Rewriting the Rules in Asia
Edited by M. Ramesh and Michael Howlett
Chapter 6: Independent Power Producers in Indonesia and the Philippines
Xun Wu and Priyambudi Sulistiyanto After decades of state monopoly on electricity production, in the early 1990s private sector participation in electricity generation through Independent Power Producer (IPP) was perceived as an inevitable policy option to deal with severe power shortages in several Southeast Asian countries (Haggard and Noble 2001; Dubash 2002). This initiative was encouraged and facilitated by development agencies that considered it an important step toward deregulation and privatization of the power sector. It was argued that IPP would not only relieve governments from the financial burden of capacity expansion in the power sector, but also lead to more competition, higher efficiency, and ultimately, lower electricity rate for consumers. Calls for the participation of private investors in electricity generation were met with great enthusiasm in Southeast Asia. Private investors, especially the utility companies from the US and Europe, acted quickly to take advantage of this opportunity, pouring billions of dollars into electricity generation for Southeast Asian countries. By 1997, when the region was hit by the Asian financial crisis, 27 IPP contracts in Indonesia had been signed between Perusahaan Umum Listrik Negara (PLN), the state-owned electricity company, and private investors. In the Philippines, agreements for 37 IPPs, accounting for 40 percent of the generation capacity of the country, had been reached. Other Southeast Asian countries such as Malaysia and Thailand also experienced similar growth in IPP during the period. However, the boom collapsed abruptly during the Asian financial crisis. Suddenly, the state-owned electricity companies in these countries found...
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