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MP3EI and Politic of Energy and Power:

A Case of Central Java Power Plant (CJPP) 1

Hilma Safitri ARC

Abstract
The MP3EI2 as Indonesian Economic Corridor (IEC/MP3EI) policy, the newest policy issued
in the end of 2011, as a policy used economic corridor concept. The not as business as
usual slogan, this policy mainly uses debottlenecking principle to reinforce investment
flows in six corridors determined by determined by MP3EI3. By relying on capital owned
by private sectors, MP3EI gives a chance to privatization a number of public assets
particularly that potentially aimed to public services. Since the MP3EI is conditioning to
providing means of infrastructure as a main foundation and as a first step in MP3EI
implementation. The classical reason is that the state or the government has no
sufficient fund then giving the private sectors to take an advantage to invest their capital
for infrastructure development (such as road, communication infrastructure as well as
electricity).

This paper observes the main large-scale development project, which is also the pilot
project for the implementation of MP3EI policy in Indonesia. The case is the mega-project
PLTU Batang (Central Java power plant/CJPP) in Batang regency, Central Java. The mega-
project PLTU Batang is vital infrastructure facility providing electricity for industries in
Java. By observing the case, this paper exposes the politic of energy and power and role
division between the government and the private party, which were aimed to accelerate
Indonesian economic transformation through MP3EI policy. The description will explain
how capital-driven exists in this case by using PPP scheme that encouraging privatization
of public assets that aimed to meets the public services. The exposition in this paper
includes an explanation of how the capital-driven growth occurred in the case.

I. Introduction
The focus on economic corridors has become a trend of development strategies
in various countries in the world. The economic corridor refers to economic
development targeted to increase economic growth in a certain period and in

1 This is part of a long ARCs research on MP3EI (2012-2013). Focusing on


CJPP-Batang issue, all of related literature review and policy review have been
done by Baihaqi Basya, one of ARC researcher.

2 Stands for Masterplan Percepatan dan Perluasan Pembangunan Ekonomi


Indonesia (Indonesian Economic Corridor/IEC)

3 The six corridors are Sumatra, Java, Bali and Nusa Tenggara, Kalimantan,
Sulawesi and Maluku-Papua (Coordinating Ministry of Economic Affairs, 2011)

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specific areas (AGIL, 2000, p. 2). The pre-condition of these plans is mostly
infrastructure development, both in terms of transportation facilities and
telecommunication as well as in electricity (Bafoil & Ruiwen, 2010). These large-
scale development plans stand for a form of modernization that reflects very
much thinking of the ruling elites and corporate capital. The main characteristic
of the plans is involving a huge amount of capital, undertaken by entrepreneurs,
and promoting growth which leads to a strategy which fruits are too exclusive to
be accessed by large parts of the population. While economic corridor
development might well generate very good results, measured by reaching
significant economic growth levels, the impact of this kind of modernization, in
particular through land control and changing land use, may lead to the ignorance
toward peoples interests under the debottlenecking scheme and involvement of
private group through PPP scheme.

The MP3EI4 as Indonesian Economic Corridor (IEC) policy, the newest policy
issued in the end of 2011, as a policy used economic corridor concept. The not
as business as usual slogan, this policy mainly uses debottlenecking principle
and Public Private Partnership (PPP) scheme to reinforce investment flows in six
corridors determined by determined by MP3EI 5. By relying on capital owned by
private sectors, MP3EI gives a chance to privatization a number of public assets
particularly that potentially aimed to public services. Since the MP3EI is
conditioning to providing means of infrastructure as a main foundation and as a
first step in MP3EI implementation. The classical reason is that the state or the
government has no sufficient fund then giving the private sectors to take an
advantage to invest their capital for infrastructure development (such as road,
communication infrastructure as well as electricity).

One of MP3EI projects is energy and power sector, which is one of important
infrastructure in industrialization. An increasing demand of energy and power
sector in Java goes along with economic corridor development in MP3EI to ensure
an adequate supply of energy in order to support existing and planned
industries. Therefore, even though Java has been more or having higher power
supply than other islands, it is still necessarily to build high capacity power
plants. The CJPP-Batang planning is one of pilot project in MP3EI implementation.
It has capacity up to 2x1000 MW and since 2006, it has been a mega-project and
also as a pilot project of Public Private Partnership (PPP) scheme. 6

4 Stands for Masterplan Percepatan dan Perluasan Pembangunan Ekonomi


Indonesia (Indonesian Economic Corridor/IEC)

5 The six corridors are Sumatra, Java, Bali and Nusa Tenggara, Kalimantan,
Sulawesi and Maluku-Papua (Coordinating Ministry of Economic Affairs, 2011)

6 http://www.pln.co.id/eng/?p=2607

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The dynamic of Indonesian economic development is not apart from the political
dynamic of the government, which has constantly changing. The Reformasi era
1998 that ideally can be a moment for every region to better develop these
potential economic, in business player side, to invest their capital often
encounter some obstacles. The geographically uniqueness as well as the
richness of its make every local government put the decentralization policy as
the moment to get back their resources being their own. Therefore, bureaucracy
scheme as well as related regulations has been adapted and local government
acts as an important key in investment in their particular region. Even though
this has made easier private sectors that would only deal with local government,
it has still remained some difficulties, like a hardship to follow the regulation due
to an existing many conflicts of interest within government body. Since the MP3EI
policy published by presidential regulation, it will be a breakthrough to eliminate
these complexity occurred and experienced by entrepreneurs or investors.
Debottlenecking principle, either from trimming the bureaucracy aspect or
regulatory reform, is the main principle in MP3EI, including reforming some
implementing regulations on public-private partnership (PPP) to meets a better
climate for investment.

This paper observes the main large-scale development project, which is also a
pilot project implementation of MP3EI policy in Indonesia. The case is the mega-
project PLTU Batang (Central Java power plant/CJPP) in Batang regency, Central
Java. The mega-project PLTU Batang is vital infrastructure facility providing
electricity for industries in Java. By observing the case, this paper exposes the
politic of energy and power and role division between the government and the
private party, which were aimed to accelerate Indonesian economic
transformation through MP3EI policy. The description will explain how capital-
driven exists in these two cases by using debottlenecking principle in MP3EI and
PPP scheme that encouraging privatization of public assets that aimed to meets
the public services. The exposition in this paper includes an explanation of how
the capital-driven growth occurred in the case.

II. The MP3EI scheme


The Economic Corridor is an economic development concept that starting with
idea of zoning or well-defined geographical space that linked two or more areas
with different levels of growth in one or several countries (crossed borders) that
linked by well-developed transportation infrastructure networks (Ishida, 2005).
The concept of MP3EI (p. 10) also entails the concept of geographical-based and
natural and human resource-based regions division. The regions development, at
the end, will correlate with wider economic development areas, which are East
Asia area, through development of land infrastructures that connect all over
areas within regions/corridors and sea lane to join among corridors. This is the
basic idea of formulation of MP3EI and planned for long lasting program, 2011-
2025 (Republik Indonesia, 2011). The long run objective is a significantly, better
and stable economic growth, as well as integrated to East Asia countries
economic which was stated by President of Republic of Indonesia that Indonesia
has to be ready to adjust with regional and global economic dynamics (p. 11

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and 14). The main target is to stabilize economic growth between 7% and 9%
that depends on development of natural resources potency.

The main strategy is building 6 economic corridors in order to develop


connectivity within areas in all over Indonesia and with other countries regionally
and globally. It is not only transportation infrastructure provision, but also human
resource improvement system and information and communication technology
(ICT) system. The MP3EI planning has been included in Indonesia Long and
Middle Term Development Planning (RJPMN) and become guidance for the
government in every level to be implemented (Figure 1.). Improvement strategy
of communication and information system as well as national logistic system is
very important, because those will be possibly all of economic activities being
integrated. Those six economic corridors are indicated by six main islands with
each potential that has been identified and examined by economical calculation 7
become its focus of economic development until 2025.

Figure 1. National Connectivity of MP3EI Scheme

(Coordinating Ministry For Economic Affairs, 2011, p. 36)

Practically, in addition to six economic corridor development, the central


government take a role to rule all vital infrastructure development, which is one

7 A depth and comprehensive study has been conducted by Boston Consulting


Group, an US-based consultant that reviewed all of corridor potential and
become a foundation to build MP3EI. The study result are compiled in Indonesia
Economic Corridor Development (Boston Consulting Group, 2010).

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of which is energy and power infrastructure. Even though CJPP-Batang is
governed by local government (Batang district), it is determined by central
government, especially by Bappenas (National Board of Development Planning).
In this case, MP3EI has already denied spirit of decentralization that has been
started in post-Reformasi era 1998.

To follow the government argumentation that only have limited budget for this
project implementation, therefore it is important to invite the collaboration
among central and local government, State Owned Enterprises (SOEs) and
private sectors. It also relates to accelerate economic growth, which
dependencies of private sectors are important (including state-owned
enterprises and private domestic and foreign investor) (p. 20). On the planning,
the government allocates funds as a State Budget about 10% of the whole
estimation MP3EI funds (p. 49). The four biggest allocations are power and
energy infrastructure (38%), for road and railway infrastructure and ICT, 19%,
18% and 14% consecutively, and port, airport and others infrastructure, 7%, 2%
and 2 %, only 1 % for water utility development. The allocations state budget
indicates that the government seriously provides the basic prerequisite of
infrastructure and in the timeline of implementation, all of infrastructure project
will be done in two years, 2014. It means during two years will happen massively
infrastructure development.
Meanwhile, look at the Figure 2 below, it indicates 51% of budget pledged to
private sector groups and 18% of it is leant on SOEs, the rest is asked to
collaboration of private and state company (21%). Nonetheless, the biggest
proportion goes to Java Islands, which is 32%, followed by 24% and 18% to
Kalimantan and Sumatra islands. It still remain the big question of why does it
concentrate to outer islands, which is currently lack of development activity and
as a place of main natural sources.

Figure 2. Budget Allocation Planning and Distribution

(Coordinating Ministry For Economic Affairs, 2011, p. 49)

However, the MP3EI implementation should impact to rural livelihood. It is not


only gaining benefit of massively infrastructure development, but also it is aimed

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to develop rural people. By seeing previous development experiences,
specifically peasant small holders indicate as a big drawback, they were
dispossessing from their land. This tendency is also predicted happened through
MP3EI implementation.

III. Politic of Energy and Power


Energy and power in Indonesia experiences a long evolution since it has been
controlled by Republic of Indonesia 1945 after nationalization of the Netherlands-
Indies companies. Its development cannot be separated from evolution of
political condition Indonesias economic development. Old order era policy that
emphasizes state ownership turned to opening private sector involvement in
New Order era up to now through various scheme and type of maintaining and
involvement. In general, as long as Republic of Indonesia government, control
and management of electric power has been in private sectors with various
forms of involvement as well as influenced by external parties through various
policies that has been occurred in each era and decades.

After independence in 1945, state-based management of electric power


experienced urgency that should be handed to its previous owner. However, in
the beginning 1950s, the Old Order regime that is leaning or has a spirit of anti-
western released a policy that change the status of foreign companies, which
were controlled by the Netherlands-Indies government, be controlled by the
state. The policy itself called as the nationalization of foreign companies policy
in 19588. A year after (1959), all of electric (PLN) and gas companies (PGN)
became part of Perusahaan Listrik Negara (PLN/State Electricity Company)9 until
196010, amount of those companies have integrated to Badan Pimpinan Umum
Perusahaan Listrik Negara (BPU-PLN/Board of General Administration of PLN) 11.

8 Based on Law (UU) No. 86/1958 on Nationalization of the Netherland Indies


Companies, dated 27 December 1958

9 Based on Government Regulation (PP) No. 18/1959 on Determination of the


Netherland-Indies Electricity and/or Gas Companies that impacted to
Nationalization, dated 17 April 1959, article 1. There were 9 companies
included in this regulation.

10 Government Regulation in Lieu of Law (Peraturan Pengganti UU) No.


19/1960 on State-Owned Company.

11 Based on PP No. 67/1961 on Establishment Board of General Administration


of State Electricity Company (BPU-PLN), dated 29 March 1961, article 1.

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Separation of PLN and PGN occurred in 196512 in order to meet national
electricity and gas needs, at the same time, these institutions has replaced the
BPU-PLN tasks13.

Very important change was when PLN opened possibility for private sector to be
involved in electricity provision in Indonesia. In 1972, PLN was determined as
Perusahaan Umum (State-Owned General Electricity Company)14 that still
controlled by state. In the mid of 1980s, through the Law of Electric Power 1985 15
was possibly a limited involvement of private sectors in electric power
management (PwC 2011)16. It was started a new era that PLN would buy private
sector electric production, which was further regulated by policies issued in
198917.

And so on up to electricity supply management is managed by market system


that examined has a more efficient through competitive and independent
manner by PLN (Sulistiyanto & Xun, 2004). These have been along with IMF
recommendation for all economic sectors to overcome crisis occurred in 1997 18.

12 Based on PP No. 19/1965 on Liquidation of BPU-PLN and Establishment of


PLN and PGN, dated 13 May 1965, article 2.

13 Based on PP No. 19/1965, article 1.

14 PP No. 18/1972 on General State Electricity Company, article 1. This


regulation has changed PP No. 19/1969 and PP No. 30/1970 on the article 11
(1) changing in PP No. 19/1965.

15 UU No. 15/1985 on Electricity.

16 UU No. 15/1985 article 7.

17 Based on PP No. 10/1989 on Utilization and Supply of Power, as well as a


more detailed regulation on electricity provision by private sector in
Presidential Decree No. 37/1992.

18 In Indonesia, deregulation and privatization policies became one of clauses


issued by IMF in Memorandum on Economic and Financial Policies and has
agreed by government of Indonesia as a solution of economic crisis. (IMF,
1997).

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It was also strengthened by restructuring of electricity management policy in
2002. It has not only given an opportunity to private sector to produce electricity,
but it has also provided an authority to determine tariff. In 2009, the 2002s
regulation has reaped many protests, in particular a bigger chance to determine
tariff that were more about local government tasks, while private sector only
involved in transmission and distribution development (PwC, 2011).

The importance of private sector involvement in electricity production has been


also supported by collaboration between private sector and the government
scheme, called Public-Private Partnership (PPP) issued in 2005. In Presidential
Regulation no. 67/2005, it has legalized of private sector in every single
economic development, including electricity provision. This policy has been
revised in 201019 by putting several forms of institutional support in PPP, such as
in a process of (electricity) infrastructure construction, there are PT. Sarana Multi
Infrastruktur (SMI) and the derivative company called PT. Indonesia Infrastructure
Financing (PT.IIF). In addition, in 2011, in order to fill role of risk guarantee, it was
regulated and formed PT. Penjamin Infrastruktur Indonesia (PT.PII/The Indonesia
Infrastructure Guarantee Company). The electricity policy and PPP policy have
been aimed to support the PLN mandated task to accelerate power plant
development in Indonesia20.

IV. The Requirement of CJPP-Batang project


Power plant development in Batang can be seen from the aspect of energy needs
for the industry in Java, which is characterized by massive industrial
development during this decade. The needs can be measured by looking at the
dynamics of the existing investment in Java and the committed investment,
either due to the implementing of MP3EI policy or ongoing plans. Java is the main
island or a reliable land as one of piloting in acceleration scheme in MP3EI policy.
Therefore, it is not excessive if the primary analysis in this research argued that
the reason behind the CJPPs Batang is more about to meets the industrial needs,
rather than to fulfil energy needs for the rural households in Java. In its annual
report and the annual General Planning of Electricity Power, PT PLN also
explained the fact that to provide electricity for rural area, they strived to build
local and inexpensive power plants as well as encouraging the development of
Wind-fueled Power Plant (PLTB) and Solar-fueled Power Plants (PLTS), while for
the regions that are having a small scale steam power plant (below 1000 MW),

19 Presidential Regulation (Perpres) No. 67/2005 that has been revised by


Perpres No. 13/2010.

20 This is inline with World Bank direction on IPP in entire East Asia region in
the mid of 2005
(http://siteresources.worldbank.org/INTEASTASIAPACIFIC/Resources/Connectin
g-East-Asia.pdf (8 Mei 2013)).

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the Ministry of Energy and Mineral Resources planned to build distribution
network to the rural areas funded by the national budget (APBN) (PLN, 2012, pp.
14-15). In other words, CJPPs Batang development plan is indeed never aimed
for the households, especially the rural households. Moreover, related to the
electrification ratio in Java-Bali, which in 2011 reached the ratio of 72%, so, the
focus of electricity development should be necessarily aimed for the other
islands, which until 2011 still have the ratio under 70% 21 (PLN, 2012, p. 19)

As the main island, Java is also the largest contributor to Indonesias economic
growth from year to year22. Compared to the other major islands of Indonesia,
Java has many advantages, namely the better infrastructures and its population
density which is sufficient to meet the needs of labour. It is not by mistake if
investors prefer to invest in Java, either foreign or local/national investors. Every
year they operate in Java and the number continues to increase. If it is compared
the number of invested money (project) in 2008 and 2010, it shows that the
investment in Java increased more than 100% (Table 1). Similarly, in the value of
investment, both domestic and foreign, since 2008 to 2010, each percentage
was more than 50% located in Java. Although percentage of the number of
projects and value of investment in 2010 had declined, those numbers (of
projects) had risen significantly. The number of domestic direct investment
projects in 2010 was 397 projects (of 875 projects in Indonesia); it was only 179
and 174 (of 239 and 248 projects in Indonesia) in 2008 and 2009. Of these
investment figures, the value of foreign investments operating in Java was more
than 70% of the total investment in Indonesia in the period 2008 to 2010 23. The
amount of investment in Java generates the dominant of Java Island compared to
other islands, based on the number of industrial companies (both agricultural
and non-agricultural industry). According to the Ministry of Industry data in 2012,
merely 80% industrial companies in Indonesia have operated in Java.

21 Based on PLN data in 2011, as described in Table 3.3. Annual Book on


Planning of Electricity Power Provision, 2012-2021. Even in Java-Bali island, its
ratio are above all of ratio in Indonesia, which was 71% in 2011. The
electrification ratio itself refers to comparison between the amount of electricity
customers by category of household and the total household.

22 Currently this has been demonstrated by the contribution of national GDP


form that exceeds 50% from Javas island in 2008-2010, which respectively was
57.7%, 58.6% and 58% (BPS, p. 17; p. 20)).

23 It is not surprising, in 2009, 95% of the total value of foreign investment was
recorded operated in Java. It was caused by economic crises in developed
countries that resulted many investments in other islands, primarily on the
mining and plantation sectors, has reduced.

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Table 1. Investment in Java, 2008-2010

2008 2009 2010


Origin of Investment Projec Project Project
Value Value Value
ts s s
Domestic(value in Billion 12,230 25,766 35,136.
183 174 397
Rupiah) .5 .6 4
Foreign(value in Million 14,871 9,370. 11,498.
947 946 1,976
USD) .4 5 7
Source: Statistical Yearbook of Indonesia 2011, Table 11.2.2. and 11.2.4. (pp. 390-392)

Investment for infrastructure facilities in Java has become a central issue,


especially for the continuity of a number of industries which have been
simultaneously developed in Java. Not only the investment for developing
transportation infrastructure24, but also for the development of energy
infrastructure facilities. Although there are already several power plants built in
Java, the increasing number of factories in Java is the reason why another power
plant is needed.

The acceleration scheme in Java corridor has been meant by provided, not
merely the potentials, but also has been established various industries that
stretched across from the western to the eastern of Java 25. Therefore, the
implementation scheme of MP3EI policy for Java corridor is mere re-registration
and listing out all of initiatives that has existed become part of the MP3EI policy
implementation through verification process conducted by Java Economic
Corridor Committee (KP3EI Java). Therefore, the target to reach Indonesian
economic growth rate between 6% and 9% will be reached due to the industrial

24Up to 2010, even though Java is the smallest island of the five biggest islands
in Indonesia, percentage of road constructions in Java was around 24% of whole
constructions in Indonesia (Statistik Indonesia, 2012, pp. 348-350). It is also
infrastructure to connect areas separated by river that was more intensively
developed in Java, than in other islands such as Kalimantan that are having
more river watershed areas. Since 1970s, there have been 1,725 bridges of
3,810 constructed in Indonesia, and until 2009, almost 25% of bridges
developed in Java (Department of Public Work, 2009). As well as
telecommunication and electricity facilities, among other islands in Indonesia,
since 1970s, Java Island had priority.

25 According to data collected by the Ministry of Trade and Industry, at least


there is 78% of all numbers of companies in Indonesia located in Java (Table
3.5.). Even since 1998, a number of industrial projects in Java have always been
over 60% of all Indonesias industries, and always increased up to 66% in 2006
(Based on a description in Appendix Book No. II, Presidential Regulation No.
5/2010 on Long and Medium Term of National Planning, p. II.3-30).

10
activities in Java. Industrial activities that are managed by KP3EI Java by giving
the priority to certain cities to merge into one area become the main
consideration to determine Focused Investment Area (KPI).

Table 2. Focused Investment Areas (KPI) by Main Economic Activity in Java

Focused Investment Areas (KPI) Total


No Main Economic DKI Cent
West Bante East
. Activity Jakar ral
Java n Java
ta Java
1. Food and 21
6 1 3 4 7
beverage KPI
2. Textile 10
7 - 1 2 -
KPI
3. Shipping 1 - - - 1 2 KPI
4. Defense
2 - - - - 2 KPI
equipment
5. Transportation
4 1 1 - - 6 KPI
Equipment
6. ICT 2 - - - - 2 KPI
7. Oil and Gas 1 - 1 - - 2 KPI
TOTAL 23 2 6 6 8
Source: Result of Coordination Meeting, Java Economic Corridor Team (2012, pp. 44-55)

The number of all KPI in Java economic corridor is 34 KPIs, and until the end of
May 2012, Java EC committee (KP3EI) has identified 13 cities in West Java
province, 4 cities in Banten, 6 cities in Central Java and 10 cities in East Java and
1 city in DKI Jakarta (Tim Kerja MP3EI Jawa, 2012, p. 14). The entire 34 KPIs have
each potentiality with each primary economic activity as described in Table 8
above. The main economic activities are food and textile industry. Instead of to
develop/improve natural resource industrial based, which is located in southern
Java, MP3EI policy implementation scheme prefers to choose the improvement of
the non agro-forestry and mining industries (Safitri, 2012, p. 27).

In order to apply the acceleration scheme of the MP3EI policy, a number of


obstacles/barriers needed to be eliminated or should be diminished, and if those
are considered to be made, due to a number of investors requirement. As stated
in the verification report formulated by the Javas KP3EI, a number of investors
have been complaining about the scarcity and lack of services of energy and fuel
supplies, in addition to the improper infrastructure facilities (KP3EI Jawa, 2012).
Meanwhile, with the issuance of this MP3EI policy, there are 115 as noted
committed investment in Java, with the largest proportion is the commitment
made by the private sector with the percentage of around 50% of the total
number (Table 3.). Therefore, even though the Java island/corridor has been
considered having better infrastructure facilities compared to other islands, as a

11
part of acceleration scheme within the MP3EI policy, the condition still needs to
be improved. One of those inputs is electricity power supply. Hence, the
development of large-scale power plant is important to be built in Java, in order
to meet the needs of the existing and upcoming factories as well as to be the
part of acceleration scheme of MP3EI policy implementation.

Table 3. Committed Investment on the Main Economic Activities in JEC, up to May 2012

Committ Commitment (Billion IDR)


ed Value
Numb
Main of
er of Gover Joint
Economic Investm Privat
Projec n- SoE Fundi
Activities ent e
ts ment ng
(Billion
IDR)
Food and
42 26,109 - - 26,109 -
Beverage
Defense
14 1,663.6 - 1,099.6 564 -
Equipment
Textile 23 12,080 - - 12,080 -
Transportation 3 36,405 - - 36,405 -
Shipping 5 809,0 - - 809 -
ICT 2 163 63 - 100 -
Steel 18 7,252 - - 7,252 -

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116,066
Oil and Gas 8 175,186 - 57,199 1,920
.8
Total 117,166
115 259,667.6 63 140,518 1,920
Commitments .4
45.12 54.11 0.74
% 0.02%
% % %
Source: Tim Kerja MP3EI Jawa (2012, p. 7)

Recent condition is: based on installed power, the number of customers and
electrification ratio, and power supply in Java. According to statistical data issued
by PLN in 2011, it has 64% 26 (65% in 201027) consumer of total consumers in
Indonesia, supported by 71% (72% in 2010) installed power; with the
electrification ratio of 64%28 quite increasing compared to 2010 with 57% 29). This
percentage shows that the electricity condition in Java is number one, because
the percentage for each indicator as described is above 50%, which means the
rests of it is distributed to at least 5 other main islands in Indonesia.

However, the condition described above is considered insufficient because the


needs of intensive industrial activities. A number of developed industries, both
the existing and upcoming ones, require (one of which) sufficient electricity
supplies. Referring to reserve margin 30 terminology, based on data 2011, it was
29% for entire Java-Bali31 (PLN, 2012, p. 58). While the lowest percentage was

26 Calculated from Table 4. Number of Customer by Type of Customer (PLN,


2012, p. 5).

27 Calculated from Table 4. Number of Customer by Type of Customer (PLN,


2011, p. 5)

28 Based on Table 19. Electrification Ratio and Energy consumed per Capita
(PLN, 2012, p. 20).

29 Based on Table 19. Electrification Ratio and Energy consumed per Capita
(PLN, 2011, p. 20).

30 Calculated from margin of installed power and peak load divided by its peak
load, where the Java-Balis installed power in 2011 is 26,372 MW and its peak
load is 20,417 MW (PLN, 2012, p. 58).

31 PT PLN divided Indonesia into several regions, and Java and Bali is one area
work.

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coming from West Java province that was only 16%, it is an half below (even
more) the percentage the two others regions (Central Java and East Java & Bali),
which have had electricity preservation 59% and 45% consecutively. Based on
the reserve margin calculation in Java-Bali and in order to meet the needed
capacity, it is necessarily to build one large-scale power plant, particularly to
provide electricity for industries which will be concentrated in West Java (there
are 23 main economic activities, see Table 2 above), as well as the other
industrial activities in Central Java and East Java & Bali.

Meanwhile, PT PLN has always estimated the needs annually by observing the
fixed indicators in order to forecast up to next 10 years. In PLNs annual planning,
which is resumed in Table 4, the indicator used to estimate is the population
density. Population density in Java and Bali grows 1.3% annually, by the
electrification ratio target that becomes the second indicator; it is forecast to
reach 93% in 2021 (from merely 72% in 2011). This target will be reached by
enhancing energy selling (as the third indicator) from merely 132.000 GWh (in
2011) to 259.000 GWh in 2021, or increasing to 95%. The selling target will
increase up to 95% with the usage of commercial purpose followed by residential
usage, industry and the last one is for public use. PT PLN sees that commercial
sector will contribute the biggest income from its power selling in 2021.
Therefore, the fourth indicator, namely the highest power contracted is also
forecast in commercial sector, which will be 66% (it is above the level of
increasing in Java-Bali that only 63%). Surely, this sector will dominate the usage
of electricity power in Java-Bali by 58% of usage out of all usage in 2012 (last
indicator). These indicators are the interpretation of the factors used as the
assumption for electricity need in certain region, that is by observing the
economic growth, electrification program as well as transforming captive power
(utilization diversion of oil-fueled power plant) into PLN consumers (PLN, 2012, p.
43).

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Table 4. Projection of The Need Electricity Power in Java and Bali, 2012-2021

No. Description Unit Projection


1. Population Growth Average (%) 1.3%
2. Electrification Ratio 2021 (%) 92.8%
3. Energy Sales (GWh) 2012 to 2021 (%) 95.99%
- Residential 2012 to 2021 (%) 92.58%
- Commercial 2012 to 2021 (%) 122.32
- Public 2012 to 2021 (%) 82.98%
- Industry 2012 to 2021 (%) 89.12%
4. Power Contracted 2012 to 2021 (%) 63.36%
(MVA)
- Residential 2012 to 2021 (%) 62.92%
- Commercial 2012 to 2021 (%) 65.90%
- Public 2012 to 2021 (%) 51.86%
- Industry 2012 to 2021 (%) 64.75%
5. Number of Customer 2012 to 2021 (%) 35.96%
- Residential 2012 to 2021 (%) 34.38%
- Commercial 2012 to 2021 (%) 58.28%
- Public 2012 to 2021 (%) 44.04%
- Industry 2012 to 2021 (%) 42.06%
Source: Annual Planning of Power Electricity Provision 2012-2021, (pp. 770-775)

By assuming that the industries included in KPI-MP3EI policy implementation in


Java are those which indeed exists and ready to be improved, the projection of
electricity needs, especially for operating region Java-Bali, remains the same. In
fact, several projections which need development or more funding and had been
obstructed will be accelerated with the issuance of MP3EI policy. Various
advantages, such as investment offerings for the private sectors, will be easier,
either for small-scale or above 1000 MW. Until 2011, the total number is 33
power plants32, with the installed capacity as much as 26.000 MW, which is
provided by PT PLN and Independent Power Producers (IPP) (PLN, 2012, p. 22) 33.

For the plan in period 2012-2021, PT PLN projected the amount of power plant
development project in Java Bali, either to be operated by PT PLN or IPP
approximately is 158 projects, 112 of which will be conducted by IPP and the
remaining (42 projects) by PT. PLN (PLN, 2012, pp. 785-790). The development
projection is neither limited only to one type of power plant, nor focused on
large-scale power plant, as depicted in Table 11 below and to be believed will
meet the projection target by 2021.

32 Consist of 24 Water-fueled power plant (PLTA), 5 coal-fueled power plant


(PLTU), 3 Gas-fueled power plant (PLTG), 1 diesel-fueled power plant (PLTD).

33 Based on Table 3.7. in Buku Rencana Usaha Penyediaan Tenaga Listrik 2012-
2021.

15
Table 5. Detail of Amount of Power Plant Projects in Java-Bali System, 2012-2021

Ea
DKI Wes Cent
Bant st Bal TOT
Jakar t ral DIY
en Jav i AL
ta Java Java
a
I. Developer Assumption
PLN 5 4 13 8 13 3 46
IPP 12 51 29 1 14 5 112
TOTAL 17 4 64 37 1 27 8 158
II. Tipe of Power Plant
Gas-Power Plant 2 1 2 3 8
Steam-Power Plant 6 11 7 8 3 35
Natural Gas-Power
Plant 2 2
Solar-Power Plant 9 24 9 1 1 44
Hot-Power Plant 2 21 15 10 1 49
Gas and Steam-Power
Plant 2 2 4
Water-Power Plant 4 1 2 7
PLTB 1 1
PS 4 4 8
TOTAL 17 4 64 37 1 27 8 158
Source: Annual Planning of Power Electricity Provision 2012-2021 (PLN, 2012, pp.
785-790)

One of the largest development power-plant projects is CJPP in Batang, Central


Java, with the capacity 2 x1000 MW. The Batang regency, which is located in
Central Java province, was selected as the location for the steam-fired power
plant development. It is considered not suitable with the Regional Balance
concept. Regional Balance in the terminology of electricity development is
defined as capability of certain region to provide the electricity in its area, which
is marked by sufficient/adequate percentage of Reserve Margin. In other words,
the site selection strategy should be based on the reserve margin percentage in
each operating area. Based on data from PLN in 2011, reserve margin West Java
is 16%, nearly 60% in Central Java (the province in which the power plant will be
built), meanwhile in East Java and Bali is 45% (PLN, 2012, p. 58). Nevertheless,
by observing at the site, which is located around north coast of Java and in the
centre of eastside and Westside of Java, the location is indeed strategic, because
the electricity produced is reserved to meet the needs in neither Batang
regency nor Central Java especially to provide electricity for rural households 34,
but for the needs of industries in Java in the implementation of MP3EI policy.

34 It is arguably referring to the need of power in Java, statistically, it shown a


level of adequate compared to other islands, due to until 2011 the electrification
ration in Java was above 70% or minimum 67% based on the data from year
2010 and 2011 (PLN, 2012).

16
CJPP's Batang and PPP Scheme
In CJPPs Batang development plan is the fact that this is the first project to use
the Public Private Partnership (PPP) scheme, the primary scheme within the
implementation of MP3EI Policy. With this uniqueness, all of parties will do their
best in order to operate and giving a success story of PPP scheme for
infrastructure development (Strategic Asia, 2013, p. 28), especially for the power
supply in Indonesia

The PPP scheme is the latest development of the state evolution to provide
power infrastructure facility. This is a tendency in many developing countries
worldwide/globally, which has been since the 1970s, there was analysis that then
undermines the role of the state in providing means of infrastructure, including
electricity. As also happened in Indonesia, (it has been explained in the previous
part of this paper) since 1985, private sectors have possibly involved in
electricity supply system in Indonesia and therefore enabled private sector/party
(cooperative and other enterprises) to sell electricity to PLN 35, even though their
involvement is strictly constrained (Article 7). Until the Reformasi era began in
1998, by this scheme PLN had sufficient supplies to provide electricity for various
purposes in Indonesia (e.g. households, business, industry as well as supplies for
public facilities). During the Reformasi era, PLN experienced bankruptcy due to a
number of terminated partnership/cooperation projects, until Megawatis
government, has issued new bill in 2002 36 that in principle to provide a more
competitive scheme. It impacted to private sectors could determine the price
and tariff (article 9). But this law had many criticisms hence the Constitutional
Court, in 2004, revoked it and back to use the previous one.

The PPP scheme was formalized in 2005 by issuing Presidential Regulation (No
67/2005 on PPP). Along to the PPP scheme, in 2006 PT PLN had disposition to
construct an acceleration development of power plant with coal as raw materials,
it is known as Fast Track Program (FTP) I. It is a chance of private sectors to build
IPP. In 2009, under this scheme, private sectors have an opportunity be involved
in price determination according to Laws No. 30/200937. By the rationale to
strengthen PPP scheme, 2009 Laws has also had amendment in 2010 38 and
completed with an institution supported by PPP scheme, PT Sarana Multi
Infrastruktur (PT SMI)39 and its derivative, PT Indonesia Infrastructure Financing
(IIF) as well as PT Indonesian Infrastructure Guarantee Fund (PT IIGF), and the

35 This policy is strengthening by its implementing rules, which are


Governmental Regulation No. 10/1989 on Electricity Provision and
Management.

36 UU No. 20/2002 on Electricity.

37 This Law also stated that the previous 1985 Law was no longer valid.

17
latest revision in 201140 stated that private sectors possibly to apply a particular
development project to be part of PPP scheme (as unsolicited project), through
the Regular PPP scheme. Thus the PPP scheme in Indonesia was completed and
attractive for investors to invest their capitals by using the PPP scheme.

PPP scheme is a long term contract between the government and private sector
in order to manage asset of public service through distribution of risk and
responsibility mechanism. CJPPs Batang is the first project that having guarantee
from PT IIGF, while PT PLN has a role as a responsible party that tied by Power
Purchase Agreement (PPA), which is an agreement to purchase the products
generated by PT BPI41. The agreement was signed in October 6, 2011.

Ministry of Finance who represents the Indonesian government being part of the
cooperation to ensure the guarantee process. In this latest scheme, this
agreement signed between PT IIGF and PT BPI. The agreement was made to
guarantee PT PLN payment to purchase the electricity to PT BPI. Hence, PT BPI
has responsibility to produce electricity, at least, during the agreement, which is
for 25 years. This scheme is also a part of MP3EI policy Blue Print
implementation.

38 Perpres No. 13/2010 on the Revision of Perpres No. 67/2005 on PPP for
Infrastructure Development.

39 Based on Ministrial Regulation No. 4/2010 on General Guidance of PPP for


Infrastructure Development Implementation.

40 Perpres No. 56/2011

41 As a consortium of three companies, which are PT Adaro Energy Tbk.,


Electri Power Development Co. Ltd. (J-Power) and Itochu Corporation
(Itochu).This consortium has got principle permit from Central Java-Investment
Coordination Board No. 1845/1/PPM/I/PMA/2011 that define PT BPI as a foreign
investment company in Indonesia.

18
The currently PPP scheme is one of variants of PPP scheme 42, since 2011 (the
date of signed agreement) PT BPI is obliged to build, own, operate and transfer
(Build, Own, Operate and Transfer (BOOT)) and after 25 years, it should be
returned to PLN. The whole scheme of power plant Batang project with PPP/BOOT
scheme, as follow:

Figure 1. PPP Scheme for CJPPs Batang

Source: Modified from a Presentation in PPP Days 2012 (IIGF, 2012) and
Interpretation of PT Adaro News Release (PT BPI, 2011)

42 According to the Director for PPP Development in Indonesia, there are 3


alternatives of PPP financing scheme, which are characterized by the
differentiation of private sector and the government role. In the first scheme,
Hybrid Financing, the project operational and maintenance activities conduct
entirely by the private party while development is done by the government, this
scheme is particularly applied if a project is economically but NOT financially
viable. Alternatively, the second scheme is the so called PPP with Government
Support, while the operational implementing and maintenance activities are
done entirely by entrepreneurs and the development process is working
together between the government and private sector, this scheme could be done
if one project is considered economically viable and financially viable. The third
scheme is Regular PPP, where all of operational implementation, maintenance
and development activities are conducted by the private party, especially
when/if project is both economically and financially viable. (Bastari, 2010)

19
As seen in the picture above, the BOOT scheme will pass an agreement phases
which involves related parties. On the early stage, PT BPI on October 6, 2011
signed an agreement with PT PLN (as the buyer of the products) and IIGF (as the
guarantor of purchasing transaction), which prior exists the agreement between
PT PLN and IIGF (PT BPI, 2011)43. This signed agreement has indicated that the
project be ready to be started, which is planned to operate in 2016.

In the second phase PT BPI play its role as the mandate holder of CJPPs Batang
development, particularly to find sponsor and fund. The indicated sponsors are
the member of PT BPI consortium; PT Adaro, Itochu and J-Power. Each of them will
contribute in this project. J-Power is an experienced company in coal-fired power
plant development using USC technology. PT Adaro as a company that working
for coal exploration in Indonesia, will be the coal supplier for the power plant
project in Batang, while Itochu is one of important Japan company that just
starting to expand its business in power plant project. As explained in the
scheme above, each and every sponsor will get profit sharing from the selling
margin of electricity produced44.

After the second phase is completed, PT BPI may proceed to the third phase: the
development process. The contract between the developer and fuel supplier are
to be done by PT BPI, including the contract to operate as well as maintain of the
product for the next 25 years. The contract for the development will be signed
between PT BPI and Itochu and J-Power, while the contract for the fuel supplies
will be held with PT Adaro, while for the operational and maintenance activities is
the common contracts for all member of consortium PT BPI.

The Indonesian government guarantee land provision for the CJPPs Batang
development site. In PPP scheme, that is the main task of the government to find
the location for the development site and ensure that the particular land is ready
to be acquired. The newest land provision regulation issued in early 2012 (UU No.
2/2012) also applied for this project, that the government (both central and
regional) ensuring this land provision for public purposes (article 4) and
implementing its process (article 6).

The power plant Batang project, as explained in the previous section, is the
project that is aimed to meet the needs of industrial activities, which in the end
will improve people welfare and prosperity of the nations 45. Nevertheless, those

43 The similar information also can see in PT IIGFs website


(http://iigf.co.id/Website/News.aspx?id=64, accessed on May 14, 2013)

44 The lender for PT BPI is still unknown.

45 This project is also included in public purpose which described in article 10


(e) Law No. 2/2012: The power plant development.

20
projections are merely seen from the increasing economic growth rate that
generated from highly economic transactions, particularly due to be operated a
number of industries. It is the debatable point among the local inhabitants (at
least in 4 villages which are directly affected by the land acquisition process) on
the power plant development site. They assumed that they will lose their
livelihoods as soon as the power plant Batang started to be built and operate
(YLBHI dan LBH Semarang, 2012; YLBHI, LBH Semarang, GreenPeace dan Warga
Batang, 2012).

Linked to the previous explanation about the social-economic and environmental


condition in the planned site, the people assumption is not excessive. Most of
them are peasants or having their livelihood that highly dependent to their
surrounding and those 4 villages have no the state-owned status. Therefore, the
debate and conflict of interest between PT BPI and local people still exist until
now, while the local people do not want to surrender their agricultural lands 46. As
one of local inhabitants said, it is difficult to settle an agreement concerning their
land acquisition, because they will have difficulty to find another livelihood, and
therefore the rejection actions keep continue (Kompas.com, 2013;
Sindonews.com, 2013; Portalkbr.com, 2013).

In Law No. 2/2012 explained that every related party (included local inhabitants)
should obey this regulation (article 8). However, besides unfair compensation
process, the guarantee of their better livelihood in the future should be also
taking into consideration. In this case the local inhabitants have never got an
adequate explanation from PT BPI regarding the guarantee scheme of local
people except they have an approximate price for their land 47. Nevertheless,
referring to PPP policy scheme and MP3EI policy implementation scheme, it is
very limited explanation concerning guarantee for the local inhabitants whose
land will be acquired, other than have compensation and the possibility to be
involved in the project as paid workers 48.

46 This matter is stated by the local inhabitants in monitoring process of


National Commision of Human Rights to Karang Geneng village on February 20,
2013. The meeting was designated for FGD in Karang Geneng village,
Ponowareng, and Roban on April 5, 2013.

47 Based on one of the conclusions stated by the Human Rights Commisioner


(Dianto Bachriadi) on the meeting within local inhabitants in Batang with PT
BPI, PT PLN and local government, on February 21, 2013.

48This point will be discussed specifically in the last section, in order to see
how much the local people loss due to the development of this power plant
megaproject.

21
It would be better if the chosen site is the state lands, it will be easier to the
acquisition process without bothering local people livelihoods. In addition, taking
over of state-land, if previously it is not a clear land, it requires merely a simple
coordination among, at least, two institutions and the restitution process is thus
unnecessary, the allocation of state owned land in the other region which can
be used the same purpose as the previous institutions holder is instead
necessary.

Since the beginning of CJPPs Batang development plan, several locations had
been identified and reviewed before it is decided in Batang regency. According to
Head of Central Java Departmenet of Energy and Mineral Resources 49, the several
proposed regencies for the power plant development sites are Kendal, Pemalang
and Batang (SuaraMerdeka.com, 2011). In Batang regency, the proposed
locations are Tanjung Celong, Pantai Ujung Negoro, Degayu, and Labuhan, and
another alternative location in in Kendal regency, in Tanjung Korowelang to be
exact (SuaraMerdeka.com, 2011). The location in Kendal regency was no longer
available due to another power plant development plan, funded by the investor
from India. Therefore Batang regency was the one and only possible choice,
because Pemalang regency at the moment was also considered unavailable,
because compared to Batang regency, Pemalang has state own lands for
plantation purpose, which are held by PTP (SuaraMerdeka.com, 2011). Related to
state-land status, the Central Java government recommended Tanjung Celong
and Labuhan areas, where there are plantation areas situated in this location,
which can be easily transformed into development site for power plant Batang.

Nevertheless, the next process was handed to investor which in the end chose
Pantai Ujung Negoro as the location. Several reasons concerning the location
Pantai Ujung Negoro suggested is, one of them, about the more appropriate
condition of transportation facilities in entire area. Although the transportation
facilities still need an improvement, but generally, its area is in a relatively better
condition compared to the other areas. Another reason is the coastal condition,
which is adequate enough for a large ship to lean back in order to make coal
shipping process. The Central Java Department of Energy and Mineral Resources
had warned PT BPI and PT PLN concerning Pantai Ujung Negoro as the chosen
site because this area is partly sea conservation zones enacted bythe Regent of
Batang in 200550.

Finally, PT BPI chose Pantai Ujung Negoro as the location, in Karang Geneng
village, which will involve local people, who own agricultural land exactly in the
chosen location. Unlike what provincial government officer said, PT BPI
considered that it is easier to acquire privately-owned lands rather than the

49 Mister Teguh Dwi Priyono as an officer at that time.

50 Based on Keputusan Bupati Batang No. 523/283/2005 on an Appointment of


sea conservation zones Ujungnegoro-Roban in Batang district.

22
state-owned lands. From the investors point of view, using the state forest or
plantations will increase the cost. In addition to this reason, it is convoluted
bureaucracy, because based on the experiences another investor, for instance,
in Lontar power plant the land titling process takes about 3 years
(ListrikIndonesia.com, N/A). It is about entrepreneurs calculation, which
compensation scheme is the most strategic to be done, even though through the
rejection risks as happened in CJPPs Batang.

As soon as the location for the project set and authorized by the government, PT
BPI may be soon doing land acquisition and the restitution process for every inch
of lands that will be used. The government gives a legal guarantee to PT BPI if
local people try to refuse it, by using Law on Land provision (No 2/2012), every
development project for public purpose, like the development of power plant
Batang, the previous land holder obliges to surrender their land assets and
should be ready to receive any compensation offered.

Referring to Figure 4 above, the progress of power plant development project in


Batang has reached the fourth phase, which is sponsor agreement phase (or
perhaps in the fifth phase). Meanwhile, in order to proceed to the next step, still
remains to wait for the process on site, which is privately held land acquisition
process by restitution process. According to the agreement, PT BPI should be
able to complete the process by October 2013. Based on the observation on site
conducted in April 2013, no one in the four villages have agreed and never
received the compensation, the agreement concerning the steam-fired power
plant development plan is not yet settled. On the contrary, local people
demanded that power plant site is moved due to the chosen area is too fertile to
be transformed into steam-fired power plant development site 51. Therefore, the
development process which is planned to operate in 2016 (phase I), cannot be
performed in the near future and it is unlikely that the progress is currently in the
construction phase as stated in PPP document published in 2012 (Ministry of
National Development Planning, 2012).

Conclusion
PPP scheme that is applied in CJPP Batang has shown how the risk sharing as
stated in PPP scheme formulation. As a practice, following to an existing policy,
indeed, it cannot be said as illegal process, however, the risk sharing itself seems
unequal. Look at back to Figure 4, the role of government has becoming easier in
build a big capacity power plant, which only giving a prior pre-condition in the
beginning step, buying the products within certain time of contract, then,
maintaining and producing process after it has been given to the government
(BOOT scheme). There needs to be highlighted, control of government aspect
over vital infrastructure sources versus investment activities that should be
continued, and the objectives of power plant development.

51Statement from prominent person in Sengon village, Subah district, in


Ponowareng and Karang Geneng villages,Tulis district, on April 5, 2013.

23
Infrastructure of electricity provision, which is similar with other infrastructure for
public, must be controlled by state. CJPP Batang case will be better if the
Indonesia government pays attention to electricity needs both in Java and other
islands, which along with OEDC study, even it is implemented with PPP scheme,
the government should take a direction a whole of development (OECD, 2012, p.
42). Beside to meet households or people needs target as main beneficiaries,
equality is also important to take into consideration as it is mandated in MP3EI.
By seeing the case, CJPP Batang tends to reach economic growth target leaning
on industries sectors in Java, therefore infrastructure needed to support these
target are preferred rather than delivery basic services for people (see again
electrification ratio in various islands in Indonesia). There are two conflicts of
interest, the needs to reach (on paper) level of economic growth and service
function of government for people welfare.

With the completed PPP scheme, thus the indication that the state which is
represented by the government only as a provider of infrastructure for the
appointed companies or entrepreneurs group to invest Indonesia. More over that
the PPP scheme is a pilot in scheme within the MP3EI implementation, in which
the CJPPs Batang is the main icon. By both cases, it is important to see it
through Value for Money approach, where it is necessary to look at this
approach is actually not merely relying in funding capability and technicalities of
project implementation, but also about the risks entirely. Generally, this approach
comprehensively observes the quality, quantity, side-effects as well as the value
of the project, not only limited to project budgeting during the age of the project,
but as long as the project remains/continues (OECD, 2012, p. 29; PPP, 2007, p.
2).Rather than put a gap of funding as a main reason, an increasing value for
money is the best reason to choose PPP as a mechanism delivery.

Lastly, observing PPP scheme from profit earned side by the government or
state. This is not merely related to the generated revenue but also how much the
risk transfer happened. PT BPI is only having a short-term contract compared to
the power plant project operation itself. Based on the experience in British
Colombia, terminology force majeur is essentially critical to be used due to most
entrepreneurs are smart in term of evaluating the risk and making a justification
in order to avoid the risks and push them to be handed by the government
(Murray, 2008). Whether after 25 years concession, the snow-ball impacts, such
as environment degradation or the damage of waste generated by power plant
are included as PT BPIs responsibility?, if the damage or degradation happen
during the contract period, PT BPI will possibly use the force majeur clause. It is
also included the poverty risks that faster developed or due to the lack of
mechanism to transform people economic livelihood, especially those whose
lands were acquired for the sake of power plant development. According to
Murray (2008), all of the calculation which was analyzed in British Colombia will
also existed in CJPPs Batang project and concluded that as a matter of fact the
cost by using PPP scheme is more expensive than using the traditional public
procurement.

24
The MP3EI has strengthened the needs to reach level of Indonesia economic
growth that make all of supported elements (institutions), one of which electricity
provision follows the mainstream. An adequate electricity supply will give a
better chance for investment, which will be a target of investors that has been
calculating to gain a bigger profits after invest their capital in CJPP Batang (in
particular). Although the investment for construction of the plant itself has been
calculated to benefit from the sale of electricity production. In this condition,
consciously or unconciously, the Government of Indonesia has implemented
capital-driven of economic development scheme, which has been only because
of capital that should be landed that owned by investors.

25
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