Belt & Road

Belt and Road 2018: Indonesia hydropower

FinanceAsia examines what China’s Belt and Road initiative has actually brought to the world last year.

China’s trillion-dollar Belt and Road Initiative is hailed as the “project of the century” as the world’s second-largest economy looks to take the lead role in globalisation historically held by the West.

Much has been discussed about the political, economic and cultural impact that the initiative could have globally since it was introduced in 2013. However, there has been little attention paid to the infrastructure projects in the making.

FinanceAsia will publish a series about the 10 biggest Belt and Road infrastructure deals that have been signed in the 2018 calendar year, and examines which companies are spearheading and likely benefitting from these projects.

The series follows a similar feature in 2017 where we examined BRI projects that started that year. Click here to revisit the feature.

These projects will be published in descending order based on their estimated project value. We will only include infrastructure deals of more than $1 billion.

  1. North Kalimantan Hydropower Project, Indonesia

Companies involved: Power Construction Corporation of China (PowerChina), China Gezhouba Group, Kayan Hydro Energy (Indonesia), Wijaya Karya (Indonesia)

Status: Memorandum of Understanding signed in April 2018

Estimated project value: $17.8 billion

Indonesia’s ambitious plan to add 35 gigawatts (GW) of new power generation capacity by 2025 has taken a huge leap forward after China preliminarily agrees to help with the construction of a mega hydropower plant along the Kayan River at the North Kalimantan province.

The North Kalimantan facility is preliminarily designed with a total installed capacity of 9 GW. If completed, it will easily overtake Vietnam’s 2.4 GW Son Lan Dam to become Southeast Asia’s largest hydropower station.

After years of planning, Indonesia finally struck a deal with Power Construction Corporation of China to develop the mega project with a planned investment of $17.8 billion. The Chinese state-owned power giant signed a memorandum of understanding with Indonesia’s Kayan Hydro Energy at a Belt and Road summit held in Beijing in April last year.

It is fair to say that Indonesia might find it impossible to build such a large-scale project without the technical know-how from Chinese contractors. The archipelagic state does not have any experience in building a mega hydropower plant since it completed its largest Cirata hydropower station in 1988.

To be sure, China is arguably the best when it comes to building hydropower stations with modern technology. The country is home to Three Gorges Dam and Xiludou Dam, the world’s largest and third-largest hydropower stations that were built in 2012 and 2014 respectively.

However, it remains to be seen whether the North Kalimantan hydropower project could ever be delivered. Technical difficulties aside, there are multiple regulatory uncertainties potentially affecting its implementation.

The Indonesian government has been criticised for overstating the nation’s electricity demand. Last year, Jakarta revised the country’s estimated total electricity demand in 2026 to 407 Terawatt hours, a 15.7% decrease from 483 Terawatt hours in the 2017 estimate.

To cope with the reduction, Jakarta has requested power producers to cut 22GW of planned installed capacity by 2027 in a move that has severely affected the long-term plans of investors and contractors in the power sector.

In October, PowerChina signed an official contract with the Indonesian government to construct the first phase of the project, which has planned installed capacity of only 10% of the entire project. The government did not reveal when the first phase is expected to complete.

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