OREANDA-NEWS. The Asian Development Bank (ADB) has approved assistance of $600 million for Indonesia’s state electricity corporation, Perusahaan Listrik Negara (PLN), to carry out major power transmission and distribution system upgrades in Sumatra. 

The funding for the Electricity Grid Strengthening – Sumatra Program includes a $575 million loan from ADB’s Ordinary Capital Resources and a subsequent $25 million loan from the ASEAN Infrastructure Fund, under which ADB acts as lender of record. 

“The power sector has been expanding in Indonesia but it hasn’t kept pace with increased demand. System reliability and stability have deteriorated, with both Sumatra and Java recently experiencing blackouts,” said Rehan Kausar, Unit Head for Project Administration in ADB’s Southeast Asia Department. “PLN has a long-term development program to strengthen and expand power systems across the country. This assistance will help it deliver sufficient and reliable electricity supply to Sumatra, improving the quality of life and supporting efforts to make the region a major industrial center.”

This program uses the results-based lending approach to financing—where disbursements are linked to results rather than expenditure—for the first time in Indonesia, and the first time globally in the energy sector. It is also the first direct loan by an international financial institution to an Indonesian state-owned enterprise with a sovereign guarantee. 

The funds will finance enhancements to existing 150 kilovolt transmission lines, extension of substations, and the installation of new and upgraded equipment, including switchgears. On the distribution side, work will be carried out to expand and reinforce the medium-voltage and low voltage networks, including the installation of distribution transformers, service connections, and customer meter boxes. The program will also provide capacity building and institutional strengthening for PLN.

These improvements will help Sumatra achieve an electrification rate of 90% by 2019 and support the overall government target of achieving universal access to electricity by 2024, from the current national rate of around 84%.  

The loans will support a portion of PLN’s upgrade and expansion investments in Sumatra from 2015 to 2019, which are estimated at $10.8 billion. The funds are also part of a larger medium-term package of ADB support for strengthening the country’s electricity grid which is expected to include lending assistance for Java-Bali and the Eastern Indonesia regions between 2016 and 2019.

The program is scheduled to run from December 2015 to December 2019.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.