Power
Making Progress Downstream
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.
 

Adaro’s Contribution

Adaro Power is in the right place and the right time to utilize this need for electricity in order to become a market leader in Indonesia’s utilities industry. With this in mind, Adaro Power has also expressed its intention to install 20GW of generating capacity by 2030.

Developing power plants is a capital-intensive venture and requires long-term capital commitment, which usually suggests a larger loan-based financing portion by outside lenders compared with equity investments by shareholders.

One of the essential ingredients for success as an Independent Power Producer (IPP) lies in the selection of partners. Our guiding principles is to develop partnerships with blue-chip, internationally renowned power utility companies with good track records and knowledge in building, owning and operating power plants, and who can provide much-needed synergy in the development of IPP projects.

Our main role in these partnerships will be to provide long-term fuel supply through coal procurement, as we aim to be the base tonnage supplier in conjunction with other coal producers.

We are also still evaluating other IPP projects in Indonesia that offer commercially reasonable value as well as strategic benefits for our long-term business plan.

The box below describes our three current and planned power generation projects.

Indonesia’s
Power Outlook

With a rapidly growing population of more than 250 million, Indonesia faces a major challenge to provide enough electricity to continue growth in the economy. With an installed capacity of just 51GW, it already struggles to supply enough power.

But the outlook is promising. Data from state electricity utility PLN shows that Indonesia increased its electrification ratio – the percentage of the population with access to electricity – from 65% in 2009 to 84.4% by 2013.

PLN now expects electricity demand to grow by an average of 8.7% per annum to 2025. It believes an extra 70.4GW of power generation capacity is needed and result in an electrification target of 99.4% by 2024. PLN plans that 50% of this 70.4GW will be provided by independent power producers (IPPs).

Our Debut Power Plant

Our subsidiary PT Makmur Sejahtera Wisesa (MSW) built, owns and operates our debut power project, a 2x30MW coal-fired power plant in Tanjung, South Kalimantan. This marked our concrete move downstream into power generation.

MSW uses circulating fluidized bed (CFB) technology, which removes sulphur dioxide from flue gas by limestone injection and reduces nitrous oxide emissions due to its low combustion temperature. It also uses electrostatic precipitators to eliminate ash emissions.

The plant, which has a high availability factor of 86%, is used to supply electricity for AI’s mine operations and to reduce our dependency on fuel. Excess power produced by this power plant will be sold to PLN to help support the requirements of the Kalimantan grid. The plant will use up to 300,000 tonnes of E4000 coal per year from the nearby Wara mine.

In 2015, MSW received an appreciation from PLN as running one of the best power plants in Indonesia in terms of operation. Experiences and lessons learned from MSW have given us confidence and a firm foundation to move into larger power plant projects.

The plant not only provide benefits to both Adaro and the surrounding communities through the supply of clean power but will also provide Adaro Power with a comprehensive training platform for plant management and staff in power plant operations and maintenance.
 

Location Map
 

Leadership Team

Christian Ariano Rachmat, President Commissioner
Sandiaga Salahuddin Uno, Vice President Commissioner
David Tendian, Commissioner
M. Syah Indra Aman, Commissioner
Ir. Mohammad Effendi, Commissioner
Erry Firmansyah, Commissioner
Joseph Francis Chong, President Director
Fakhrol Azmi Bin Harun, Director
Richard Willem Tampi, Director

Central Java Power Project

PT Bhimasena Power Indonesia (BPI) is a joint venture established in 2011 comprising AP (34%), Japan’s Electric Power Development Co (34%) and Itochu Corporation (32%). This consortium plans to build and operate a 2×1,000MW IPP project in Batang Regency, Central Java. This is also known as the Central Java Power Project (CJPP).

The CJPP will feature advanced ultra-supercritical boilers that operate at temperatures and pressures above the critical point of water and are thus both highly efficient and can burn low-calorific value coal as fuel. Through its efficiency, this technology has a lower environmental impact in terms of emissions, particularly carbon dioxide.

The CJPP will consume up to 7Mt of coal per annum. AI will supply the majority of this, and the use of its low-pollutant Envirocoal will enhance the power plant’s ultra-clean environmental performance.

The required capital spending for CJPP is US$4 billion. Of the amount, 80% will be financed by the Japanese Bank of International Cooperation (JBIC) at a competitive rate over a 25-year period. The remaining 20% equity portion will be funded through commercial bank loans. Of this equity portion, AP is responsible for 34%. This financing structure helped improve the attractiveness of the project’s returns.

Plans for the CJPP have been faced with delays, specifically concerning challenges in land acquisition for the plant. However, the project has shown significant progress in 2015. Following the implementation of Law No. 2/2012 on Land Procurement for Development in the Public Interest in early 2015, the government assigned PLN to step in and assume responsibility for land acquisition and compensation in co-ordination with BPI and the National Land Agency.

The CJPP is the first IPP project that has made use of this new law, which helps give certainty to private firms undertaking public-interest infrastructure projects by mandating the sale by landowners of required land in exchange for fair compensation.

In June 2015, the governor of Central Java issued a location permit for the remaining land for the CJPP through Decree No. 590/35/2015, which legally requires remaining landowners to sell.

In August 2015, President Widodo officially launched construction at the CJPP site in tandem with an electrification program for 50 island and fringe areas in Batang, Central Java. Widodo’s personal inauguration demonstrates the government’s commitment and support for public-interest developments such as the CJPP.

In the fourth quarter of 2015, PLN approved an extension of the deadline for financial closure by six months to April 6, 2016. As land acquisition has entered its final stages and shown excellent progress, we are confident of achieving financial closure successfully.

PLN has estimated that the plant, which will be one of Indonesia’s biggest infrastructure projects to construct, will open up employment opportunities to a minimum of 5,000 local residents and give a significant boost to the economy of the surrounding area.
 

Location Map
Leadership Team

Dr. Ir. Kusmayanto Kadiman, President Commissioner
Chiharu Doi, Commissioner
Masahiro Imai, Commissioner
Shinichi Aburaya, Commissioner
Hiroyusa Sugiyama, Commissioner
Seigo Mizunuma, Commissioner
Bambang Widaryatmo, Commissioner
Eko Budihardjo, Commissioner
Takuji Motooka, Commissioner
Kenichi Seshimo, President Director
Kee Cheng Chye, Director
Takuyiko Saito, Director
Ryuta Sato, Director
Ir. Mohammad Effendi, Director
Yukihiro Hirabayashi, Director
Joseph Francis Chong, Director
Hiroyuki Otomo, Director
Tsuyoshi Okada, Director

South Kalimantan Venture

PT Tanjung Power Indonesia (TPI) was established in 2013 as an Independent Power Producer (IPP) to develop, build and operate a 2x100MW coal-fired power plant in South Kalimantan under PLN’s power upgrade scheme. TPI is a joint venture comprising AP (65%) and PT EWP Indonesia (35%), a directly-owned subsidiary of Korea East-West Power Co., Ltd.

This power plant will use circulating fluidized bed (CFB) technology and will use approximately 1Mt of coal per annum, the majority of which will be supplied by Adaro. The investment is an estimated US$450-US$550 million, most of which will be project financed using non-recourse debt.

The project is included in PLN’s fast-track program project phase 2, with a build, own, operate and transfer (BOOT) scheme guaranteed by the government in the form of a business viability guarantee letter.

The venture is a good example of our continuing commitment to develop partnerships with global blue-chip companies as part of our strategy to create maximum sustainable value from Indonesian coal.

This project has shown notable pre-construction progress in 2015, and we expect to achieve financial closure in the first half of 2016.

Environmental and Social Impact Assessment: Brief ESIA Summary
 

Location Map
Management team

Dr. Ir. Kusmayanto Kadiman, President Commissioner
Ir. Raden Sri Djoko Mulyohadi Kuntjoro, Commissioner
Kim Dong Hyun, Commissioner
Kee Cheng Chye, President Director
Richard Willem Tampi, Director
You Ki Sang, Director

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