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Adaro wants more power plants to shift core business
The nation’s biggest coal miner by market value Adaro Energy aims to develop more power plants as it tries to shift its core business from mining to power procurement for the long term
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he nation’s biggest coal miner by market value Adaro Energy aims to develop more power plants as it tries to shift its core business from mining to power procurement for the long term.
Volatile coal prices have severely hurt Adaro during the past few years as its business is mostly based on the commodity’s export, prompting it to transform its line of work.
Within the next five years, the firm wants to generate 5,000 megawatts (MW) of electricity, more than double its current capacity, according to president director Garibaldi “Boy” Thohir.
When that happens, Adaro will retain half of its coal output for its own use and export the rest. At present, it maintains only one fifth of its overall production domestically.
“We want to be involved in more power plant projects, maybe in those located in Sumatra, Java and Kalimantan, as we expect to optimize our mining assets developed there,” Boy said on Tuesday.
The company currently runs three coal-fired power plant projects that in total will be able to generate 2,260 MW of electricity.
The first facility with 2x30 MW capacity is located in Tabalong, South Kalimantan, has been operating since June 2013. Adaro is still developing another two, namely a 2x100 MW facility also in Tabalong and a 2x1,000 MW facility in Batang, Central Java.
In recent decades, Adaro had invested US$955 million, including for acquisitions of 16 coal mining concessions, in the country’s main coal-producing islands Kalimantan and Sumatra.
Claiming that it controlled sufficient coal stocks to fuel a number of power plants nationwide, Boy said he was optimistic about the active role that his firm could play to support the government’s ambitious power generation goal.
The current administration has targeted to supply an extra 35,000 MW by 2019 to raise the national electrification ratio to 97 percent by 2019, up from the current ratio of 88.3 percent.
Coal-fired power plants are expected to contribute 56.97 percent of overall power capacity.
According to Boy’s calculation, a 1,000 MW power plant will need around 5 million tons of coal each year and 125 million tons for 25 years, the period generally agreed to in a power-purchase agreement (PPA) between an independent power producer (IPP) and state-owned electricity firm PLN.
“If we want to procure 20,000 MW of electricity, we will need 2.5 billion tons of coal. We are ready to facilitate this,” Boy said.
Currently, the electricity reserve margin—the gap between capacity and peak demand—in regions like Kalimantan and Sumatra only stands at 7 percent to 8 percent, far lower than the International Energy Agency’s (IEA) guidelines of between 20 and 35 percent.
“Hence, [Adaro’s] power plant development in Kalimantan will strengthen the region’s overall electricity network to support the needs of industry players and households,” Coordinating Economic Minister Darmin Nasution said.
Adaro’s revenue dropped by 15.8 percent to $1.77 billion in the first nine months of 2016 from the previous year.
However, several efficiency measures effectively cut its costs by 21.67 percent to $1.31 billion, causing its net profit to soar by 16.16 percent to $209.1 million.
It produced 51.4 million tons of coal in 2015, of which 40.4 million was shipped overseas, where the remainder was sold in the domestic market.
The company sold 16 percent of its coal production to China throughout 2015, and 13 percent to India and Japan.
For both 2016 and this year, the company maintained a target of producing 52 million to 54 million tons annually.
