Indonesia power firm seeks to defer coal supplies

JAKARTA Oct 21 (Reuters) - Indonesia's state power firm is negotiating with two coal producers, including a unit of PT Bumi Resources Tbk (BUMI.JK), to defer a contract to supply coal to a power plant in West Java, the state firm said on Wednesday.

PT Perusahan Listrik Negara (PLN) wants to set aside the coal for its strategic reserves as its heating value is too low for use in the Suralaya power plant, Pudji Widodo, PLN's head of coal, said.

PT Arutmin Indonesia, a unit of Bumi, Indonesia's largest coal producer by volume, and PT Kasih Industri have contracts to supply a combined 2.1 million tonnes of low-quality coal annually to the 3,400 MegaWatt power plant, starting in 2009.

But the coal supplied under the contract has a heating value of 4,200 kcal/kg gross as-received (GAR) while Suralaya used coal with heating value of 5,000 kcal/kg GAR, Widodo said.

"The board of directors has decided that Suralaya should use higher-calorie coal," Widodo told Reuters. "So we are in talks with producers on deferring the contract and keeping it as strategic reserves."

Bumi and Kasih Industri could not immediately be reached for comment.

Widodo said the contract with the two coal producers ran for 20 years, adding that previous problems with coal supplies meant it was crucial to maintain sufficient coal reserves.

Last year, disruptions in coal shipments, partly due to bad weather, caused blackouts in Java and Bali, Indonesia's two main commercial islands.

Most coal-fired power plants are located in densely populated Java island and coal shipments have to be made from mining areas in Sumatra and Kalimantan.

Widodo said the coal reserves could be used if bad weather disrupted supply to power plants or coal demand jumped because of a rise in electricity consumption.

The coal could also be used as strategic reserve for new coal-fired power plants being built under a crash government programme to add 10,000 MW of generating capacity by 2011 to ease chronic power shortages.

A second programme is due to add another 10,000 MW of capacity.

PLN has a monopoly in Indonesia and operates 25,000 MW of capacity, but most of its plants are old and output is far below capacity.

So it is under pressure to ramp up capacity and modernise its plants. It has switched to natural gas and coal to meet demand and cut consumption of crude oil.

Indonesia, the world's top thermal coal exporter, has said it plans to cap coal exports at 150 million tonnes a year possibly from 2010 in order to prioritise domestic demand.

The move is not expected to have an immediate impact on exports because output is currently outpacing domestic demand.

A government official said last week Indonesian coal production was expected to rise about 9 percent to 250 million tonnes in 2010. [ID:nJAK134503] [ID:nJAK434769] (Editing by Ed Davies and Clarence Fernandez)