RI May Have to Import Coal for Future Power Plants: Study

With coal prices continuing to decline, Indonesia will struggle to provide the coal needed to fire up its power stations in the near future, a study predicts.

The government is struggling to expedite a number of power plant projects under its ambitious 35,000 megawatt (MW) generation program, aimed at supporting the country’s economic growth. 

The program expects that coal can fulfill 66 percent of the primary energy sources for power plants by 2024, which is equivalent to 361 gigawatt hours (GWh) output by coal-fired power plants. 

The study, which was conducted by the Indonesian Coal Mining Association (APBI) in cooperation with PricewaterhouseCoopers (PwC) Indonesia, however, suggests that the country’s coal-fired power plants will not be able to provide the expected 20,000 MW for the next 25 to 30 years, based on current commodity prices.

“This is due to the current commodity prices as a result of which the coal sector’s profitability has reached its lowest point and there has been a decrease in production by coal companies,” PwC’s president director advisory, Mirza Diran, said Monday in a press conference.

The government has so far been optimistic about the feasibility of the program as according to data from the Energy and Mineral Resources Ministry, Indonesia had around 32.3 billion tons of coal reserves in 2014. 

APBI and PwC’s study, however, shows that with declining coal prices throughout last year only between 7.3 and 8.3 billion tons of these reserves are economically viable to mine. This preliminary projection indicates that these reserves will be depleted by 2033-2036.

“Mining requires funds. If the price of coal is US$50, while it costs $60 to mine, then the coal will automatically not be mined. It is as if we have a decrease in reserves,” APBI chairman Pandu P. Sjahrir said. 

Coal prices have steadily declined in the past few years, amid oversupply and declining demand from major coal importer China. 

Australia’s Newcastle coal price, an Asian benchmark, dropped to $51.29 per ton, as estimated by Reuters in late February. Meanwhile, Indonesia’s coal reference price (HBA) dropped to $50.92 in February from $53.2 in January. 

The study, which surveyed 25 coal-mining companies, showed coal-producer earnings before interest, tax, depreciation and amortization had dropped by 60 percent to $2.6 billion in 2014 from $6.5 billion in 2011. It is expected to decrease by 16 percent in 2015. 

This has also caused capital expenditure to drop by around 79 percent to $400 million in 2015 from $1.9 billion in 2012, and it is expected to continue to decrease this year by 10-20 percent. Consequently, mining exploration to find new coal reserves has largely stopped. 

Pandu explained that the findings showed that there was a possibility Indonesia would have to start importing coal by 2030. “This means that we’ll have to start importing starting from around 2030, even though we have always been exporters,” he said.

PLN Pushing to Build 10,000MW Power Plants

State power firm PLN will be running on all cylinders this year to achieve the government’s ambitious electricity procurement program, aiming to break ground for a number of power plants with a combined capacity of 10,000 megawatts (MW).

PLN’s director for procurement, Supangkat Iwan Santoso, said a number of big coal-fired power plants were included in the target.

“If we talk about the capacity, the biggest will be coal-fired power plants. We are expecting the groundbreaking of the Jawa 4 power plant, the Cirebon expansion plant, the Cilacap expansion plant, the Jawa 7 and the Jawa 3 this year,” Iwan said on Thursday.

The power plant developments are part of the government’s program to supply an additional 35,000 MW of electricity within five years. 

As of December last year, PLN had agreed to purchase a total of 17,000 MW from independent power producers. Those agreements guarantee the producers that PLN would purchase the power and deliver it to customers. 

In the last two months, new power purchase agreements for around 2,000 MW have brought the total contracted electricity sales up to 19,827 MW. 

PLN aims to finalize power purchase agreements for 15,500 MW by the end of the year and the remaining capacity of almost 2,000 MW in 2017.

Following the power purchase agreement stage, 24 power producers with 5,329 MW of capacity are now closing financing before starting construction. Meanwhile, some other producers with 2,920 MW of capacity have entered the engineering, procurement and construction (EPC) stage.

Energy and Mineral Resources Minister Sudirman Said praised the progress of the government’s flagship program. 

“There are problems everywhere. However, PLN, the independent producers and local administration can solve them. We will also ensure that the power producers have funding in place,” Sudirman said.

To date, the country has a total installed power plant capacity of about 55,000 MW. The electrification ratio was at 88 percent as of the end of last year. However, there are numerous areas, particularly outside Java, with lower ratios and frequent blackouts as the demand is higher than the available capacity.

The 35,000 MW program is said to be necessary to support economic growth. In past years, similar programs failed, partly because of financing and problems in land acquisition for the would-be power plants. 

Earlier this week, the construction of the Batang power plant in Central Java gained new momentum after the Supreme Court ruled in favor of land acquisition for the project, which has been long delayed amid opposition from local people. 

Jarman, the Energy and Mineral Resources Ministry’s director general for electricity, said that the Supreme Court’s decision allowed for the land acquisition to be quickly concluded.

“As soon as the land [acquisition] is completed, financial closure can be reached,” he has said. 

The Batang project is being developed by PT Bhimasena Power Indonesia, a consortium consisting of Jakarta-listed PT Adaro Energy, J-Power Electric Power Development Co. Ltd. and Itochu Corp., which won the tender in 2011. The power plant is the first to be developed under a public-private-partnership scheme.

Bukit Asam Profits Up Despite Decline in Coal Prices

State-controlled mining company PT Bukit Asam has reported increased profits despite a year of falling coal prices.

The publicly listed miner announced that the company’s net profits had increased by 9 percent to Rp 2.04 trillion (US$153.9 million) during the January-December period in 2015, from Rp 1.86 trillion in the previous year. 

Meanwhile, total revenues rose by 5 percent to Rp 13.72 trillion by the end of the year.

The company’s coal production was up 18 percent to 19.28 million tons from 16.36 million tons last year, while its sales were up 6 percent to 19.1 million tons, the company’s recently published statement revealed. 

Domestic sales increased by 8 percent to 10.05 million tons while its exports were up 5 percent to 9.05 million tons, making up 47 percent of the company’s total sales volume. 

Meanwhile, Bukit Asam’s average selling price (ASP) during the year, according to the company’s press statement, decreased by 3 percent to Rp 707,052 per ton to Rp 723,635 in 2014. 

Coal prices have steadily declined in the past few years, amid oversupply and declining demand from major coal importer China. The situation has led to steep declines in the profits of Indonesian coal producers. 

Bukit Asam corporate secretary Joko Pramono said that the company was optimistic that it would reach its target at the end of the year to increase sales by 52 percent to 29 million tons. 

“If you see from our performance — in terms of operation and sales — it all increased. In 2016, we will continue to work together with PT KAI [state-train operator PT Kereta Api Indonesia] to support the synergy between state-owned enterprises,” he said. 

Bukit Asam revealed that the volume of coal transported by rail increased by 6 percent to 15.8 million tons last year thanks to the opening of the Tanjung Enim-Prabumulih double-track line operation. 

PT KAI is expected to increase this cargo volume by 50 percent this year to 23.7 million tons with additional locomotives and train cars. 

Meanwhile, the company is seeking to maintain its cost efficiency programs as it predicts that commodity prices will continue to decrease this year. 

Bukit Asam managed to cut its production costs by 10 percent to Rp 356,866 per ton from Rp 394,784 per ton. The company’s stripping ratio — the ratio of the volume of waste material that must be removed to retrieve coal — stood at 4.48, meaning that it had decreased from the previous year’s 4.69.

The stripping ratio is one of the determining factors in miners’ production costs. 

“We will continue the success of 2015 by involving strategies that will strengthen us. We hope that we will go through 2016 in a better condition, that we will continue to evaluate every quarter,” Joko said. 

Australia’s Newcastle coal price, an Asian benchmark, has dropped to $51.29 per metric ton, as estimated by Reuters in late February. While Indonesia’s coal reference price (HBA) had dropped to $50.92 in February from $53.20 in January.