At project appraisal in 2002, electricity demand in Java-Bali was projected to grow by 6.1% per year from 2004 to 2008. Similarly, electricity demand in Kalimantan was projected to increase by 7.2% by 2013. To help meet these projections and support Indonesia’s Power Sector Restructuring Strategy of 1998 ─ that aimed to expand the country’s electricity supply in a least-cost manner, improve supply efficiency and reliability, and make power generation and distribution more financially viable ─ the Asian Development Bank (ADB) approved a $101.94 million loan for the Power Transmission Sector Project in December 2002.
The project was designed to (i) remove power supply bottlenecks in selected power substations and medium-voltage transmission lines in the Java-Bali power grid, (ii) interconnect the Kalimantan outer island power grids, and (iii) provide information and communication technology (ICT)-based equipment for a competitive electricity market as well as consulting services to supervise the installation of the equipment. Outputs identified at appraisal included (i) the construction of 405 kilometers (km) and upgrade of 113 km transmission lines, (ii) the expansion of 14 existing and construction of 5 new 150 kilovolt (kV) substations, and (iii) the creation of market facilities required for electricity trading.
By loan closing, 251 km of new transmission lines were constructed in both Java-Bali (49 km) and Kalimantan (202 km); eleven 150 kV and five 500 kV substations in Java-Bali and two 150 kV substations in Kalimantan were expanded or extended; and three new 150 kV substations in Java-Bali and two 150 kV substations in Kalimantan were constructed. A supervisory control and data acquisition (SCADA) master station to replace the ICT component, which was dropped because of the annulment of Electricity Law 20/2002 in 2004, was built for the dispatching of 150 kV throughout Kalimantan.
The significant shortfalls in the delivery of the planned outputs were largely due to difficulties in obtaining permits, including forestry permits, from national and local governments and other relevant agencies; acquiring land from residents and landowners; and securing rights of way (ROWs). Most of the special features of the project, including an automatic tariff adjustment mechanism, either became unrealizable because of Electricity Law 20/2002 or were waived at government’s request.
Because of these output shortfalls, which occurred despite adequate risk assessment during project preparation, the project also fell short of achieving its two key intended outcomes of (i) expanding and upgrading existing power substations and transmission lines to remove supply bottlenecks in Java-Bali, and (ii) connecting power transmission systems in Kalimantan to increase the efficiency and reliability of power supply. Implementation delays, mainly due to land acquisition and ROW problems, and the poor performance of some contractors, caused the loan closing to be extended twice to September 2013 from the original September 2008 schedule.
The project initially had the Directorate General of Electricity under the Ministry of Energy and Mineral Resources as the executing agency and the State Electricity Company, PLN, as the implementing agency. The PLN assumed full responsibility for the project, following the annulment of Electricity Law 20/2002.