Healthcare, education and transport services are pared back so that interest on offshore loans may be paid.
Sheltered from public scrutiny and in defiance of the competition privatisation was supposed to bring, under the privatisation programme of the late 1980 to early 1990s, twenty-seven contracts were awarded to the likes of Enron and the export-import banks of Japan and the United States. (3) Under the terms, Indonesian electricity consumers paid top prices (by world standards) because Indonesia is a 'risky investment' and the state utility was obliged to buy in US dollars all electricity produced, even though the market couldn't absorb supply. The combination of over-priced, over abundant electricity spelt total disaster when the Rupiah shrank 600% in value. Haemorrhaging cash and in a state of panic, by 1999 the government annulled the so-called take-or-pay contracts only to spring new financial leaks elsewhere. Notable among these is the US$900 million payment in 2000 to the notorious Paiton plant and this year, a successful compensation claim by OPIC and Enron for US$545 million which is just the first of a string of similar claims resulting from the same incident.
Privatising Indonesia: Take Two
Coached by its creditors, Indonesia is clambering back into the ring of power sector privatisation after the knockout round of the 1990s. Perversely, the expense of that aborted experiment - and the fact that it failed to address the power sector problems then - necessitates a new source of government income and hence brings support for any plan - even one of such ominous precedent. Novel advice is added this time in the form of the World Bank 'recommendation' to lure in mining investors by rolling back the already threadbare environmental protections on certain forests and small islands. This move would foster regional economic development says the Bank because "the prohibited areas include a number of potentially rich mining prospects".(4) A powerful international mining lobby including Britain's Rio Tinto, Canada's Inco and the United States' Newmont sems to agree to the point that it is threatening international arbitration unless current mining restrictions are lifted.(5) Exactly how development will result by weakening the existing rules is not explained but to, the contra, there is growing independent evidence of a strong association between oil and mineral dependence and poverty growth.(6) Developing countries relying on oil exploitation have experienced lower growth and higher corruption than other developing countries. This is because mining can seriously erode the local environment and livelihoods, and at the national level, oil reserves act as guarantee, enabling more borrowing and debt accumulation. Unlike public debt, oil rents are distributed inequitably and along political rather than development lines. The long-term effect can be militarisation: oil extraction has brought conflict, not development to Angola, Nigeria, Venezuela and Indonesia.
Fear of the dark prevails
Never mind all this, "if you want to avoid a power crisis" former Philippine President Ramos recently warned an ADB and investor-sponsored gathering in Jakarta,(7) then "it is clear that you must invite investors quickly".(8) Ramos conceded that ushering foreign investor's back is irksome but warned that the political cost of the otherwise certain 8-12 hour daily blackouts would be greater still. The Philippines, he recounted, lost between US$600-800 million annually - or about 1.5% of GDP - when it blacked out. No doubt the human cost of years of living and working in darkness, impotent hospitals and stalled education would dwarf the monetary-cost. Ramos' mostly Indonesian audience - many among them due to face their first ever election in 2004 - coincidentally the same year the blackouts are meant to start - listened aghast. To drive home the urgency, the President Director of Indonesia's power company took to the podium to describe crowds of Jakartanese wanting legitimate electricity connections arrive "every day and when they are refused they sometimes damage our offices". In a bid to boost supply, in July, President Megawati re-opened the Paiton power plants, which will now resume the sale of electricity at inflated prices. All much to the dread no doubt, of the disgruntled local community which blames lowered crop yields and their own failing health on the black dust that coats everything in the area. (9)
Good Money After Bad
The crisis in the power sector is genuine but a cursory glance at the facts says the remedy prescribed is not. Up to US$15 billion in new investment is said to be needed to meet demand but official projections of energy demand the world over are notoriously inaccurate for reasons of methodology, politics and even ideology. This is firstly because forecasts are often put together merely from a continuation of past trends, which aren't necessarily indicative of future demand and which are based on "the continued acceptance of past inequalities and inefficiencies". (10) Secondly, power demand forecasts are used by utilities as a "bargaining tool" for securing operational budgets and are therefore prone to inflation. Acting in the belief that development occurs by a simple function of growth in electricity consumption and technology availability, energy-planners tend to permit inflated demands to enter into overall planning and thus the wider political arena where it informs decision but is not scrutinised. Equipped with a bloated demand forecast, governments are likely to concentrate on mega-power generation projects to the near or total exclusion of more modest solutions. In Asia this has often led to grandiose plans for dozens of nuclear power plants - sometimes in the most geographically unstable parts. Too expensive to be real, such ideas have deferred to large-scale centralised fossil-fuelled power generation. Provided the capital can be raised, once the installed capacity exceeds actual power demand, and electricity is in over-abundance, the flagrant wastage in the system in turn increases consumption and eventually, the need for more power generation and, again, more capital. Indonesia's installed electricity, which runs mostly on oil, gas and coal will intensify with an increase in capacity and prompt new exploration and mining.
Table 1: Projected energy supply in Indonesia
In Indonesia, 18 percent of all power generated is 'lost' in transmission due to faulty power lines and theft before 24.4 percent is wasted at the point of use. (11) Proponents of power sector privatisation are obsessed with the achievement of market efficiency but actual energy efficiency hasn't been reigned in at all. There is a lot of money to be saved too. Resorting to the known figures for one Indian State where power forecasts were inflated by about 30 percent,(12) Indonesia's actual need for power sector investment may be closer to US$750 million per year to 2007. (13) 'Leakage', as the euphemism goes, in public procurement is costing the Indonesian public US$500 million dollars per year. (14)
Renewable energy, it is often said, couldn't help plug the power gap because it's either too expensive or difficult. This view - always blind to the accrued subsidies and publicly-funded infrastructure supplied to the mature fossil-fuel industries - cannot dismiss the practicality and demand for renewable energy proven by the rural communities that are fashioned wind turbines and solar powered electricity from locally available resources. Driven by the understanding that they will never be connected to the centralised electricity grid and could never afford the punitive 100 percent luxury tax on all commercial imported renewable energy units, people are fashioning their own. (15) Surely Indonesia should not be discouraged from using all the domestic capital and power already at its disposal and levelling the playing field for a healthier energy mix.
Add it up
Being the worlds' largest liquefied natural gas exporter, a substantial oil-producer and member of the Organisation of Petroleum Exporting Countries OPEC, Indonesia commands resources important to the big fuel-importing economies that also carry the greatest weight within the multilateral financial institutions. In the case of the World Bank, for example, the United States maintains nearly 25% of the vote. Pressing for reform, the IMF and the World Bank have withheld loans and the ADB is currently withholding it's US$400 million Power Sector Restructuring Loan which, alarmingly, Indonesia is counting on just to secure the 2002 budget and balance of payments. (16)
Table 2 Voting Power
Data source: International Financial Corporation
With President Megawati's post-September eleven visit to the United States and passage of Indonesia's new oil and gas laws, OPIC,(17) US ExIm, and the US Trade and Development Agency will invest $400 million, mostly toward the operations of Unocal, a US company notorious for its transgressions of environmental, safety and social standards. To accommodate reforms in the power and extractive sub-sectors, Indonesia must amend its very Constitution since the founding document of 1945 explicitly proscribes private ownership of sectors pertaining to public welfare. The priority, say critics, should not be to 'correct' the nation to comply with privatisation but to reign in widespread corruption, gather together the vast resources available domestically and remove nonsensical policy and fiscal barriers to decentralised energy options. But for government, the prospect of appeasing the public by pointing to big new infrastructure projects while complying with creditors and 'improving the country's image' (18) is, no doubt, as appealing as the - albeit momentary - consequent cash windfall. Clearly much is to be done within developing countries to achieve sane development policies but the point remains that the exact opposite is being nurtured, rewarded and even dictated by some of the very states and institutions that blare rhetoric on the need for global poverty alleviation, energy equity and environmental protection. Indulging the improbable: that governments tackle at Johannesburg their own actions through the public and private financial institutions they dominate, then the feebler force of WSSD rhetoric would have to triumph over IFI conduct to begin to offset the damage being wrought in Indonesia alone.
1. World Bank, 2001, Indonesia: the Imperative for Reform, Brief for the Consultative Group on Indonesia.