Utilities in Indonesia are largely controlled by government-owned establishments. PGN, a government-owned gas company, is the primary natural gas provider in the country, and is responsible for gas production, transmission and distribution. PDAMs – government owned regional water supply companies – provide the majority of water services. PLN is a state-owned electricity company that acts as the Electric Energy Authority of Indonesia.

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Government control of the utility business is justified by Article 33 of the Indonesian constitution, which states that branches of production that are important for the state and affect the lives of most people shall be controlled by the state. In addition, land and water, and the natural resources found therein, shall be controlled by the state and shall be exploited for the maximum benefit of the people.

Although the government has sole control of the utility business, it forms partnerships with private companies in most instances.

GEOGRAPHY AND DEMOGRAPHY

The Indonesian archipelago consists of more than 17,000 big and small islands, only 6,000 of which are inhabited. Five main islands –Sumatera, Kalimantan, Sulawesi, Irian Jaya (Papua) and Java, as well as several smaller island groups, are home to the majority of the population. Only 20% of the archipelago is made up of land.

The last census in 2000 indicated that the total population of Indonesia is 203 million. Almost 60% live on the island of Java, which has less than 7% of total land, while the island of Papua represents 20% of Indonesia’s land but is inhabited by only 1% of the total population. Indonesia’s current population growth is 1.5% a year.

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Administratively, Indonesia is divided into 33 provinces, each led by a Governor. Each province is divided into some regencies, cities or big cities.

According to the Asian Development Bank, Indonesia’s economy is on a moderate growth path with GDP of 5.5% in 2005 and 6-6.5% in 2006-2007, supported by stronger domestic consumption and investment. Starting from a low base, gross investment is expected to increase to 22-26% of GDP, stimulated by the new government’s planned measures to enhance economic certainty for investors.

GAS RESOURCES

Indonesia has plenty of natural gas resources. The current gas reserves are estimated to be 177 trillion cubic feet (TCF), half of which is proven. With a production rate of around 3 TCF per annum over the last seven years; the reservesproduction ratio is well over 50 years. About 70% of the gas produced is exported as liquefied natural gas (LNG) with the balance being consumed domestically.

As the primary natural gas provider, PGN has two core businesses: distribution and transmission. Distribution includes acquiring natural gas from upstream suppliers and subsequently selling that gas via distribution pipelines to residential, commercial and industrial customers. The transmission business involves transporting gas through transmission networks from upstream suppliers to end users.

PGN’s distribution is divided into three strategic business units (SBUs) spread in areas mainly in West and East Java and Sumatra. These SBUs take on the role of sole gas distribution, retailing, and other related businesses in Indonesia.

Liquefied petroleum gas (LPG) produced by PERTAMINA, the government-owned oil company, is widely used in urban areas because of practicality. LPG sold by agents comes in portable tanks of 12 kg and 50 kg. In 2003, LPG accounted for 1.79% of energy consumption divided into residential and industrial consumers.

Oil fuel is the energy of choice in Indonesia at 67.45%, followed by natural gas (13.05%), electricity (11.34%), coal (6.37%) and LPG (1.79%).

Law No. 22 concerning oil and gas was issued in 2001 to guarantee efficient implementation and control of upstream and downstream activities. One of its purposes is to encourage further development of Indonesia’s substantial natural gas reserves, for both domestic use and export.

PGN became a public listed company in 2003 with 61% of its shares controlled by the government and 31% on free float at the Jakarta and Surabaya Stock Exchanges.

ELECTRICITY

PLN is the central co-ordinating body of the electricity supply industry. It has a general responsibility for promoting the development and maintenance of an efficient, co-ordinated and economical system of electric supply. It is also responsible for the operation and maintenance of power stations and the national grid.

PLN has 16 regions (individual provinces and a combination of several provinces into one region), five distribution areas and several producing centres in Java-Bali and Sumatera.

Residential households are the largest group of customers, amounting to 93% of the total. Rural residential customers make up 70% of the residential group. The  country’s per capita electricity consumption is 420 kWh.

The total number of kWh meters installed by PLN is estimated to be 40 million. They consist of 80% single phase 230V 5/20A and single phase 230V, 20/60A meters and 20% three phase meters, including kWh and kVARh meters.

The annual demand for single phase meters is approximately 1.5 million units; 100,000 three phase meters are needed. Demand for electronic kWh meters of class 0.2, class 0.5 and class 1 is 5,000 to 7,000 units per year. Indonesia experiences electricity transmission and distribution losses of about 15% per year, and the electronic kWh meter is chosen as one alternative to reduce losses.

In 2002 the government issued Law No. 20, a new electricity law that required an end to PLN's monopoly on electricity distribution within five years. Private companies (both foreign and domestic) would have been permitted to sell electricity directly to consumers, but would need to use PLN's existing transmission network.

But in November 2004 the Constitutional Court annulled Electricity Law No. 20/2002 on the grounds that it was incompatible with the Indonesian constitution. The government has since issued a new regulation that allows private sector participation in the form of a partnership with PLN. The partnership will be established by PLN calling for bids for new power generation projects; it will also act as the single buyer.

WATER

In Indonesia up to 80% of the population lacks access to safe, piped  drinking water. Piped water reaches only half the capital city’s 12 million population – the remainder rely on water vendors and wells.

Most urban public enterprises tasked to provide basic services to urban dwellers are in crisis, notably local water utilities. Many PDAMs throughout Indonesia are barely able to provide minimum services to consumers.

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Widespread lack of cost recovery tariffs, compounded by a low level of revenue collection, results in reduced maintenance and investment capacity, deteriorating assets, and low service coverage and quality. In some cities water loss has reached 30% because of broken pipes, water meter inaccuracy and illegal connections.

In previous years most of the large-scale PDAMs have established partnerships with the private sector to reduce water loss by introducing service contracts for pipe rehabilitation, meter reading, bill collection, water meter improvement and calibration of meters. Typical public-private partnership concessions for the water supply sector comprise BOOT schemes for the development of limited new services areas, or the operation and management of existing assets, including investments for the expansion of service coverage.

Law No.7 on water resources was passed in 2004, with the principle that water could no longer be regarded as being free. It also established a right-based legal and institutional framework for the management of water resources and irrigation. According to the Peoples’ Coalition on the Rights to Water, Law No. 7 had changed the government’s approach to water management, from a ‘supply approach’ to a ‘demand approach’, where pricing became a tool to control demand.

Thousands of people and organisations in Indonesia filed a Judicial Review about this law. After a year-long trial, however, the Constitutional Court decided that the request for a Judicial Review could not be granted.

The total number of PDAM customers has increased continuously as people become more and more aware of the need for clean water supply. Almost 90% of customers are households and institutions.

THE METER MARKET

Business approaches to tap the Indonesian meter market can come from a variety of sources, including research, training and educational institutions, foreign investment and joint venture projects. The business will be more feasible if international principals provide financing schemes such as soft loans, credit export or pre-financing.

Special thanks to Omar Taraki from the University of California, Davis, USA; and to Dewi Untari from the Indonesian Ministry of Environment who assisted with the research on which this article is based.