Indonesia

Rural Electrification Project

Report Date: October, 2002
Field Survey: July, 2001

1. Project Profile and Japan’s ODA Loan

Location Map of the Project A Small Generator for Isolated Grid System

1.1 Background
1. Rural Electrification
In December 1992, the nationwide village electrification rate1 in Indonesia was 42.6%. Electrification
had progressed mainly on Java Island, and there existed a wide gap between Java Island and outside Java.
About 60% of villages were electrified on Java Island, while only a little more than 30% of villages outside
Java were. The household electrification rate was around 30% on Java Island, and lower than 20% outside
Java.
The Government of Indonesia has prioritized rural electrification with a view to promoting social and
economic development in rural areas and to attaining more equitable distribution of developmental benefits.
During the period covered by the 5th Five-Year Plan (1989/90- 1993/94), the Indonesian state-owned
electricity supply corporation, PLN (Perusahaan Umum Listrik Negara)2 , planned to electrify 11,600
villages, comprising 7,540 villages outside Java and 4,060 villages on Java Island. In addition, at the end of
the 5th Five-Year Plan, the Indonesian Government requested that the World Bank and the Japanese
Government finance the electrification costs for 1,600 villages and 900 villages, respectively.

2. Scattered Diesel and Mini Hydro

Outside Java Island, diesel power plants were the main source of electricity, comprising 61%, 1,748MW
of installed capacity in 1991. This situation was caused by both the difficulty of constructing a power
distribution network for widely dispersed locations and by the small scale of demand in each locality. Given
these conditions, diesel plants were considered economically efficient outside Java at the time of appraisal.
At the time of appraisal, the total installed capacity of mini hydro power plants outside Java Island was 8
MW, comprising 0.27%. Most plants were located in Sumatra and Sulawesi. Mini Hydro plants were
planned for remote areas where it was not feasible to connect to existing diesel plants and where
geographical conditions were appropriate. From the perspective of environmental protection, the mini hydro
power plant was one of the preferred generating systems.

1
Village Electrification Ratio: The number of electrified villages in a certain area to the total number of villages in the area.
2
PLN is the Indonesian Government-owned electricity supply corporation, which was established in 1969. The corporation and its
subsidiaries are responsible for electric power generation, transmission and distribution throughout the country.

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1.2 Objectives
To contribute to economic and social development in regional areas through rural electrification,
installation of diesel power plants and construction of a mini hydro power plant.

1.3 Project Scope

1. Rural Electrification
Electrification of 600 villages in twenty-two provinces
- Installation and Procurement of distribution lines (medium voltage: 2,410 km, low voltage: 1,970
km)
- Installation and Procurement of distribution transformers with total capacity of 56,150 kVA
- Procurement and installation of diesel generators with total capacity of 2,160 kW

2. Installation of Scattered Diesel Plants

Procurement and installation of diesel power plants (6 units of 2.5 MW capacity each) in three locations,
namely Tanjung Pandan on Belitung lsland, Barabai on Kalimantan Island and Kendari on Sulawesi
Island
3. Installation of Mini Hydro Power Plant
Construction of a mini hydro power station (1unit of 0.2 MW capacity) in one location, namely Baras,
on Kalimantan Island
4. Consulting Services

1.4 Borrower/ Executing Agency

Government of the Republic of Indonesia / Perusahaan Umum Listrik Negara (PLN)

1.5 Outline of Loan Agreement

Loan Amount / Loan Disbursed 8,970million yen / 7,884 million yen
Amount
Exchange of Notes / Loan Agreement October, 1993 / November, 1993
Terms and Conditions
Interest Rate 2.6 % p.a.
Repayment Period (Grace Period) 30 years (10 years)
Procurement General Untied
（Partially Untied for Consulting Services）
Final Disbursement Date December, 1997

2. Results and Evaluation

2.1 Relevance
During implementation of the 5th Five-Year Plan (1989-1993), PLN planned to increase the average
electrification rate in the country from 30.3% to 49.0% by electrifying 11,600 villages3, and by doing so,
narrow the gap between the outer islands and Java Island. From this it is clear that the project objective was
consistent with the development policy of Indonesia at the time.
Owing to various efforts to promote electrification in the country, including this project, the nationwide

3
Breakdown of 11,600 villages are 7,540 villages outside Java and 4,060 on Java Island.

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 village electrification rate reached 83.6% in March 2001. In particular, the village electrification rate on Java
Island was nearly complete (98.2%), and had reached 74.4% outside Java. For more equitable distribution of
developmental benefits, the Government of Indonesia is, currently, planning to electrify all villages
throughout Indonesia by the end of the 7th Five-Year Development Plan (2000-2004), and to electrify all
households by the end of the 10th Five-Year Development Plan (2015-2019). Accordingly, the project
objective has been and still is relevant.

2.2 Efficiency
2.2.1 Project Scope
The scope of the “Rural Electrification Project” consisted of three components: rural electrification,
installation of scattered diesel power plants and construction of a mini hydro power station. Of the actual
project cost of these components, the rural electrification component accounted for 75.4%, while the
scattered diesel component and mini hydro component accounted for 22.8% and 1.8%4, respectively. Thus,
the rural electrification component was considered the main component.
a) Rural Electrification
The actual number of villages electrified under the Project reached 851, a 41.8% increase from the
planned number, 600 villages.
At the time of appraisal, only province level target was specified, and, thus, the capacity and amount
of materials to procure (distribution line, distribution transformer, diesel generator, etc.) for each village
level were estimated based on PLN’s past electrification projects. When implementing the Project,
geographical site conditions and actual demand determined the actual amounts procured. As a
consequence, the actual procurement, as compared with the original target, resulted in a 70% increase in
total length of distribution line and a 2% capacity increase in distribution transformers. Total capacity of
the small diesel generator5 was also increased by 320%.
b) Scattered Diesel Generators and Mini Hydro Power Plant
The original scope at appraisal was implemented as envisioned, with the exception of the diesel
generator’s rated capacity, which was modified from 2.5 MW to 3.0 MW.

2.2.2 Implementation Schedule

The Project was completed in June 1997, fifteen months later than the scheduled completion date of
March 1996. The completion delay was brought about by delay in mini hydro plant component.

2.2.3 Project Cost

At the time of appraisal, the total project cost was estimated at 10,553 million yen, comprising 1,698
million yen in foreign currency and 150,093 million rupiahs in local currency (8,855 million yen). The
actual project cost was contained to 9,127 million yen (cost under-run of 14.0%), comprised of 1,588
million yen in foreign currency (cost under-run of 6.5%) and 7,539 million yen in local currency (cost
under-run of 14.8%). The local cost under-run in yen terms can be attributed to the depreciation of the local
currency over the project implementation period (1.0 rupiah= 0.059 yen at appraisal; 1.0 rupiah= 0.044 yen
at the time of implementation).
The actual Japan’s ODA loan disbursement was 7,884 million yen, which covered 86.8% of total project
costs and was 12.1% less than the amount originally approved (8,970 million yen).

2.3 Effectiveness
2.3.1 Rural Electrification
The PLN’s electrification projects in rural areas consist of (i) grid transmission systems and (ii) isolated
systems. The former receives energy from an existing main grid (see Figure-1), while the energy source for

4
At appraisal, the rural electrification component, the scattered diesel component and the mini hydro component occupied, respectively,
68.2%, 30.7% and 1.1% of total estimated project cost.
5
Capacity of procured diesel generators: 40 kW, 100 kW, and 220 kW.

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 the latter is a small diesel generator within the electrified area (see Figure-2).
The rural electrification component of the Project was carried out using both grid transmission and
isolated systems, electrifying 861 villages in total. For grid transmission systems, the Project covered
construction of medium/low voltage-distribution lines, transformers and wiring to individual consumers. For
isolated systems, installation of diesel generators was included.

2.3.2 Operational Performance of the Six Diesel Generators and One Mini Hydro Power Station

Figure-1: Grid Transmission System Figure-2: Isolated System

a) Operational Performance of the Diesel Generators

Six diesel generators were installed in three
locations (two units each), on Sulawesi Island,
Kalimantan Island and Belitung Island. All of the
generators were connected to isolated systems serving
urban areas, and utilized as base load facilities*6 at
their inception. Two units installed in Tanjung Pandan
City, Belitung Island, are still operating as base load
facilities.
The two units in Kendari City, Sulawesi, were
connected to the isolated system serving the area
around Kendari, the capital city of South Sulawesi.
They were utilized as base load facilities until 1998.
Since new diesel generators were commissioned Figure-3: Location of Diesel Generators and Mini-Hydro
(1999), the units have served as peak load facilities.
They remain in good operational condition, so when the base load facility is being overhauled, they are able
to serve as base load facilities.
Operational data for two generators in Barabai City, Kalimantan, couldn’t be obtained for this evaluation.
According to PLN Region VI, there have been no problems with these units. On Kalimantan Island, PLN
constructed two 150 kV grid transmission systems, namely the Barito System in the Southern Part and the
Mahakam System in the Eastern Part, and several large-scale power stations*7. In middle of 1997, the diesel
generators installed under the Project and their small isolated systems were connected to the Barito System.
Since then, the generators have been operating only during the evening peak time.
Currently, these three areas are experiencing power shortages, particularly during evening peak hours, so
it can be assumed that all of these generators still play a significant role in the stable provision of electricity
in their respective areas.

6
Base load facility: A plant that normally operates at a constant output to take all or part of the base load of a system.
7
Asam-assam coal-fired steam power station (130 MW) is located within the Barito System and was commissioned in January 2001. Tanjung
Batu Combined Cycle power station (60 MW) is connected to the Mahakam System, and was commissioned in 1998.

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 Table-1: Operational Performance of the Project Facilities
Date of Generating Capacity Net Energy Production (GWh)
Commissioning Rated Dependable
Capacity Capacity* 1996 1997 1998 1999 2000
Barabai July 1996 3.0 MW 2.7MW N.A N.A N.A N.A N.A
3.0 MW 2.7 MW N.A N.A N.A N.A N.A
Tanjung July 1996 3.0 MW 3.0 MW 9.86 (74.4) 15.01 (57.1) 11.76 (44.7) 13.94 (53.0) 15.46 (58.8)
Pandan 3.0 MW 3.0 MW 8.47 (63.9) 17.25 (65.6) 11.01 (41.9) 13.35 (50.8) 14.9 (56.7)
Kendari July 1996 3.0 MW 2.7 MW 9.98 (75.3) 17.6 (67.0) 18.81 (71.6) 8.42 (32.0) 2.38 (9.1)
3.0 MW 2.7 MW 9.52 (71.9) 18.04 (68.6) 19.21 (73.1) 8.61 (32.8) 4.01 (15.3)
Baras June 1997 0.2 MW 0.2 MW - 0.002 (0.2) 0.033 (1.9) 0.094 (5.4) 0.088 (5.0)
Note: * As of March 2001 Source: PLN Region VI, VI, VIII
Figures in parentheses indicates Plant Load Factor ratio (%) (net energy production/ rated capacity/ hours during designated
period)

b) Operational Performance of the Mini-Hydro Power Station in Baras

Under the Project, one mini hydro power station (200 kW) was constructed along the Baras River. The
power station was expected to supply electricity to the surrounding villages through the isolated distribution
system. However, water flow is considerably weaker than expected, and the power plant generates quite low
energy. (see Table-1) In the opinion of PLN personnel interviewed for this evaluation, this situation can be
attributed to an insufficient water flow study prior to the construction and also to the illegal intake of water
for irrigation upstream.

2.4 Impact
2.4.1 Contribution to Promoting the Electrification Ratio on Outer Islands
Figure-4 indicates the electrification ratio on Java Island and Outside Java (bar graph) and the gap
between the two areas in terms of village electrification rate (line graph).
From 1989-90 to 2000-01, rural electrification in the country increased 8.4% annually on average. As a
consequence, rural electrification on Java Island is nearly complete. Further, over the same period, the
village electrification ratio on the outer islands increased from 34.9% to 74.3%, or by 10.5% annually,
which was 4.1-percentage points higher than the rate of increase on Java Island (6.4%). As a result, the gap
between Outside Java and Java Island has narrowed progressively.
Upon completion of the Project, 851 villages on the outer islands were electrified by Rural Electrification
component of the Project. Thus, the Project, at least, contributed to the electrification of 2.4% to the total
number of village in the outer islands (36,291).

Figure-4: Change in Electrification Ratio (1989/90 - 2000/01) Source: PLN

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2.4.2 Social and Economic Impact on the Electrified Villages
As a part of this evaluation, an interview survey was conducted*8 in August 2001 at four randomly selected
villages located on Kalimantan and Sumatra Islands. A sample population of 100 residents was interviewed,
with the help of the respective local office of PLN and KUD*9, in order to identify the Project’s effects,
impacts and beneficiaries’ satisfaction. The respondents were selected randomly and on a voluntary basis
from among those who were assumed to have benefited from the Project*10. The interviewers made random
house calls at the site to interview 25 respondents in each village.
The results of the interview survey indicate that electricity has been utilized for domestic use rather than
for commercial purposes. According to the survey, the beneficiaries use electricity mainly for lighting
purposes (100% of the respondents), and for TV (84% of the respondents). In addition, electrification
increased the wider use of other electrical appliances such as videos (64%), radio-cassette players (60%),
electric fans (58%), electric irons (53%), radios (54.8%), water pumps for drinking water (30%), rice
cookers (22%), and refrigerators (20%).

a) Increased Job Opportunities and Income

The survey indicates that the rural electrification
component of the Project has contributed to creating job
opportunities and to raising incomes. 31% of respondents
reported an increase in job opportunities and the same
percentage reported an increase in income and/or savings as a
positive impact of the Project.
For example, one family living in Tenbin Burang village
purchased a refrigerator to make ice candy. Initially, only 2
people, two adult women of the household, were engaged in
this household industry. After an increase in sales volume, the
other family member and his relatives started taking part, and Figure-5: Example of Household Industry
at present 7 people are engaged in this work (See Figure-5).
Another example is a family, living in Semoi village, whose main sources of income are pepper
cultivation and the small general store attached to their house, where one of the female members of the
family sells various goods. She cooks and packs boiled beans during her spare time to sell at the store. As a
result of the Project, she has been able to spend more time doing such piecework and to operate the store
even at night. The income of these families has increased because of the electrification. Not only do these
families spend this income on consumer goods, they also invest in their small businesses.
Lack of job opportunities in rural villages is considered one of the great causes for migration to urban
areas, which often contributes to urbanization problems. Viewed in this light, this Project may have
contributed to preventing the outflow of migrants from rural villages by facilitating creation of job
opportunities and elevating living standards in rural areas.
b) Saved Expense and Time
Before the Project, 24.0% of respondents used rechargeable batteries for appliances such as TV-sets and
radio-cassette players. The family of one respondent living in Tenbin Bulang village, Kalimantan Island,
used to possess a rechargeable battery for watching TV. At that time, they had to carry the rechargeable
battery, weighing about 5 kg, 5 km away to the lumber mill for charging every week. It took 2.5 hours*11
and cost 1,000 rupiahs*12 per charging. In spite of these complications, the family could watch TV only
one hour per day. In addition, the family spent about 6,000 rupiahs on kerosene for lighting.
After the Project, the family purchased an electric light, a fan, and an electric iron. Although the family
uses these appliances and watches TV for about 6 hours per day, they paid only 7,782 rupiahs per month in

8
Prior to the interview survey, a site survey was carried out in two villages benefiting from the project, in order to gain a general
understanding of the project’s impacts/constraints. Based on this survey, the draft questionnaire used at the time was modified and finalized
to meet the situation.
9
KUD (Koperasi Unit Desa): The KUD are rural multipurpose co-operative institutions at the primary level with a high level of involvement
from the rural population, including farmers, farm workers, small traders, and dairy farmers. Some KUD were responsible for part of the
operation and maintenance of project facilities. Details will be discussed in Section 2.5 of this report.
10
Tenbin Burang village and Jirak village in South Sumatra Province, Batua village and Senyiur village in East Kalimantan. Except for Batuah,
the villages were electrified by an isolated system.
11
Consisting of a 2.0 hour walk round-trip, and 30 minutes spent waiting for the battery to be charged.
12
Just before the project’s electrification, April 1996.

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 2001. When taking the recent rapid price escalation*13 into consideration, the electricity and lighting
expenses for the family are considerably lower than before, and they also were able to save the time they
had previously used for charging the battery.
In Jirak village, before the Project, year 1994, 80% of respondents were supplied electricity from a
diesel generator provided by a private operator, and used it only for lighting purposes. Although the
voltage level of the electricity was unstable and quite low, villagers had to pay as much as 5,000 rupiahs
per 10-watt lamp. The survey respondents said they used to pay 30,125 rupiahs for lighting purposes.
After the Project, they had a much more stable supply of electricity through the PLN’s isolated system
and began using it not only for lighting but also for other electrical devices. They paid an electricity tariff
of 16,551 Rupiahs on average in 2001. Some beneficiaries experienced considerable savings as a result of
the Project.
c) Improvement in the Living Conditions in the Rural Areas
Other positive impacts mentioned by the respondents include the following:
c)-i Decrease in Burden of Housework
Some beneficiaries were able to replace charcoal irons with electric ones. The addition of household
conveniences such as refrigerators, rice cookers, electrified water pumps, and washing machines has
lightened the workload of women.
c)- ii Increasing Nighttime Activities
The results of the interview survey show that the times at which respondents eat dinner and go to sleep
are 1–3 hours later after the Project, while the time they wake up remains unchanged. Only 5% of
respondents said they went to sleep after 22:30 before the Project, while 72% reported doing so after
electrification. As a result, there is more time for education, piecework and entertainment.
Also, a well-lit room creates better study conditions for children. Among other activities, beneficiaries
visit their friends’ houses, receive visitors at night, and enjoy watching TV programs and videos. Such
reciprocal visits may explain the answer “improved relations with neighbors” that some respondents
suggested as a positive impact in the survey.
c) - iii Improving Security
42% of respondents asserted improvements in the village’s after-dark security. In addition, before the
Project, most people living in the project area used kerosene lamps, which sometimes caused fires. Hence,
electrification by the Project has reduced the probability of future fires.

d) Increase in Debt
13% of respondents mentioned an increase in debt as a negative impact of the electrification. 10 were in
debt for less than 2.0 million rupiahs, though this debt level was considered not very serious, as it was less
than the repondents’ monthly income. However, the other 3 respondents have liabilities of 10.0–50.0 million
rupiahs, while their income is less than 5.0 million rupiahs/month*14.
Of course, these liabilities did not all result from the electricity tariff, even though the respondents pointed
to debt as a negative impact of the electrification. According to the interview survey, 79% of respondents
believe the electricity tariff to be fair. The validity of the electricity tariff and the detailed observations of
respondents concerning the tariff level will be analyzed in a later section. (see Section 2.5.2 Affordability
and Reasonability of Connection Fee and Electricity Tariff for Consumers)

2.4.3 Environmental Impacts

The rural electrification component of the Project required small land plots for electric poles, and a
minimal number of trees were cut down to install feeder lines and transformers. Thus, the environmental
impact of the rural electrification component was negligible.
According to regulations of the Central Commission for Environmental Assessment of the Department of
Mines and Energy, a river-type hydro power station with a capacity of less than 5 MW or a diesel generator
with a capacity of less than 20 MW requires no environmental impact assessment. Accordingly, there is no

13
According to the International Financial Statistics published by the International Monetary Fund, consumer price of the country was
increased by 2.10 times between 1996 and 2000.
14
Average income of [agricultural employee household ??]in the country was 1.63 million rupiah/ month in 1999.

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 environmental monitoring system at the project sites, so no quantitative monitoring data are available. There
have been no negative environmental impacts reported so far.

2.5 Sustainability
2.5.1 Organization for Operation and Maintenance (O&M) of the project facilities
a) Rural Electrification
In the initial stage of rural electrification, operation and maintenance of facilities were wholly executed
by PLN. However, as rural electrification in Indonesia has progressed, PLN has had difficulty in keeping
pace with the development, particularly in terms of cost and manpower required for O&M.
In the early 1970’s, the Government of Indonesia adopted a policy to promote forming rural cooperative
units (Koperasi Unit Desa: KUD)15 under the Ministry of Cooperatives. The development of KUDs
coincided with the increasing need for human resources for the O&M of PLN’s generation/distribution
facilities in rural areas. The operation, maintenance and management of rural electrification was gradually
transferred from PLN to KUDs based on a Mutual Decree of the Minister of Mines and Energy and the
Minister of Trade and Cooperatives. By the end of March 1999, PLN had formalized cooperation
agreements with 4,480 KUDs, serving 19,193,490 households in 40,716 villages. This accounted for
84.5% of electrified villages in the country (see Figure-6).

Figure-6: Transfer of Rural Electrification Related Activities to KUDs

Source: PLN

The Decree stipulates five patterns for transferring O&M responsibilities. Table-2 indicates the outline
of activities covered by each pattern of transfer. In the case of the MSA (Management Service
Agreements), the role of KUD is similar to that of the PLN’s lowest operational units (sub-branch of local
PLN stations).

15
KUDs are multipurpose village cooperatives with a high level of involvement from the rural population.

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 Table-2: Patterns of Transfer and KUD Responsibilities as of March 1999
Number of Number of
Responsibilities of KUD
KUDs Villages
Pattern I Electric meter readings, bill collecting, trouble shooting for
3,589 34,530
minor trouble, and network maintenance
Pattern II House wiring, low-voltage distribution network installation,
production of electrical devices, rural electrification surveys, 56 435
and staking out for the distribution network
Pattern III Both responsibilities of Pattern I and II 147 1,138
Pattern IV Line maintenance, simple fault clearing, trimming and street
508
MSA-Grid light maintenance, customer administration
4,613
Pattern V Operation, maintenance and management of isolated diesel
180
MSA-Isolated Diesel generators and distribution system*16, customer administration
Total 4,480 40,716
Source: PNL
Some problems with the transfer have been reported, including: i) insufficient capability for operation
and maintenance of facilities, ii) lack of a sense of responsibility for operation and maintenance, iii)
deliberate errors in meter reading, and iv) misappropriation of funds.
In order to ensure the technical capability of KUD staff, PLN has organized a training course and an
on-the-job training system. In general, however, budgetary constraints have impeded the proper
implementation of this plan*17.
b) Diesel Power Stations and Mini Hydro Power Plant
Operation and maintenance of the project facilities are implemented by the respective regional sector
office of PLN. Routine maintenance for the project facilities is generally implemented on schedule as per
instructions in the maintenance manuals, which were supplied by the original supplier. However,
overhauling is sometimes behind schedule because of an insufficient budget and the lack of spare parts.
These tendencies have become more entrenched since the Asian Currency Crisis and PLN’s subsequent
financial deterioration. Furthermore, the current serious imbalance between power supply and demand
tends to result in delays in and insufficient implementation of overhauling, because shutting down existing
generators for overhauling causes load shedding in their service coverage areas.

2.5.2 Affordability and Reasonability of Connection Fee and Electricity Tariff for Consumers
a) Connection Fee
In Indonesia, it was thought that the majority of rural people were capable of paying the monthly
electricity tariff. However, some rural residents were not able to pay for the connection fee in cash.
Consequently, a high connection fee was considered a constraint on improving household electrification
ratios. In order to relieve the burden of a high connection fee, the Government has provided funds in the
form of a Rural Electrification Credit since 1982. Terms of the credit are a 12- or 24-month repayment
period with a 3-month grace period, and a 12% interest rate.
However, the connection fee for lower capacity electrification (below 450 VA) has remained unchanged
since 1992, and, accordingly, the current connection fee for lower capacity electrification is considered
inexpensive, considering the recent rapid price escalation in the last 8 years18. 34% of interview survey
respondents said that they had applied for public/private credit for the connection fee, while the remaining
66% paid the connection fee in cash. In addition, while 21% of respondents felt the connection fee was
expensive, 75% responded that it was “fair”; there were no respondents that indicated that the fee was
“very expensive”.
b) Electricity Tariff
According to the interview survey, the average monthly electricity tariff was 14,527 rupiahs* 19 .
Electricity tariff varies depending on the capacity of electrification (ampere). 45% of respondents are

16
Asset ownership of the facilities is still with PLN.
17
Funds for these training sessions traditionally came from the government share of 1-5% of the company’s profits after taxation. However,
since PLN’s financial report showed a loss at the end of 1997, PLN only channeled assistance funds originated from its own budget.
18
According to the International Financial Statistics published by the International Monetary Fund, consumer price of the country was
increased by 2.10 times between 1996 and 2000.
19
14,527± 1,764 rupiahs with 95% confidence interval (Sample= 100)

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 contracted for the lowest capacity level (220 VA) and paid a fixed tariff of 7,782 rupiah/month. This tariff
level was lower than national average electricity tariff for residential consumers of 16,806 rupiah/month
(1999).

Data Source: PLN

Figure-7: Change in Electricity Tariff by Selected Consumer Category

Although, the nominal electricity tariff has increased gradually year by year, the growth rate has not
caught up with inflation. Particularly since the Asian Currency Crisis in 1997, the electricity tariff for the
three major consumer categories has declined sharply (see Figure-7) in real purchasing power. Accordingly,
the current electricity tariff can be considered reasonable, or even cheap, for most consumers. On the other
hand, this insufficient tariff increase resulted in the financial deterioration of PLN.

2.5.3 Financial Viability of PLN

PLN’s operating revenues originate from electric energy sales, connection fees and other revenues. In the
last five years, total operation revenues have increased, but this incremental rise has not been enough to
cover the rapid increase in total operation costs. As a result, as shown in the below table, PLN’s net income
after taxes has been negative since 1997. Moreover, since 1998, operation costs have exceeded operation
revenue, widening the gap.
After the Asian Currency Crisis, the value of the Indonesian rupiah against the U.S. Dollar fell rapidly
(1.0 dollar= 2,383.0 rupiahs in 1996; 1.0 dollar= 8,025.0 rupiahs in 1999). The depreciation of the
Indonesian rupiah resulted in an increase in PLN’s operation costs. For example, about 60% of the operation
cost was paid in U.S. dollars, including the purchase of natural gas and geothermal steam, electricity
purchased from Independent Power Producers (IPPs), spare parts, maintenance and debt servicing.

Table-3: Profit and Loss Statement of PLN (1996-2000) (Unit: million rupiah)
1996 1997 1998 1999 2000
Operation Revenue 9,645,993 11,126,100 14,036,015 15,997,118 22,556,663
Electricity Sales 9,418,269 10,877,278 13,766,222 15,670,552 22,139,883
Others 227,724 248,822 269,793 326,566 416,780
Operation Cost 7,642,510 9,449,753 16,808,773 21,502,678 27,215,821
Electricity Purchases 77,096 325,162 1,885,963 5,082,703 9,395,365
Fuel & Lubricant Oil 3,361,080 4,338,836 9,408,965 9,691,813 10,375,827
Maintenance 911,267 965,397 924,840 1,497,831 1,610,254
Personnel 886,229 1,068,055 1,018,858 1,335,616 1,802,392
Depreciation 1,886,972 2,250,725 3,074,149 3,224,331 3,229,593
Others 413,726 501,578 495,998 670,384 802,390
Operational Income (Loss) 2,003,483 1,676,347 (2,772,758) (5,505,561) (4,659,158)
Non Operating Expense (Net) (754,541) (2,255,361) (6,382,787) (5,349,229) (19,331,236)
Net Income (Loss) before Tax 1,248,942 (579,014) (9,155,545) (10,854,790) (23,990,394)
Deferred Tax (390,077) (514,293) (620,975)
Net Income (Loss) after Tax 1,178,415 (579,014) (9,545,622) (11,369,083) (24,611,369)
Source: PLN

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 PLN is currently undergoing major restructuring. PLN also adopted various strategies such as an
Operating Cost Reduction Strategy and a Marketing Strategy with the aim of improving their financial
performance. In order to recover the company’s profitability, PLN raised electricity tariffs in April 2000 in
all consumer categories except for the lower-capacity electricity consumers.
As a result of the above increase, according to PLN’s annual report 2000, average electricity sales for all
of Indonesia rose to 280 rupiahs/kWh. However, average electricity production costs were 547 rupiah/kWh.
Thus, PLN is planning to implement a further increase in the basic electricity tariff, as well as a non-uniform
tariff in all territories of Indonesia, depending on the economic capacity and customer purchasing power of
each territory.

2.5.4 Future Strategy for Development of Rural Electrification

The financial weakness of PLN and

rural residents’ decreasing capacity to
pay electricity tariffs as a result of
macroeconomic deterioration have
been slowing down the development
of rural electrification (see the
Figure-8). In order to revitalize rural Source: PLN

electrification projects in the country,

PLN has adopted the following Figure-8: Number of Villages Newly Electrified
strategies:

- Intensification and extension of medium voltage transmission lines for villages within reach of existing
networks. Especially in the case of Sumatra and Sulawesi, 275/150 kV grid transmission systems and
large-scale power plants are being developed. Through these systems, PLN aims to reduce unit cost for
energy supply as well as to stabilize electricity supply.
- Utilization of locally available renewal energy sources such as mini hydro and geothermal. This would
contribute to reducing use of diesel oil, for which PLN has to pay in U.S. dollars.
- Reduction of construction costs through simplification of construction standards and technical
specifications, without compromising safety standards

The strategies mentioned above will, to some extent, contribute to activating rural electrification.
However, to sustain the positive effects of the rural electrification project, the financial health of PLN is
indispensable.

3. Recommendations

PLN may need to enhance its system for inspection and training to increase the KUDs’ capacity for
operation and maintenance of rural electrification facilities.

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Comparison of Original and Actual Scope
Original Scope
Items/Activities Actual Scope
(At time of Appraisal)
I. Project Scope
1. Rural Electrification
- Target Area 600 Village (22 Province) 851 Villages
- MV distribution Line (20kV) 2,410 km 3,634 km
- LV distribution Line (220/380V) 1,970 km 3,817 km
- Distribution Transformer (Pole Mounted) 56,150 kVA (Total Capacity) 57,105kVA (Total Capacity)
- Diesel Generator 2,160 kW (Total Capacity) 9,080 kW (Total Capacity)
2. Scattered Diesel
- Tanjung Pandan 2 Units x 2.5MW 2 Units x 3.0 MW
- Barabai 2 Units x 2.5MW 2 Units x 3.0 MW
- Kendari 2 Units x 2.5MW 2 Units x 3.0 MW
- Civil Works and procurement and installation One set As planned
of elated Equipment/Accessory
3. Mini Hydro (Baras)
- Installed Capacity 1 Unit x 200kW As planned
- Civil Works and procurement and installation One set As planned
of elated Equipment/Accessory
4. Consulting Service Professional A: 27M/M Professional A: 26 M/M
Professional B: 40M/M Professional A: 41 M/M
II. Implementation Schedule
1. Loan Agreement Oct 1993 Nov 1993
2. Rural Electrification
- Preparation of bidding to contract singing Oct 1993 – Dec 1994 Jun 1994 – July 1996
- Manufacturing and Material Delivery Mar 1994 – Aug 1994 July 1996 – Aug 1996
- Erection Sep 1994 – May 1995 Aug 1996 – Nov 1996
3. Scattered Diesel Component
- Preparation of Bidding to contract singing Aug 1993 – Nov 1994 Aug 1993 – Dec 1994
- Civil Construction Dec 1994 – Jul 1995 Jan 1995 – Oct 1995
- Manufacturing and Material Delivery Sep 1994 – Feb 1996 Oct 1994 – Jul 1996
4. Mini Hydro Component
- Preparation of bidding to contract singing Mar 1993 – Oct 1994 Mar 1993 – Aug 1995
- Civil Works Oct 1994 – Mar 1996 Aug 1995 – Jun 1997
- Electro and Mechanical Works Oct 1994 – Mar 1996 Aug 1995 – Jun 1997
- Land Acquisition Aug 1993 – Jan 1994 N. A
5. Consulting Services Apr 1993 – Feb 1996 Dec 1994 – Aug 1995
III. Project Cost
Foreign currency 1,698 million Yen 1,588 million Yen
Local currency 8,855 million Yen 7,539 million Yen
(150,093 million Rupiahs) (171,330 million Rupiahs)
Total 10,553 million Yen 9,127 million Yen
ODA loan portion 8,970 million Yen 7,884 million Yen
Exchange Rate 1.0 Rupiah = 0.059 Yen 1.0 Rupiah = 0.044 Yen
(April 1993) (Weighted Average during the period of
1994-97)

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 Independent Evaluator’s Opinion on Rural Electrification Project

Mohamad Ikhsan
Researcher, Institute for Economic and Social Research Faculty of
Economics University of Indonesia

The objectives of the project are relevant and important for rural development in Indonesia mainly
in Off-Java islands. The objective to raise rural electrification ratio is partly met by this project hence
creating new basis for the rural economic development. More important as stated in Ikhsan and
Usman (forth coming), the expansion of rural electricity network will help the poor – where most of
them located in rural areas. – to meet their energy demand at the lower cost. They show that an
unconnected household has to pay about 6 times higher per kwh effective energy unit compared a
connected one. The relevance of the project was maintained with some delay due to the expansion of
number of villages.
As stated before, this project has met two objectives (1) increasing rural electrification ratio in
Indonesia as a whole and (2) reducing the gap of electrification between Java and off Java villages.
Thus it will potentially reduce equality between both areas.
It has also produced the significant economic impact not only by creating new business
(economic) opportunities and hence new employment within the villages under this
project.
This evaluation also shows that the project has reduced the energy cost paid by the
rural residents. This is also consistent with other study like Ikhsan and Usman
(forthcoming) as mentioned previously.
However, to raise the effectiveness of the project, the evaluator wants to propose an
additional demand management program to complement the similar project in the future.
This can be done by (1) reducing connection fees or (2) providing cheap credit for
connection fees.
Take in together based on professional judgment. I agree that the project has met and
accomplished its intended goal.

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