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 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.