The grave situation surrounding the national coal industry seems to linger in 2016, predicted to be as sluggish as the year previously. The Government’s stimuli was proven as not too effective, as there is a steadily increasing number of companies declaring bankruptcy.
Early 2015, there was a slight optimism looming in the national coal industry. The Ministry of Energy and Mineral Resources (ESDM Ministry) had predicted to be able to raise the target of non-tax revenues to more than Rp. 50 trillion. The figure was eventually revised to a lower number. The optimism was based on the government’s plan to increase royalty rates of coal IUPs, although in the end the plan was abandoned.
At the end of 2015, it turned out that the government could still not do much as the data indicating the acquisition of non-tax revenues in 2015 could only be realized at approximately Rp. 25 trillion. This was pale in comparison to the acquisition of the year previously at Rp. 35 trillion, and also two years before at Rp. 28 trillion. The low price of coal which has failed to get any better has caused economic activities in this sector so lethargic, and it immediately affected the state revenues.
The delayed increase in royalty rates for coal IUPs was only likened to a false hope to the industry that is almost lifeless. Investment in the sector has stagnated. An only hope was the promise to use more coal domestically as often called out by the government. President Joko Widodo had earlier asked that the utilization of coal domestically be increased to 60%.
The target seemed to be too ambitious as in fact throughout 2015 the domestic use of coal remained around the figure of 70 million tons, or less than 25% of the national coal production. The major cause of the problem is in the national electricity project which had not gone according to the plans. On paper, the project could actually be very tempting, as 60% of the total project, amounting to 35 GW of electricity, would come from coal.
TAMBANG magazine noted that since the 35 GW program was launched two years ago, not a single coal power plant has come to operation. At most, there was the signing of a power purchasing agreement (PPA) involving a number of coal-based power plants, one of which is owned by the subsidiary company of PT. Indika Energy Tbk., who carried out an up to 1,000 MW expansion of its coal power plant in Cirebon, West Java.
The expansion was actually not even part of the 35 GW program. President Director of PT. Cirebon Electric Power, Heru Purnomo, said that the project was already initiated in the second phase fast track program from President Widodo’s predecessor (Susilo Bambang Yudhoyono)’s era. Due to unresolved issues surrounding land acquisition, the project was ultimately delayed and could only be started recently. Should there be no constraints, a new power plant could already be in operation as early as 2019.
“Indeed there were issues on land use permit with the Ministry of Forestry. They have now been resolved and we are ready to kick-start construction right after the financial closure,” said Mr. Purnomo to TAMBANG Magazine.
The continuation of the expansion project, according to Agung Wicaksono, Deputy Chairman of the Implementation Unit of the National Electricity Development Program (UP3KN in its Indonesian abbreviation), would be the measurement whether the 35 GW electricity program could be achieved or not. This project would be as strategic as the development of the Batang steam-based power plant project of 2×1.000 MW, which had been stalled for years. Fortunately at the end of last year, President Widodo had already instructed the acceleration of the project through the issuance of a Presidential Decree on land acquisition.
Land issue, said Mr. Wicaksono, had always been a major obstacle for the government to improve the infrastructure at regional level. In the case of the Batang power plant, the disputed area which remains to be acquired is now only 12 hectares from the total requirement of around 200 hectares. “The latest move by the President (to support the Batang project) was very important. If this power plant project could not go through, it will give a negative signal to the 35 GW electricity program,” he added.
Apart from the PPA for the Cirebon plant expansion and the land acquisition for the Batang plant, there is another PPA for the Bengkulu coal-based power plant project of 2×100 MW. The plant would be built at Teluk Sepang village, District Kampung Melayu in Bengkulu. The developer is PT. Tenaga Listrik Bengkulu (TLB), an affiliation of Hong Kong Limited (70%) and PT. Intraco Penta (30%).
The investment needed is expected at US$ 360 million. TLB had sought for internal funding sources as well as foreign loans, as the project has yet to receive the Indonesian government’s guarantee. TLB’s President Director, Cao Yhuesheng, stated that the financial closure would be confirmed within a period of nine months from November 2015. Construction works of the project’s unit I are estimated to take up to 36 months.
At the project’s initial operation in 2019, the plant is expected to be able to supply the electricity to the Sumatra system at approximately 1,400 GWh per year. Mr. Yhuesheng claimed that the project could save up to Rp. 1.7 trillion per year. In addition, the coal use within Sumatra and surrounding areas could be further intensified to support the domestic electricity demand.
Even with the minimum progress, some pending power plant projects from the era of President Yudhoyono have began to be resolved. This among other was evident through the inauguration of the Banjarsari steam-based power plant in Lahat, South Sumatra. The plant is a joint venture of PT. Bukit Asam as the majority shareholder with PT. Pembangkit Jawa Bali and a private investor PT. Navigate Innovative Indonesia.
Bukit Asam utilizes low calorie coal as energy source, with a view to taking the advantage of that type of coal which are numerous, hence limiting the consumption of high calorie coal. As a matter of fact, the construction of this power plant was already planned since 2007 when the first PPA was signed and became part of the Fast Track Program I (FTP I). However, the construction was only completed at the end of 2014. As the 150 Kv electrical network of 23 kilometers was only completed in March 2015, the plant’s operational test could also be done only in May 2015.
President Director of PT. Bukit Pembangkit Innovative, Dadan Ruswandana, stated that administrative proceedings for the Proper Operation Certificate (SLO) could only be secured in late June 2015. As a result, the kick-off of its operation was delayed. “Now we could officially supply the power to the requirements of South Sumatra and other regions in Sumatra through an interconnected network,” he explained.
Another pending project which is currently in a completion stage is the Kaltim steam-based power plant of 2×110 MW, also included in the FTP I. The progress rate of the plant’s construction by contractors Adhi Karya and Shinohydro has reached 95%. To accelerate its completion, the project is backed by a loan funding from four domestic banks of a maximum Rp. 2.45 trillion.
President Director of PLN (State Electricity Company) Sofyan Basir stated that PLN’s investment credit agreement had become a positive start for the electricity company and the banking in Indonesia, given the huge business potential especially for the upcoming five years. In addition to securing funding for the Kaltim power plant, PLN also managed to receive a credit limit of Rp. 12 trillion from several financial institutions, namely BRI, BNI, BCA, Bank Mandiri and PT. Sarana Multi Infrastructure.
Mr. Basir added that the loan was meant to finance PLN’s financing needs for investment in accordance with the company’s Work Plan Budget (RKAP) for 2015, as well as the remaining investment from the RKAP 2015 which was unrealized. The investment plan would also go through the RKAPs 2016 and 2017, particularly for projects which have not received funding from any banks or financial institutions.
“The signing of PLN’s investment loan agreement is already underway for the fifth time. This demonstrates a high level of trust and commitment from domestic banks toward PLN, and to support PLN,” said Mr. Basir.
The enthusiasm from domestic banks to provide credit for electricity projects involving coal-based power plants is somewhat surprising. In the middle of 2015, domestic banks had seemingly given up to provide any funding, given the projects’ value and high-level risk. In an interview with TAMBANG Magazine, Bank Mandiri corporate secretary Rohan Hafas acknowledged the difficulty for domestic banks to provide loans as most power plant projects came up with an Internal Rate of Return (IRR) of less than 11%.
Moreover, power plant projects often experienced delays in the construction process up until the initial operations, which had caused the IRR to become even smaller. “It is difficult for us to fund energy projects. In addition to limited funds, the IRR is too small. We can however reconsider if (the IRR) could reach 15-16%,” said Mr. Hafas.
Chairman of the Indonesian Coal Mining Association (ICMA) Pandu Sjahrir was agreeable to Mr. Hafas’ statement. He argued that at present the coal industry could not do much besides withstanding the pressure of the increasingly falling prices. He also pointed out that the government had failed to provide any significant encouragement to boost the investment climate in the coal sector.
The investment climate could be improved if the ESDM Ministry introduce a strategic policy to support coal mining companies. Among other by coming up with a coal pricing scheme which would no longer be dependent on the Newcastle index. If the Newcastle index remains to be referred, the national coal industry would consequently not move forward.
He was also of the view that the stimulus for the 35 GW electricity project had not been enough, if not balanced with supporting policies. At the average coal price of US$ 50 per tons, it would no longer be possible to carry out the production scheme when coal price was at US$ 110 per ton. “To utilize the reserves at the price of US$ 100 would be alright, however at the price of US$ 50 per ton, it is something else. Let us use some common sense, if coal price has dropped 60%, it would not be the same reserves that can be used,” said Mr. Syahrir.
Another way that could be taken is by increasing the selling price of electricity (PPA). The current selling price of coal-based power in accordance with the applicable regulation is around US$ 6-7 cents per KwH. It is considered too small to attract domestic coal companies to expand into the electricity sector.
Mr. Syahrir and other ICMA board are currently preparing a study on the continuation of the coal industry for year 2016. The study was also carried out under specific requests from the ESDM Minister and the Coordinating Minister for Maritime. It is targeted that by this January, the results of the study could be presented to the relevant ministers or the President.
Director General of Electricity of the ESDM Ministry Jarman Sudimo, meanwhile, stated that the notion to increase the selling price of coal power would be difficult to realize. The present price benchmark had been adjusted to the most current coal prices in the international market. “It would not be possible to just so increase it, unless the price of coal recovers, then there could be possibilities that the PPA would also be raised. On electricity selling price, we can only adjust it to the commodity prices,” he concluded his talk with our reporters.
