PLN transformation - CLSA Indo

“In the city of Tanjung Balai Karimun in Sumatra, the constant noise produced by portable genset used to be all you can hear. No more. Electrification coverage in that city has now improved a lot.”

That was our opening statement from Dahlan Iskan, CEO of state-owned power company PLN. CLSA Jakarta hosted the well-attended luncheon yesterday. True to Dahlan’s journalistic background (he built up a small regional newspaper to become the third largest national paper), he wore sneakers and presented in a relaxed but very candid atmosphere to local investors.

Dahlan shared that in the one-year time he has been at PLN, the average blackout ratio of the country has been dramatically reduced from a whopping 150x per customer/year to “only” 50x per customer/year (yes, NO typo here, it was 150x / year!!). Dahlan thinks that average blackout should be coming down further in the coming years.

But more importantly, the focus at PLN has gone from battling power black outs last year to permanent institutional change – sorts of a transformational cultural change, a battle for the heart and soul of PLN. For starters, PLN has successfully championed equipment procurement – online significantly improving transparency. Imagine, PLN used to fork out Rp120bn (US$13.6mn) for one transformer – the company is now paying Rp40bn (US$4.5mn) for a unit.

But perhaps the most important thing Dahlan is instilling at PLN is the can-do attitude. When govt and parliament were wrangling back and forth about PLN’s request to increase electricity tariffs for consumers, PLN came up with an ingenious idea: providing free upgrading for 450VA and 900VA capacity (which is subsidized and makes up to 70% of all customers) to the unsubsidized 1,300VA. The ongoing program has been a resounding success with an estimated 10-20% of total customers migrating to the higher unsubsidized 1,300VA thus PLN would spend a lot less on subsidies.

The president director, fortunately did not single out the outrageous power consumption at the mansion of Indo bank analyst Bret “the pool” Ginesky. Pheeeww…..

Bret’s reputedly and “much asked-about” indoor pool
Strong first year for Dahlan indeed but he promises more structural changes in store for PLN. Dahlan also predicted that better electrification ratio and less power blackouts means less and less power genset sales. Gensets have already dropped to the number two spot as best performing sales at ACES.

We all know that infrastructure development in Indonesia has been painfully slow. But there is progress, if not at the pace we’d like it to see. The ongoing transformation at PLN, the elevated roads in Jakarta, plus the government finally rewarded perennial stalled toll road project in East Java to toll road operator Jasa Marga (JSMRA IJ).

There are over twenty more stalled toll roads that the govt is reviewing and considering to re-tender. This progress could accelerate with the passing of the land acquisition bill which increasingly looks more likely second half of this year.