ELECTRICITY GOVERNANCE INITIATIVE: CASE OF INDONESIA FINAL REPORT i CONTRIBUTING AUTHORS Indonesian Institute of Energy Economics: Dr. Asclepias Rachmi Indriyanto, Lena Herliana, Bobby Wattimena, Indra Sari, Chaerani Nisa Pelangi: Nasrullah Salim, Nyoman Iswarayoga Moekti H Soejachmoen WWF-Indonesia: Muhamad Suhud, Eka Melissa Working Group on Power Sector Restructuring: Fabby Tumiwa IBEKA: Tri Mumpuni ICEL: Prayekti Murharjanti, Dyah Paramita ACKNOWLEDGEMENTS We are grateful to members of the Advisory Panel who were generous with their time and efforts to provide advice and feedback to the research and writing process. Their contribution has considerably strengthened the report. Final responsibility for the content of the report rests, however, entirely with the authors. The Advisory Panel members are: Dr. Bambang Brodjonegoro, Independent Commissioner PT PLN Persero and Dean Dean of Economic Dept, University of Indonesia; Endro Utomo Notodisuryo, Transparency International and Former Director General of Electricity & Energy Development; Faisal Basri, Comissioner, Commissioner, Oversight Comission for Business Competition and Lecturer at University of Indonesia; Dr. Irwan Prayitno, Legislator, House of Representatives and Member of Comission VIII (Energy, Environment, Research and Technology); Mr. Puguh Sugiharto, Former Chairman of the Working Group for Good Governance in the Electricity Sector, Member of the Renewable Energy Society and Director of PEN Consulting; Dr. Umar Said, Former Secretary General of the Ministry of Energy and Mining and Lecturer at the University of Indonesia. Financial Support for this project was provided by the United States Agency for International Development. Davida Wood of USAID and Randy Willard and Amira Basel at World Learning facilitated and supervised the financing of the project. As the Secretariat of the Electricity Governance Initiative, Smita Nakhooda and Frances Seymour of the World Resources Institute provided comments, guidance and support. Shantanu Dixit of Prayas and Navroz K. Dubash of the National Institute of Public Finance and Policy also provided comments, feedback and support for the assessment. We also thank the many resource people who were generous with their time and intellectual effort in interviews, through gathering materials, and providing input through phone and email to the substantive content of this report. These individuals span legislative bodies, ministries, regulators, civil society organizations, and media. ii Table of Contents 1 Summary 1 1.1 Introduction....................................................................................................1 1.2 Methodology..................................................................................................1 1.3 Research Outcome .........................................................................................2 1.3.1 Policy Process ....................................................................................2 1.3.2 Regulatory Process.............................................................................3 1.3.3 Social and Environmental Aspects ....................................................4 1.4 Conclusions....................................................................................................5 1.5 Recommendation ...........................................................................................5 2 Preface 7 2.1 The Electricity Governance Initiative............................................................7 2.2 Motivation for the Electricity Governance Initiative.....................................7 2.3 Goals of the Electricity Governance Initiative...............................................8 2.4 The Approach and Methodology ...................................................................8 2.5 Organizational Structure of the Electricity Governance Initiative ................9 3 Research Activities in Indonesia 10 3.1 Logical Framework......................................................................................10 3.2 Research Methodology ................................................................................10 3.2.1 Creating the Collaboration...............................................................10 3.2.2 Research Activities ..........................................................................11 3.2.2.1 Guideline in Conducting the Research .............................11 3.2.2.2 Research Strategy..............................................................11 4 Research Findings 14 4.1 Policy Process ..............................................................................................14 4.1.1 Capacity ...........................................................................................14 4.1.1.1 Institution Responsible for the Electricity Sector .............14 4.1.1.2 Institutional Capacity........................................................14 4.1.2 Transparency....................................................................................16 4.1.2.1 Clarity of Decision Making Phases...................................16 4.1.2.2 Availability of Information...............................................17 4.1.2.3 Role of Institutions............................................................18 4.1.3 Public Participation..........................................................................19 4.1.4 Accountability..................................................................................20 4.1.4.1 Independence and Legislative Activity Levels.................20 4.1.4.2 Mechanism for the Establishment of Regulations ............21 4.1.4.3 Documentation System .....................................................21 4.2 Regulatory Process.......................................................................................21 4.2.1 Capacity ...........................................................................................22 4.2.2 Transparency....................................................................................23 4.2.3 Participation .....................................................................................24 4.2.3.1 Legal Basis........................................................................24 4.2.3.2 Institutions Accommodating Public Participation ............24 iii 4.2.3.3 Quality of Public Participation..........................................25 4.2.4 Accountability..................................................................................26 4.2.4.1 Legal Basis for Decision Making by Regulators ..............26 4.2.4.2 Tarriff Philosophy.............................................................26 4.3 Social and Environmental Aspects ..............................................................27 4.3.1 Transparency....................................................................................28 4.3.1.1 Authority...........................................................................28 4.3.1.2 Roles and Scope of Responsibility ...................................29 4.3.2 Capacity ...........................................................................................29 4.3.2.1 Executive Capacity ...........................................................30 4.3.2.2 Legislative Capacity..........................................................31 4.3.2.3 The Involvement of CSOs in the Social and Environmental Aspects of Making Decisions...................31 4.3.3 Accountability..................................................................................32 4.3.4 Public Participation..........................................................................32 4.3.5 National Planning in the Electricity Sector......................................33 4.3.5.1 Sectoral Reformation Process...........................................34 4.3.5.2 Process for the Establishment of Environmental Performance Standards .....................................................34 4.3.5.3 Decision Making Process..................................................34 4.3.5.4 Opportunity for Public Participation Provided by the PLN Utility Company.......................................................34 5 Summary and recomendation 36 5.1 Summary......................................................................................................36 5.2 Recommendations........................................................................................38 iv List of Figures Figure. 2. Evaluation of Policy Process Capacity........................................................15 Figure. 3. Evaluation of Transparency in the Policy Process ......................................17 Figure. 4. Evaluation of Public Participation in the Policy Process ............................19 Figure. 5. Evaluation of Accountability in the Policy Process ....................................20 Figure. 6. Evaluation of Capacity in the Regulatory Process .......................................... Figure. 7. Evaluation of Evaluation Transparency in the Regulatory Process ............24 Figure. 8. Evaluation of Public Participation in the Regulatory Process....................25 Figure. 9. Evaluation of Accountability in the Regulatory Process.............................26 Figure. 10. Evaluation of Transparency in the Evaluation of Social and ....................28 Figure. 11. Evaluation of Capacity for Evaluating Social and Environmental Aspects......................................................................................................30 Figure. 12. Evaluation