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Indonesia's PLN eyes $1 billion investment in coal mines
August 14, 2012 / 6:36 AM / 5 years ago

Indonesia's PLN eyes $1 billion investment in coal mines

JAKARTA (Reuters) - Indonesia’s state electricity utility, Perusahaan Listrik Negara(PLN), expects its coal needs to double within seven years and may invest up to $1 billion to buy stakes in local miners to ensure access to supplies.

Greater use of domestic coal to fuel power demand that is rising 9 percent a year in Southeast Asia’s largest economy could cut exports of thermal coal from the world’s top exporter of the fuel in coming years.

“Long-term PLN has to own the mines itself, because, with demand as big as ours, there is no way we cannot have security,” Helmi Najamuddin, the head of PLN’s coal division, said in an interview with Reuters.

Indonesia’s struggles to meet the increasing energy needs of businesses, from metal smelters to hotel resorts, regularly lead to brownouts in regions outside the main island of Java and threaten to put the brakes on economic growth.

Policymaker worries over the country’s future domestic needs and exploitation of resources for foreign demand have already led the country to reduce exports of liquefied natural gas (LNG) and bring in rules this year curbing exports of raw metal ore.

By 2016 PLN expects to be consuming at least 116.7 million tonnes of thermal coal, compared to 57.3 million expected this year. So far a boom in coal output has enabled miners to keep expanding exports despite higher domestic demand.

Coal output is expected to remain stable at 360 million tonnes this year, with top buyers including China, India and Japan. But by Najamuddin’s calculations, without any major new exploration Indonesia’s coal reserves could be depleted within 40 years.

“We don’t want a situation in future where we have to import,” Najamuddin said.


PLN, which produces 85 percent of the country’s current power output of around 32,000 megawatts (MW), currently buys coal from top private miners including PT Adaro Energy (ADRO.JK) and PT Bumi Resources’ (BUMI.JK) unit KPC.

It has established a subsidiary called PT PLN Batubara, whose primary role is to acquire coal mines, Najamuddin said. The unit may get a budget of 10 trillion rupiah ($1.05 billion) to finance the acquisition spree, which could include buying entire mines or strategic stakes, he said.

“If possible we’d like (shares in) the likes of Adaro and KPC. We’ve started (purchasing), but just small ones to begin with,” he said.

Indian and Chinese utilities have already bought coal assets in Indonesia and are seeking more to secure supplies.

Indonesia’s domestic market obligation (DMO) law means miners must set aside around 30 percent of production for the domestic market. Najamuddin is campaigning for more.

“I want around 70 percent ... the DMO should be as high as possible... The government has to guarantee that there is coal for domestic needs,” he said.

Indonesia this year slapped a tax on metal ore exports ahead of a total ban on raw ore exports by 2014, an effort to conserve resources. There is no equivalent policy on coal so far.

Energy minister Jero Wacik said in June there was a need to conserve coal for domestic use. Officials have said the government could impose a quota on output and higher royalties.

Coal is expected to make up 58 percent of Indonesia’s energy mix by 2017, up from 51 percent this year. The share of natural gas is seen decreasing from 28 percent to 19 percent over the same period, while geothermal is seen doubling to 13 percent.

The government was aiming to boost total power supply by 10,000 MW by 2009, but has pushed back this target to 2014 because of problems in acquiring land, a perennial challenge for infrastructure developers in Indonesia.

PLN now expects to have 6,000 megawatts of this expansion completed by December this year. It plans to boost capital expenditure by 8 percent to 70 trillion rupiah this year to build power plants and improve its distribution network.

Almost one-third of Indonesia’s population, the world’s fourth largest, has no access to electricity. In outlying regions such as Papua, the figure increases to more than a half. The government aims to provide access to electricity for at least 90 percent of the population by 2019.

($1=9485 rupiah)

Editing by Neil Chatterjee and Clarence Fernandez

Our Standards:The Thomson Reuters Trust Principles.
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