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Indonesia’s Perusahaan Listrik Negara Seeking $1 Billion Investment to Ensure Coal Supplies

The state owned electricity utility in Indonesia, Perusahaan Listrik Negara (PLN), is making plans to increase their stakes in domestic coalmines. The move is in reaction to suggestions that the country’s demand for coal will double in seven years.

This pace of increase will have been influenced by the Indonesian government policies and targets to increase the country’s output of electricity. In a nation in which a third of the population are without power, the Indonesian government aim to supply 90% of the population with electricity by 2019 by boosting the country’s capacity by 10,000MW by 2014.

PLN expects to have 6,000 megawatts of this expansion completed by December 2012 alone. It plans to boost capital expenditure by 8% to 70 trillion rupiah to build power plants and improve the distribution network.

The trouble with such targets is, as ever, the supply of fuel. Coal is expected to make up 58 percent of Indonesia’s energy mix by 2017, up from 51 percent in 2012. Additionally, PLN have projected that they will be consuming at least 116.7 million tonnes of thermal coal by 2016, compared to 57.3 million this year. This means that one of the worlds biggest exporters of coal will have to cut this export market in order to maintain domestic growth.

Coal output is expected to remain stable at 360 million tonnes this year, with top buyers including China, India and Japan. But calculations by Helmi Najamuddin, the head of PLN’s coal division, suggest that this rate of consumption could deplete Indonesia’s coal reserves within 40 years.

Indonesia’s domestic market obligation law means miners must set aside 30 percent of production for the domestic market. Najamuddin is campaigning for more:
“I want around 70 percent … the domestic market obligation should be as high as possible… The government has to guarantee that there is coal for domestic needs,” he said in an interview with Reuters, and so far a boom in coal output has enabled miners to keep expanding exports despite higher domestic demand. However, Najamuddin claims that “long-term PLN has to own the mines itself, because, with demand as big as ours, there is no way we cannot have security”.

PLN currently buys coal from top private miners including PT Adaro Energy (ADRO.JK) and PT Bumi Resources’ (BUMI.JK) unit KPC. It has established a subsidiary called PT PLN Batubara, whose primary role is to acquire coalmines, Najamuddin said. The unit may get a budget of 10 trillion rupiah to finance an acquisition spree, which could include buying entire mines or strategic stakes. This $1 billion investment could see Indonesia, which has the largest economy in Southeast Asia, finally being able to supply its business’ with enough power to prevent the brownouts and power cuts that plague Indonesia’s industries.

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