Under the agreement signed in Jakarta on Jan. 31, PLN will provide 30 megawatt (MW) to an iron smelter owned by PT Sebuku Iron Lateritic Ores (SILO) on Sebuku Island in Kotabaru regency.

However, PLN will have to build a nearly 40 kilometer power grid to connect the smelter to the company’s distribution network in Kotabaru, South Kalimantan.

In addition to SILO, which will become PLN’s second-largest buyer in the province, the electricity company also expects to secure contracts to provide power to other mineral ore smelters under construction in the region.

“The electricity supply in South Kalimantan is sufficient. It’s just a matter of how we can extend our electricity grid to these smelters, mostly located far from our grid,” PLN business director Syamsul Huda said following the signing of the agreement, adding that the company had seven other agreements to be signed this year.

He, however, noted that PLN’s grid would only enter Sebuku Island, which is separated from the regency’s capital by a strait, in around 10 months. The company will soon build a high-voltage power grid to connect the smelter with its power distribution network in Kotabaru, which is 40-km from the island.

PLN is expanding its electricity network in mineral-rich regions, including Kalimantan and Sulawesi, as the company expects to provide power supply to new smelters in the regions, which will need power supply of about 4,000 MW to accommodate the smelters.

A number of mining companies in Kalimantan and Sulawesi are building their own smelters to process their ore production. Beginning in 2022, the mining companies will not be allowed to export ore.

Speaking at the same event, SILO chief executive officer Effendy Tios said the company had until now used its own diesel-fired power plant, which will be later used as backup power after the company receives the power supply from PLN.

Switching to PLN enables the iron producer to reduce electricity costs from Rp 3,000 (22 US cents) per kilowatt hour (Kwh) to Rp 1,200 per Kwh.

“Many companies have offered to provide electricity to the island but, once they saw a strait, they backed out,” he said.

SILO is expanding its smelter’s capacity. Once expansion is completed in 2021, the facility will consume 6.3 million tons of iron ore each year to produce around 2.2 million tons of iron concentrate.

The company has an option to increase its power purchase to 120 MW to accommodate in the processing capacity in the future.

According to Energy and Mineral Resources Ministry data, South Kalimantan only needs an additional supply of 13 MW from new diesel plants and coal plants in the province to accommodate several new smelters in the province because there will be an additional supply from neighboring provinces.

Aside from SILO, PT Angkasa Jaya Mulia is expected to have a nickel-iron smelter operational in Tanah Bumbu regency by 2021.

The capacity of the upcoming plants in South Kalimantan are small. PLN’s Syamsul noted that much of the iron-rich province’s power will come from neighboring Central and East Kalimantan. PLN interconnected the three provinces’ electric grids on Oct. 21 last year.

Syamsul said the three provinces combined power was 2,002 MW, whereby peak consumption was 1,375MW and thus, there was an above 30 percent surplus in electricity.

“Electricity supply is no longer a problem for businesses that want to invest in South Kalimantan and Central Kalimantan,” he said.

Furthermore, energy ministry data also shows Kalimatan’s electricity reserve margin ratio — the difference between power capacity and peak demand — is set to increase to 50 percent by 2022. PLN’s best practice ratio is 30 percent. Higher ratios secure local industries against unexpected spikes in regional power consumption.

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