WHEN newly installed state enterprise minister Dahlan Iskan announced in late October that Mr Nur Pamudji would succeed him as the head of state electricity utility Perusahaan Listrik Negara (PLN), observers were quick to read the signs.

"Mr Pamudji will seek to carry on the reform and modernisation effort begun by Mr Dahlan," Mr Agung Wicaksono declared when I met him in Jakarta late last month. Mr Agung researches state- owned enterprise governance at the Bandung Institute of Technology.

Insiders like Mr Pamudji, who have spent almost their entire careers working for a single state enterprise, are not normally touted as reformers. But Mr Pamudji is widely regarded as a capable manager, and Mr Dahlan’s endorsement suggests that the two men hold similar views about the sort of reforms the agency needs.

Despite recent improvements in service standards, the PLN continues to have a poor reputation. The World Bank’s latest report rating countries according to the ease of doing business cites the lack of reliable electricity supply as a major problem facing business in Indonesia.

After being appointed head of the PLN in October 2009, Mr Dahlan embarked on a major reform effort, promoting capable managers, cracking down on corruption and streamlining the agency’s bureaucracy.

Under Mr Dahlan, Mr Pamudji was moved from the transmission department, where he had the responsibility of helping to maintain the PLN’s electricity supply network in Java, and given the job of primary energy director. It was a challenging assignment that involved ensuring that the utility had a steady supply of fuel for the PLN’s coal and diesel powered generators.

"The potential for corruption in such a position is high," notes Mr Agung. During his sojourn at the PLN, Mr Dahlan – independently wealthy as a result of his family’s control of the Jawa Pos newspaper group – was believed to have been angry with the deeply entrenched cartel-like structures within PLN’s procurement system. The fact that Mr Dahlan subsequently named Mr Pamudji as his successor implies that the latter performed his new task well.

When I interviewed Mr Pamudji in Jakarta, the new PLN leader had little difficulty providing detailed information about the numerous coal-fired electricity generating plants being built – all of them under fast-track programmes initiated by his predecessor.

Asked about the PLN’s recent successes, Mr Pamudji pointed to developments that reveal just how far the PLN was behind the rest of the country before Mr Dahlan took over. They include the computerisation of the agency’s billing process and the establishment of a call centre for customer service ("just like when I was in Sydney 15 years ago").

Indonesia’s total electricity production capacity now stands at about 30,000 megawatts. In order to ensure that the rolling blackouts that plagued the country about two years ago do not return, he informed me, the PLN plans to add another 10,000 megawatts of generating capacity by 2014, most of it to be located on the main island of Java.

The idea is to hold about 35 per cent of power generation capacity in reserve to ensure continued supply should one or more of the nation’s numerous power plants fail unexpectedly. The target pales in comparison with Singapore’s electricity reserve, which Mr Pramudji put at around 60 per cent, but the PLN is confident that it will be sufficient to meet most contingencies.

Most of the new power plants are coal-fired, with more expensive diesel units being deployed on a short-term basis because of the speed with which they can be brought on line. In order to add power to the grid during peak periods, the PLN is also constructing plants powered by liquified natural gas (LNG). These plants are cleaner than coal-fired generators. They can also be turned on and off at short notice.

Past experience suggests that the PLN’s plans need to be viewed with some caution. Land acquisition problems and delays in the construction of power plants are perennial issues. Meanwhile, strong economic growth has seen demand for electricity rise by about 9per cent a year. This means that the PLN must add another 1,300 megawatts of generating capacity annually just to keep up.

But perhaps the most important obstacle is finance. For political reasons, the government sets the electricity tariff well below the cost of production. This means that the PLN, which buys its fuel at market prices, must seek reimbursement from the government. If the authorities are short of cash, the PLN suffers. So too does the construction of power plants to meet future demand.

Mr Pamudji, nevertheless, remains confident that the PLN’s goals can be achieved. "My role", he says, "is to make it happen."

Well said.

(C) Singapore Press Holdings Limited, 2011