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Never waste a crisis: Indonesia’s PLN needs a coherent strategy to ride out the COVID-19 pandemic

September 04, 2020
Elrika Hamdi
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Key Findings

Dysfunctional planning and governance have put PLN into strategic paralysis. 

PLN's financial problems result from inaccurate forecasts and inflexible payment obligations. In a recent House of Representatives hearing, PLN chief executive Zulkifli Zaini raised concerns about PLN’s rising debt burden, which rose to IDR 500 trillion (USD34 billion) at the end of 2019.

Executive Summary

The COVID-19 crisis has not been kind to Perusahaan Listrik Negara (PLN), Indonesia’s state-owned power monopoly. Not only was it heavily criticized by customers over a billing fiasco that created nation-wide confusion, but PLN’s financial health and longevity have been critically scrutinized by Indonesia’s House of Representatives in multiple hearings over recent months.

This is cause for serious concern. In June, the PLN CEO Zulkifli Zaini conceded before the House of Representatives that PLN’s financial condition is deteriorating. Power demand has fallen sharply due to large-scale social restrictions (PSBB) and PLN’s debt levels are rising as the company struggles to meet fixed costs. Its cash flow problem was worsened by the fact that the government has only paid IDR 7.7 trillion out of IDR 45.4 trillion (USD 3.1 billion) compensation owed to PLN for freezing electricity tariffs since 2017.

PLN is not alone in this situation. Utilities around the world have seen power consumption nosedive as much as 20.0% since 2019 because of the COVID-19 crisis. But the roots of PLN’s problems are deeper than just the pandemic: PLN’s quiet crisis reflects dysfunctional planning and governance that have put the company into strategic paralysis, unable to change direction or adapt to new market realities.

Utilities globally started changing the way they do business years ago. With the advent of transformative innovations in renewable energy technology, storage systems, and smart-grid applications, utilities have embraced change and learned to redefine development goals. Utilities that understood this opportunity acted fast to adapt their system infrastructure to accommodate the new technology.

Unfortunately, PLN stands out as laggard, focused on a confused menu of piecemeal generation options rather than holistic planning that provides system-level solutions. What causes this underperformance? Sadly, the single-minded focus on the 35Gigawatt fast-track program has blinded senior planners to new market realities that demand a switch from overreliance on inflexible baseload coal to cost-effective modular solutions that flexible renewables can deliver.

Despite all the warning signs, senior managers still run the power sector with an old-fashioned, business-as-usual mindset. Unfortunately, a 2010 playbook will not save PLN from falling deeper into a modern-day debt trap. Indulging in an extractive economy mindset that fosters dependence on fossil fuel also won’t save PLN. There has to be a willingness to ask the hard questions when PLN’s ocean of red ink keeps signaling that the utility’s resource-driven development plans are obsolete in a high-technology world.

A few weeks ago, video footage showing President Joko Widodo’s exasperation during a Cabinet meeting was leaked. Widodo was seen making a fiery speech showing his frustration with the Cabinet’s slow progress in dealing with the COVID19 pandemic. The President forcefully reminded his ministers that the current situation is not business as usual—it is a crisis that demands a swift response and extraordinary efforts from all parties.

Jokowi’s speech exemplifies what is needed from PLN. The company needs to seize the moment and change its strategies. Simply conducting business as usual will not work. To ride out the storm, PLN needs to know when to change course and adjust the sails. The time to do it is now. Capital is moving away from fossil fuels and toward utility-scale renewables. For example, the IEA World Energy Investment 2020 report found that investment in fuel supply has received the hardest hit, while investment in utility-scale renewable power has been more resilient.

Please view full report PDF for references and sources.

Elrika Hamdi

Elrika Hamdi is a former energy finance analyst at IEEFA covering the nexus of energy transition, economics, finance and politics in the South East Asian region. She has covered the Indonesian power and energy market extensively over the years, and built her reputation as a trusted analyst by industry players, investors, and government officials.

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