Fear of power crisis scares off foreign investors

The possibility of a power crisis in Indonesia has added to the uncertainties in the country's investment climate, according to a senior official at the Asian Development Bank (ADB) on Thursday.

ADB senior programs officer Shiladitya Chatterjee said foreign investors feared that the country could suffer an acute power shortage within the next three to four years.

"There is a miss-match in power capacity and power demand and there could be a power crisis," Chatterjee said in an interview after a presentation on a website run by ADB's Asia Recovery Information Center.

State-owned electricity company PT PLN has said that the growth in power demand has reached the pre-crisis level of 12 percent per year.

By 2004, the existing power capacity for the Java and Bali region would barely meet power demand in that area, the state company said.

Chatterjee then urged Indonesia to attract foreign investors to the power sector.

"There is tremendous need which can be seen if you look at the demand situation," he went on.

Indonesia had already anticipated a power crisis in the mid-1990s by signing power purchase agreements with 27 independent power producers (IPPs).

But when the economic crisis struck in 1997, power demand plunged and PLN could no longer afford to buy the IPPs' power.

The crisis led PLN into financial difficulty, which forced it to renegotiate some of the IPPs' power prices.

However, Chatterjee said that investors were still interested in the country's power sector.

"Provided that - and this is what everyone says - the overall incentive and policy environment structure is all right for private investment," he added.

Chatterjee was referring to prevailing political and legal uncertainties that continue to plague the country's investment climate.

According to ADB's Asia Recovery Information Center (ARIC), the capital flows -- including direct investment, portfolio investment and debts -- suffered a net deficit of $1.01 billion in the first quarter of this year as compared to a surplus of $129 million.

ADB senior economist Juzhong Zhuang said that the decline in the official capital inflows was due to smaller disbursements of foreign aid, such as from the ADB and the International Monetary Fund (IMF), during that period.

He further assured that the sharp rise in capital outflow would be unlikely to lead Indonesia to another economic crisis as it once did in 1997. (*)