PLN signed a sales and purchase agreement to acquire full ownership of PT Mandau Cipta Tenaga Nusantara (MCTN), the company that supplies most of the block's electricity, from PT Chevron Pacific Indonesia (CPI), which currently operates the block and is controlled by Chevron Corporation in the United States.

CPI had initially intended to auction off MCTN as part of its Rokan Block exit plan, a move that regulators feared would disrupt electricity supply to the off-grid site. PLN did not disclose the value of the deal reached with CPI but previously said it would offer around $30 million to acquire MCTN, much lower than Chevron’s offer price of $300 million.

“This deal is very important to ensure the continued supply of electricity to the Rokan Block in the coming years,” Deputy SOE Minister Pahala Mansury said during the signing ceremony for the deal on Tuesday.

The deal concludes one of the more challenging of nine elements related to the block’s nationalization, which also include transferring data, manpower and licenses from CPI to Pertamina Hulu Rokan, an upstream subsidiary of state-owned oil and gas giant Pertamina.

CPI, which has operated the Rokan Block since 1971, is slated to hand over the site to Pertamina on Aug. 8.

Read also: Pertamina wins lucrative Rokan Block contract

MCTN operates the 300-megawatt North Duri cogeneration gas-fired power plant (PLTG) that supplies most of the 400 MW required by the block. The remaining power comes from PLTG Minas and PLTG Central Duri, which have a combined capacity of 130 MW.

MCTN’s plant also produces 335,000 barrels of steam per day (MBSPD) that Chevron uses to push out more oil from the aging block.

The government expects Pertamina to maintain the block’s production level, which declined by 9.2 percent to 190,131 barrels per day in 2019. Prior to 2019, the Rokan Block was Indonesia’s most productive oil block.

Chevron Standard Limited regional director Jennifer Ferratt said in a statement on Tuesday that the deal was hoped to ensure a smooth transition of the Rokan Block.

As of March 31, the Rokan Block contributed 23.9 percent of Indonesia’s total 679,529 barrels of oil per day (bopd) output, second only to the Cepu Block’s 31.3 percent contribution, according to the Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas).

“PLN has to guarantee the electricity supply to the Rokan Block so that Pertamina can continue producing 25 percent of the country’s total oil output,” said Energy and Mineral Resources Minister Arifin Tasrif.

Read also: Pertamina to drill up to 180,000 bpd from Rokan oil block after takeover

PLN president director Zulkifli Zaini said the electricity company would use MCTN’s plant to supply power and steam to the Rokan Block for three years before connecting the block to the Sumatra power grid and to a new steam generator.

The two state-owned energy companies signed agreements in December last year and January this year that guaranteed PLN as the electricity and steam supplier for Pertamina’s operations in the Rokan Block.

“Right now, and going forward, PLN’s larger grid systems, such as Java, Sumatra, Kalimantan and Sulawesi, have a pretty big electricity reserve margin – 40 to 50 percent – that can serve the oil and gas industry,” he said.

The high reserve margins are a burden on the finances of the electricity monopolist, which has been scouting the domestic market for new electricity offtakers, including metal smelters, industrial zones and new tourist hotspots.