Indonesia: Kayan Hydropower Project Forges Ahead Despite Setbacks

By Dandy Koswaraputra

A hydropower project in the Indonesian part of Borneo is forging ahead despite recent setbacks, including the withdrawal of key international partners PowerChina and Sumitomo, according to the local company behind it.

The Kayan Cascade project, a U.S. $17.8 billion venture spearheaded by PT Kayan Hydro Energy (KHE), is a planned series of five dams along the Kayan River in North Kalimantan province touted as Southeast Asia’s most extensive hydropower scheme.

The project aims to generate up to 9,000 megawatts of electricity, to play a pivotal role in Indonesia’s energy strategy and to support the growth of its new national capital being built on Borneo island, developers have said.

KHE remains committed to completing the project despite the withdrawal of PowerChina and Sumitomo, said Sapta Nugraha, the company’s director of operations. 

“While there were many challenges, the project is still on track. We continue to work toward achieving the expected progress, while remaining open to partnerships to strengthen and maximize the added value of this project,” Sapta told BenarNews this week. 

PowerChina’s exit was because of pandemic-related travel restrictions that hindered its ability to work on-site in Indonesia, he said. 

“During the COVID-19 pandemic, China faced difficulties in communication and access to Indonesia,”  he said. 

Sumitomo’s withdrawal was reported by Nikkei Asia on May 31.

The project’s inception in 2012, initially in collaboration with Chinese state-owned PowerChina, marked the beginning of a journey fraught with challenges. 

Environmentalists’ concerns, local opposition and the recent departure of Sumitomo, a crucial Japanese backer, have cast shadows over its prospects.

Sumitomo and the Chinese embassy in Jakarta did not respond to emails from BenarNews seeking information about why they withdrew from the project.

In spite of the setbacks, KHE remains confident that it will be able to complete the project independently if necessary, Sapta said. 

The company is also actively seeking new partners and is in talks with other prospective investors from Japan and China, he said.

“Currently, KHE is in the process of exploring cooperation with a number of potential investors who have shown serious interest,” Sapta said. 

“Indeed, there are discussions with other Japanese entities. However, we are not unfamiliar with China and we are currently in the process [of talking] with a potential partner,” he said. 

BenarNews also contacted Agus Cahyono Adi, spokesman for Indonesia’s Energy and Mineral Resources Ministry. 

“The Kayan River does have great potential and is our mainstay to support the achievement of NZE (net-zero emissions),” he told BenarNews on Friday in response to questions about the status of the project to build five dams and hydropower plants on the river. 

“Hopefully PT KHE (Kayan Hydro Energy) will soon get new investor partners to be able to realize its development targets,” he said. 

But central government support for the project is unclear.

In October 2022, Moeldoko, chief of staff for President Joko “Jokowi” Widodo, described the Kayan dams as “a National Strategic Project,” but Agus, the ministry spokesman, told BenarNews on Friday that it is not.

In 2021, in what was described as an effort to expedite the long-stalled project, the government issued development permits to another company, PT Pembangkit Indonesia Epsilon, to build dams along the river.

But KHE sued Epsilon and the government ministry that had issued the permits, in a case that went all the way to Indonesia’s supreme court, and ultimately triumphed in November 2023.

Village head: Water ‘contaminated with dust’

In the North Kalimantan village of Long Peso, the ongoing construction of the first of the power plants has stirred a mix of anticipation and apprehension among local residents. 

Excavators, trucks and other heavy equipment were operating at the nearby Tugu Lima construction hub, where more than 100 workers have been building a new road to access the site of the first dam, according to a BenarNews reporter who visited the site.

Village head Pulinop Jaui said the construction has brought noise, dust and pollution to the once-peaceful community. He is particularly concerned about the dust from blasting activities, which he says has contaminated the village’s water source.

“With all the blasting activities, it can no longer be considered clean water because the source is contaminated with dust,” Pulinop said in a phone interview with BenarNews. 

For years, residents have been requesting the relocation of their clean water source, but KHE has only conducted surveys and not implemented any solutions, he said.

“We tried to ask for an update on the progress, but they did not provide any information,” he said.

Sapta, with KHE, said the project was highly strategic, as it would provide green energy for major national projects in Borneo, including the new Indonesian capital city, Nusantara, and a new industrial zone in North Kalimantan.

This year, the company is focusing on building supporting infrastructure for the first dam, including access roads and a diversion channel to temporarily reroute the river, Sapta said. 

“We have set a strict schedule and are committed to meet all the established deadlines. By strengthening project management and adding resources in the field, we are confident in reaching the target completion by 2029,” he said.

A big hurdle: land acquisition 

Yayan Satyakti, an energy economist at Padjadjaran University, said one of the most significant hurdles has been land acquisition, a critical aspect of any hydropower project because of its impact on turbine performance and overall sustainability.

“The land acquisition process has been ongoing for a relatively long time,” Yayan told BenarNews. 

“In hydropower projects, this is the most crucial aspect, and it should have been completed before the project was offered to investors, especially foreign ones. This uncertainty is likely the reason behind Sumitomo’s withdrawal,” he said.

Yayan emphasized that Sumitomo’s exit was not a positive sign for Indonesia’s energy investment climate, drawing parallels to similar challenges in the geothermal sector. 

He pointed to a study conducted in 2018 that revealed independent power producers (IPPs) had to navigate through 30 permits for each project. Despite regulatory changes in 2021, Yayan said he believed the investment climate had not improved significantly.

Yayan expressed skepticism that KHE could complete the first of five dams by 2029. Even if land acquisition was completed this year, achieving the 2029 target would be challenging, with a more realistic estimate of 40% to 60% completion.

“If land acquisition is still unclear, it’s natural for Sumitomo to divest,” Yayan said.

Echoing Yayan, local environmentalist Wastaman said relocation plans for affected people in two villages, Long Lejuh and Long Pelban, remain unclear. The villages have a combined population of 1,217, according to data from Bulungan regency.

“There is no certainty of living a decent life when their source of livelihood is lost,” Wastaman, director of Sustainable Forest Circle Association (PLHL), told BenarNews. 

He said the company must provide alternative livelihoods before displacing residents.

“Well, this is something that has not happened yet,” said Wastaman, who goes by one name. 

Norjannah in Tanjung Selor, North Kalimantan and Pizaro Gozali Idrus in Jakarta contributed to this report.