Indonesia’s looming electricity shortage (see panel) provided an incentive for us to set up PT Adaro Power (AP) in order to to help us diversify and strengthen our business from pit to power.
We established Adaro Power in 2010 to act as a strategic vehicle for our active involvement in the development of power plants in Indonesia.
Our move into power will allow us to leverage our competitive advantage in securing coal supply and create a captive demand for our coal, boost our presence in the domestic market, secure a stable revenue stream and favorable returns, improve our bargaining position with boiler manufacturers, and minimize the impact of volatility from the cyclical nature of the coal sector.
The Government of Indonesia recently launched a 35GW electrification program. Inaugurated by President Joko Widodo in April 2015, the ambitious program is supposed to be realized by 2019.
Out of 35GW planned, coal-fired power plants have the biggest share at 20GW, followed by gas and renewables. Construction of the 20GW of coal-fired power capacity will increase coal supply needs by about 80Mt per year.
PT Makmur Sejahtera Wisesa
Our subsidiary, PT Makmur Sejahtera Wisesa (MSW) built, owns, and operates our first power project, a 2x30 MW mine-mouth power plant in Tanjung, South Kalimantan, to provide power for our mining operations and the surrounding communities. The power plant consumes approximately 300,000 tonnes of E4000 per year, the coal produced from Adaro Indonesia’s (AI) nearby Wara mine and uses circulating fluidized bed (CFB) technology. This technology is suitable for the combustion of higher moisture coals like E4000 as it reduces nitrous oxide emissions due to its low combustion temperature and uses electrostatic precipitators to eliminate ash emissions. It has a net power output guaranteed at 52.5 MW and any excess power to that needed by our mining operations is sold to PLN.
PT Bhimasena Power Indonesia
PT Bhimasena Power Indonesia (BPI) is a consortium established by three companies; Electric Power Development Co. Ltd. (J-Power), AP, and Itochu Corporation to develop a coal fired power plant with a capacity of 2x1,000 MW located in the Batang Regency, Central Java. The power plant will be one of the first and largest power plant projects in Southeast Asia to employ ultra-supercritical (USC) boiler technology. Such technology offers increased efficiency over conventional boilers and has a lower environmental impact from emissions.
The use of USC will enable lower coal consumption, lower air pollutant emissions by using low NOx burners, fabric filter and flue-gas desulphurization, and environmentally conscious construction planning. Our emphasis on the environment has been recognized as BPI won an award for the Best Environmentally- Concerned Company at the Indonesia Best Electricity Awards in 2016.
The project reached financing close in June 2016. The total project cost is estimated to be US$4.2 billion, and BPI received a commitment for project funding of approximately US$3.4 billion from the Japan Bank for International Cooperation, The Bank of Tokyo- Mitsubishi UFJ., Ltd., Mizuho Bank, Sumitomo Mitsui Banking Corporation, Ltd, DBS Bank Ltd., and Oversea- Chinese Banking Corporation Limited, Mitsubishi UFJ Trust and Banking Corporation, Sumitomo Mitsui Trust Bank, Ltd., Shinsei Bank, Limited, and The Norinchukin Bank. In February and March 2017, this transaction received awards from PFI for “Asia Pacific Power Deal of the Year 2016” and IJ Global in the “Asia Pacific Power Deals” category, respectively.
The plant will provide electricity to PLN for 25 years based on a Power Purchase Agreement (PPA). In addition, this is the first actualized public-private partnership project in Indonesia which uses guarantee support from the Indonesia Infrastructure Guarantee Fund, and is part of the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development.
The engineering, procurement, and construction (EPC) contractors for the project are a consortium of Mitsubishi Hitachi Power Systems and GN Power Ltd. for the offshore portion, and Sumitomo Corporation for the onshore work. Operation and maintenance will be by BPI.
By the end of 2016 the construction was 20% complete. We are aiming to have the Commercial Operation Date for both units in 2020. When fully operational, the plant will consume up to 7 Mt coal per annum. AI will supply the majority of the coal required.
In addition to its strong environmental commitment, BPI has an emphasis on a sound, pragmatic, and sustainable corporate social responsibilities (CSR) program. In 2016, the CSR activities were focused on an economic empowerment program for involved communities, with emphasis on tenant farmers and daily farmers. BPI is also supporting the local community in various sectors including economics, infrastructure, education, health, and social-cultural activities. Our emphasis on CSR has been recognized as BPI recently won CSR Awards in two categories, CSR Improvement and Leader on CSR Commitment.
PT Tanjung Power Indonesia
PT Tanjung Power Indonesia (TPI) is a consortium of AP (65%) and PT East-West Power Indonesia (35%), a subsidiary of Korea East-West Power Co Ltd., to build and operate a 2x100MW coal-fired power plant in the Tabalong Regency, South Kalimantan.
The total project cost is estimated to be US$545 million and TPI has closed financing and received commitments of US$422 million (including a contingency facility of US$13 million) from the Korea Development Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., DBS Bank Ltd., Mizuho Bank Ltd., Sumitomo Mitsui Banking Corporation, and The Hong Kong and Shanghai Banking Corporation Limited. The financing was done on a project finance basis with KSURE providing comprehensive cover of approximately US$400 million.
This project will sell electricity to PLN under a PPA for 25 years from the Commercial Operation Date. TPI started construction in June 2016, six months before reaching Financing Close, by using shareholder funds, demonstrating our strong commitment to the success of the Government 35GW program. Construction is progressing on schedule, with both units expected to reach Commercial Operation in the first half of 2019. When fully operational, the plant will consume up to 1 Mt of coal per annum and AI will provide the coal for the plant.
The Government of Indonesia, through the Ministry of Finance, provides a Government guarantee to this project in the form of a Business Viability Guarantee Letter, under which the Government guarantees PLN’s ability to fulfil its payment obligations as stipulated in the PPA.
The power plant will use CFB technology which reduces nitrous oxide emissions due to its low combustion temperature. It will also use bag filters to eliminate ash emissions. The EPC contractor for the project is Hyundai Engineering Co Ltd. Operation and maintenance of the power plant will be by TPI.