VZCZCXRO3209
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #1800/01 3020906
ZNR UUUUU ZZH
R 290906Z OCT 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3682
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLL
RUEHJS/AMCONSUL SURABAYA 2556
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 JAKARTA 001800 
 
SIPDIS 
 
STATE FOR EAP/MTS 
STATE ALSO FOR EEB/ESC/IEC/ENR, S/CIEA 
ENERGY FOR PI-32 CUTLER 
COMMERCE FOR 4430 NADJMI AND 6930 
STATE PASS TO USTR EHLERS AND WEISEL 
STATE PASS TO USAID EGAT/ESP/GCC COLLIN GREEN 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD ID
SUBJECT: INDONESIA ENACTS A NEW ELECTRICITY LAW 
 
JAKARTA 00001800  001.2 OF 002 
 
 
¶1. Indonesia's Parliament recently passed a new electricity law to 
increase development of the power sector by allowing local 
governments to set local tariff rates and establish companies that 
can compete with PLN, the national power utility, in power 
generation, transmission, and distribution. The new law enables 
regional governments to develop power projects on their own, but 
observers are skeptical that the new law will encourage investment. 
Legislators hope the law will provide the incentives and competition 
that have been lacking since the constitutional court annulled the 
previous electricity law in 2002, on the grounds that private sector 
competition in that that contravened article 33 of the Indonesia 
Constitution. 
 
Legislative Approvals for Electricity Tariff 
-------------------------------------------- 
 
¶2. Airlangga Hartanto, Former Chairman of Parliament's Commission 7, 
which oversees legislation on oil, gas, mining, and power, stated 
that the new electricity law gives local governments the power to 
generate, transmit, and distribute electricity, set regional prices 
and determine local subsidy levels.  Airlangga believes that this 
arrangement allows local governments to develop electricity when 
PLN, the national electricity monopoly, has been unable or unwilling 
to do so. 
 
¶3. However, some observers are skeptical of the scope of the law's 
impact.  Officers at the Indonesia Electricity Society (MKI) said 
that the law's vague language allowed many groups to believe that it 
would advance their causes.  But MKI members believed that the only 
working model of regional electricity pricing is the island of 
Batam, which is a special business processing and export zone. 
There are additional problems to electricity competition, including 
questions about access to PLN's distribution network, methods to 
compute end-user prices if local feed-in tariffs are different from 
PLN's tariff, and management of local subsidies. 
 
Renewable Energy Goal 
--------------------- 
 
¶4. Despite the uncertainty, Indra Sari, an energy officer at World 
Wildlife Fund, believes that the new law raises the opportunity to 
develop renewable energy projects.  Currently, one of the biggest 
obstacles to renewable energy development is PLN's reluctance to 
plan for or sign contracts with renewable energy projects.  Under 
the new law, regional governments can create local government-owned 
companies to purchase and distribute the electricity. 
 
¶5. To make electricity competition work, local governments must 
still create rational business incentives to attract investment, 
according to Dollaris Riauaty, the Executive Director of 
Swisscontact Indonesia, an NGO specializing in poverty reduction and 
technical assistance.  Key among these incentives is being able to 
offer competitive feed-in tariffs, something that Indonesia's 
current system of subsidies makes difficult.  In the meantime, the 
Indonesian government must make a credible road map to develop 
renewable energy. 
 
Business Development 
-------------------- 
 
¶6. Officers at MKI said, once the implementing regulations clarify 
the regional jurisdictions, the new law allows local governments to 
extend two new types of permits: electricity business permits for 
public distribution, and electricity business permits for industrial 
own use. These permits narrowly define the customer base, so that 
electricity producers cannot designate both industrial and public 
customers.  However, MKI was hopeful that the law would increase 
energy options for manufacturing in Indonesia.  However, the new law 
is unclear and industry observers are waiting for clarification in 
the implementating regulations. 
 
Role of National Energy Policy 
------------------------------ 
 
¶7. The new law mandates that the primary energy sources must be used 
optimally in accordance with the National Energy Policy (NEP) and 
gives greater priority to new and renewable energy sources. The NEP 
itself will be prepared by the National Energy Committee (NEC), 
chaired by President Yudhoyono. The GOI has already released its 
energy mix target to be achieved in 2025, in which renewable energy 
is slated to provide 17% of total energy. The NEC now has the task 
of determining the policies that will achieve this goal. 
 
 
JAKARTA 00001800  002.2 OF 002 
 
 
HUME