PLN to acquire coal mines to secure supply

PLN - JAKARTA. State-owned electricity firm PLN is set to acquire coal mines as part of its plan to secure 40 percent of the coal demand for its power grid – which last year absorbed 95 million tons of coal – by 2023.

PLN president director Sofyan Basir said that by 2023 coal demand for the company’s thermal power plants would jump to around 180 million tons, almost doubling from current demand.

“Last year, we needed about 90 million tons of coal, and in the next four years, we need 80 million more [to meet growing electricity needs],” he said.

“Therefore, we have been eyeing five coal mines, but for this year, we are only targeting two coal mines for our portfolio. They are located in South Sumatra and Kalimantan.”

Sofyan, who declined to disclose the amount of investment needed for the acquisition, said the two deals should be finalized no later than 2020. 

Currently, energy derived from coal contributes more than 50 percent to PLN’s total power production. The firm has said that, by 2027, it wants to increase the contribution of coal-fired power plants to 58.5 percent of its power plants thanks to ample coals resources and controlled prices.

According to a report by the Indonesia Stock Exchange (IDX), PLN’s coal subsidiary, PT PLN Batubara Investasi, plans to acquire 51 percent of local coal miner PT Banyan Koalindo Lestari, which has been mining at 10,980 hectares of coal concessions in two separate areas: South Sumatra’s Musi Rawas and Musi Banyuasin. 

Sofyan expects the corporate action of acquiring coal mines to help the company increase control over its coal supplies. Currently, the firm provides less than 10 percent of its total coal demand per year from its own mines. 

“We only look for coal mines with a minimum reserve of 100 million tons, while the location can be both [near] existing thermal power plants or not. If [it’s not located near a power plant], we can build the power plant in the future, as long there is enough access,” he added. 

PLN strategic procurement director Supangkat Iwan Santoso said that, once the firm had completed the acquisition of the two coal mines, PLN would be able to internally fulfil at least 20 percent of its annual coal demand.

“We need up to three years from now to reach the 20 percent [….]. The funds [to acquire the two mines] will come either from internal cashflow or loans,” he said. 

Ensuring coal supplies for power plants -- especially those operated by PLN -- is a crucial task for the government, as failing to do so could lead to higher electricity prices, which would not be in line with President Joko “Jokowi” Widodo’s policy. 

PLN’s task to keep the electricity price at the current level is backed by the government’s domestic market obligation, a policy that demands that 25 percent of total coal production go to the domestic market, with the price to be charged from power producers capped at US$70 per ton. 

President director Sofyan said that, at this moment, the firm’s financial condition was positive amid the prohibition to increase electricity prices, as the coal price had been capped and the global crude price had not jumped significantly.

“The rupiah has been improving, and the inflation rate is stable, as are the prices of coal and crude. Those positive parameters are good for us.” he said.