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Indonesia’s new SOE scheme puts focus on coal phasedown

JAKARTA — Indonesia believes it has found a way to speed up plans to decarbonize its economy — having state-owned enterprises employ an innovative financing scheme that the Asian Development Bank is touting as a model for much of Southeast Asia.

The region’s largest economy is a major coal producer but aspires to reduce its reliance on the resource as it strives to reach President Joko “Jokowi” Widodo’s goal of net zero carbon emissions by 2060.

Indonesia’s SOEs control a total of $630 billion in assets. As major players in the economy, any serious decarbonization push they undertake could bring the country closer to the net-zero pledge. But early signs point to investor skepticism with doubts centered on the cost of the coal drawdown.

State electricity utility Perusahaan Listrik Negara plans to sell some of its aging coal-fired power plants, beginning with a 1.05-gigawatt plant in West Java province, reportedly valued at $800 million. The utility has agreed to sell the plant to state coal miner Bukit Asam. The parties signed a preliminary agreement for the sale plan on Oct. 18 on the sidelines of the SOE International Conference, in Bali, one of a series of Group of 20-related meetings Indonesia is hosting this year.

Bukit Asam “will have to count the valuations,” SOE Vice Minister Pahala Mansury told reporters after the agreement was signed, “but there’s a possibility that it will become the owner of the majority of coal-fired power plants currently owned by” Perusahaan Listrik Negara.

The state utility in a news release said Bukit Asam’s takeover of the West Java plant will be paid for with a low-interest refinancing option currently being drafted by the finance ministry.

The Energy Transition Mechanism (ETM) will make it economically feasible to decommission the West Java plant in 15 years, down from 24 years, a Perusahaan Listrik Negara representative said.

“Once scaled up, the ETM has the potential to be the largest carbon reduction model in the world,” said Ashok Lavasa, the Asian Development Bank’s vice president for private sector operations and public-private partnerships. “If we can retire 50% of the coal power plants over the next 10 to 15 years in Indonesia, the Philippines, and Vietnam, we will remove 200 million tons of CO2 emissions per year — equivalent to taking 61 million cars off the road.”

Lavasa was speaking on the sidelines of a separate G-20 gathering in September.

Fabby Tumiwa, an Indonesian energy transition expert and executive director of the Jakarta-based Institute for Essential Services Reform, talked up another element of the ETM — a pool that development banks, climate funds and philanthropists can fill with financial support. He said Indonesia could be able to dip into the pool to accelerate its decarbonization efforts.

He said the pool is expected to attract funds from the likes of the ADB and its Climate Investment Fund. The ADB last year launched a pilot ETM study with Indonesia, the Philippines and Vietnam to support coal phaseouts and develop renewable energy.

“I think this asset [transfer] between SOEs is quite a breakthrough,” Tumiwa told Nikkei Asia. “There are a lot of regulations about utilizing and discarding state assets, so [state utility Perusahaan Listrik Negara] has a lot of things to consider” before decommissioning its coal plants.

He added, “This is the easiest way from the legal standpoint because it involves only asset swaps between [the utility and miner] — both owned by the state.”

The idea is to lighten the utility’s coal-fired power plant burden and thus enable it to more easily develop power from renewable sources. Indonesia’s renewables push, based on the zero carbon pledge declared last year, has been hampered by purchase agreements that Perusahaan Listrik Negara is locked into, causing oversupply problems.

The agreements are with independent power producers, including ones still building coal-fired power plants, that signed up to take part in an electricity procurement program that Widodo offered during his first term in office. The program, it turns out, was based on overly ambitious economic growth projections.

Indonesian Vice State Enterprise Minister Pahala Mansury, second from  left, witnesses the signing of an agreement between Perusahaan Listrik Negara and coal miner Bukit Asam aimed at the country’s coal phasedown in Bali on Oct. 18. (Photo courtesy of Perusahaan Listrik Negara)

Coal accounted for roughly half of Perusahaan Listrik Negara’s installed power capacity of 44 gigawatts as of 2021. Renewables came in at 9%.

The state utility holds a retail electricity distribution monopoly.

Hartanto Wibowo, the utility’s director for corporate planning and business development, said the company is planning to decommission 6.7 gigawatts of coal-fired plants by the end of 2040, over half of them before they reach their estimated retirement ages.

Perusahaan Listrik Negara “will not build any more coal-fired power plants, except to complete those already under construction,” Wibowo said.

Transitioning to clean energy has become a key topic for Indonesia as it holds the G-20 presidency this year. Widodo, positioning himself as a leader of emerging countries, is calling on developed members of the G-20 to stay true to their declared commitment to mobilize financial support for developing nations that take on this transition.

Indonesian Finance Minister Sri Mulyani Indrawati met recently with ADB President Masatsugu Asakawa. They agreed to tout Indonesia’s ETM scheme as “a concrete step” toward such transitions during November’s G-20 summit, according to a statement from the ministry.

Tumiwa said the low-interest refinancing scheme should benefit Bukit Asam, the state coal miner, which is expected to keep selling electricity generated from coal plants it will acquire.

Mansury, the SOE vice minister, meanwhile, said Bukit Asam will also benefit from having opportunities to transition away from coal mining to operating power plants.

Bukit Asam investors, however, appear skeptical. The publicly listed miner’s share price has tumbled 12% since the announcement. The shares opened at 3,810 rupiah (24 U.S. cents) on Monday morning.

Local analysts say investors are worried that the miner’s taking over of coal plants will mean smaller dividends for shareholders.

“We think this is a good step by the government to decommission [Perusahaan Listrik Negara]’s coal plants early,” said Gavin Gumilang of Indonesian online trading platform Ciptadana Bluechip. “But the market has reacted quite negatively because the cost of the [West Java] plant acquisition is quite fantastic — about $800 million.

“Investors are obviously wondering if this will impose a financial burden on [Bukit Asam], especially as [it] is known to have been generous with dividend payments in previous years.”

Fully government-owned utility Perusahaan Listrik Negara is not publicly listed.

The SOE Ministry, meanwhile, has launched a voluntary carbon trading pilot project that will involve some of the country’s biggest emitters, including Perusahaan Listrik Negara and Pertamina, the state oil and gas company. Mansury said his office will ask Indonesian SOEs to adopt “carbon accounting” — including calculating their carbon emissions and setting targets to reduce them.

“And if they fail to reach those targets,” he said, “they can engage in carbon trading.”

Mansury added that the Indonesia Stock Exchange will be involved in developing the infrastructure for the carbon market. “Therefore,” he said, “when it becomes compulsory, we’ll have the basics ready.”

At the SOE conference, a number of decarbonization memorandums of understanding were signed by Indonesian SOEs and their foreign partners. Pertamina International Shipping, a subsidiary of Pertamina, and Japanese shipper Nippon Yusen signed one to develop “green cargo” businesses.

Pertamina also signed separate agreements to study the development of low-emissions hydrogen with Ignis Energy, a Spanish renewable energy developer; the Indonesian unit of Sembcorp Industries, a Singaporean energy company; and Tokyo Electric Power Co., a Japanese utility better known as TEPCO.

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