Indonesia's coal based power market

PRIVATE CIRCULATION ONLY 1

PRIVATE CIRCULATION ONLY

Glossary

Some abbreviations used

Abbreviations Full form

IPP Independent Power Project

GOI Government of Indonesia

EPC Engineering, Procurement and Construction

Law 30 Electricity Law no. 30 of 2009

MEMR Ministry of Energy & Mineral Resources

MW Megawatt

GW Gigawatt

TW Terawatt

TWh Terawatt Hour

MWh Megawatts Hour

kWh Kilowatts Hour

GDP Gross Domestic Product

FTP Fast Track Programme

USD United States Dollar

Abbreviations Full form

Bn Billion

Mn Million

IMF International Monetary Fund

CAGR Compounded Annual Growth Rate

PLN PT Perusahaan Listrik Negara (Persero)

PPU Private Power Utility

SOE State-owned Enterprises

CFPP Coal Fired Power Plant

PPP Public Private Partnership

DMO Domestic Obligation

MVA Mega Volt Ampere

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Indonesia - Macro economic indicators

• Being the most populous country in South Asia , Indonesia is also fourth populous country in world (after China, India and United States)

• Indonesia is also world's largest exporter of coal by weight and the eighth largest exporter of natural gas in 2011

• According to the International Monetary Fund (IMF), Indonesia was able to sustain relatively very good GDP growth rate 6 percent per annum in spite of economic slowdown

• Currently Indonesia’s GDP in 2012 is around USD 899 bn which has almost doubled from USD 432 bn in 2007

• The total electricity consumption per capita of Indonesia is very low at 0.6 MWh as in compared to its counterparts such as China (3 MWh), Japan (8 MWh) and Taiwan (10.7 MWh)

• Indonesia has power installed capacity of around 43 GW in 2012 where Coal alone has share of more than half in the energy mix

• Ministry of Energy and Mineral Resources (MEMR) is apex policy making body which is responsible for developing electricity master plan, laws and regulations

Indonesia’s robust infrastructure and strong governance has led it to achieve GDP growth rate of 6.2 % in year 2012-2013

Source:- World Bank, IMF, EIA , Future Outlook PLN’s Coal Fired Power Plant By Helmi Najamuddin

432 510 539 708

846 899

1,859 2,172 2,273

2,952

3,495 3,617

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

200

400

600

800

1,000

2007 2008 2009 2010 2011 2012E

GDP (USD Bn) GDP per capita

10.7 9.7

8.5 8

5.9

3.7 3

2.2 1 0.6 0.6 0.6 0.5

0

2

4

6

8

10

12

Per capita electricity consumption

World wise per capita electricity consumption in MWh

Indonesia’s total GDP in USD bn

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Electricity consumption and generation

• Total electricity production has seen a CAGR of 6% whereas electricity consumption has seen a CAGR of 5.5 %

• State owned PLN owns and operates about 85 percent of the country's generating capacity through its subsidiaries, and maintains an effective monopoly over distribution activities. Although the most recent 2009 Electricity Law ends PLN's distribution monopoly, there is a lack of sufficient regulations to enforce this law

• Indonesia has installed capacity of 43.6 GW of which PLN controls about 73% (31,944 MW), IPP 23% (9,856 MW) and PPU 4% (1,729 MW) respectively

Generation capacity growth in Indonesia has lagged behind the pace of electricity demand growth, leading to power shortages and a low electrification ratio

118 126 134 141 153 161

170

515 546 572

597 641

666

695

0

100

200

300

400

500

600

700

800

-

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011E 2012E

Electric power consumption (TWh)

Per capita electricity consumption (kWh)

133 142 149 156 169 176 183

579

612 636 660

708 740

778

-

100

200

300

400

500

600

700

800

900

-

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011E 2012E

Electricity production (TWh)

Per capita electricity production (kWh)

Source:- World Bank, Future Outlook PLN’s Coal Fired Power Plant By Helmi Najamuddin

Total electricity production Total electricity consumption

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Expected growth in electricity consumption (10 year forecast)

• Indonesia’s demand for electricity will see a CAGR of 9% year on year basis. The expected demand would be 389 Terawatts Hour (TWh) in 2021 which is almost double of 194 TWh in 2013

• Java-Bali itself has been prominent in contributing to huge demand for electricity by maintaining a share of about 75% throughout in the past and will behaving same share in future as well. Remaining regions contribute just about 25% to total electricity demand

• In order to lower the demand of electricity consumption, Indonesia’s only state owned power company PLN has planed to have 100% solar energy based electricity generation at 100 small islands till 2014

• The expected electricity generation would be around 118,616 kW which would be generated at West Indonesia (61,285 kW), East Indonesia (50,507 kW) and Java Bali (6, 284 kW) at 358, 293 and 21 locations respectively

Like other nations, Indonesia is also looking at renewable sources of energy in future

Region wise electricity power demand in TWh

125 150

179 213

253 294 38

44

55

68

82

95

161

194

234

281

334

389

0

50

100

150

200

250

300

350

400

450

0

50

100

150

200

250

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2011 2013 2015 2017 2019 2021

Outside Java-bali

Java-Bali

Expected total electricityconsumption (TWh)

Source:- Future Outlook PLN’s Coal Fired Power Plant By Helmi Najamuddin

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Power demand and supply gap in different regions

• Indonesia has achieved its goal of having installed capacity of 43.6 GW in the year 2012. Its peak load has remained almost same at an average of 23 GW per year.

• In order to find a equilibrium between supply and demand, In 2006 GOI introduced the first phase of the Fast Track Programme (FTP) to add 10,000 MW of generating capacity from new coal-fired power plants. The programme consists of ten projects, with a total of 7,460 MW, in Java, and another 23 projects with a total of 2,513 MW outside Java Island. GOI also has started implementation of its second phase of FTP in which addition of 10,000 MW more

• Some other projects includes building two gas fired plants in South Sumatra, consisting of plants at Prabumulih (200 MW) and Musi Rawas (400 MW), bidding on a USD 1 bn expansion of the Muara Tawar power project in Bekasi, West Java, in the near future

In order to maintain a equilibrium between supply and demand , many new projects and initiatives have been taken

Source: Rukn Indonesia_demand_report 2012-2021, Norton Rose- Indonesian Energy Report

31.6 24 1

32.6

11.9

9

0.4

12.34

43.6

33

1.4

45

0

5

10

15

20

25

30

35

40

45

50

Installed base capacity Peak load Additional power On going capacity plan for 2013

Java Bali Out of Java Bali

Power demand and supply gap in 2012 (Giga Watts - GW)

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21,547 22,834

31,592

42,820

51,530

61,690

4,986 5,284

7,310

9,908

11,923

14,274

1,250 1,325

1,833

2,484

2,990

3,579

1,209 1,281

1,773

2,403

2,892

3,462

330 350

484

656

789

945

29,688 31,462

43,529

59,000

71,000

85,000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

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10000

20000

30000

40000

50000

60000

70000

80000

90000

2006 2008 2012 2016 2018 2020

Jamali Sumatera Kalimantan Sulawesi Maluku Papua Nusa Tenggara Total

Installed power generation capacity by region - historical and forecast

Both Jamali and Sumatera have been contributing almost 89% to the nation’s overall installed capacity throughout years

Source:- Rukn Indonesia_demand_report 2012-2021

Installed power generation capacity by region – historical and forecast (MW)

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Share of coal in energy mix-5 year mix

• Indonesia has been the largest exporter of thermal coal, typically used in power plants, for several years. In 2011, it overtook Australia as the world's largest exporter of coal by weight

• Unlike many other countries, Indonesia's government encourages increased use of coal in the power sector, due to relatively abundant domestic supply and as a way to reduce the use of expensive diesel and fuel oil. Although coal consumption has grown significantly in the last decade, the majority of production has gone toward exports

• In order to guarantee sufficient domestic supply, the Indonesian government set a 24% domestic market obligation for producers, which it revised down to 20% in October 2012 due to lower than expected consumption

Over the past years in Indonesia, share of coal in energy mix has reduced, thereby increasing its dependence on other resources

Source: World bank, EIA

58 63 61 65 68 79 93

44% 44% 41% 41% 40%

45%

51%

0%

10%

20%

30%

40%

50%

60%

-

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012

Electricity production from coal sources (TWh)

Electricity production from coal sources (% of total)

257 274 247

321 358

414 455

24

60 55 63 63 73 91

201 214 220

257 294

341 379

122 75 123 76 61 61 53 0

50

100

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200

250

300

350

400

450

500

2006 2007 2008 2009 2010 2011 2012E

Coal production (Mn Tons) Coal consumption (Mn Tons)

Coal exports (Mn tons) Coal imports (thousand tons)

Coal’s share in energy production Total coal production and consumption

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Competitors overview and profile - 1

PT PLN (PERSERO) is the only 100% state-owned power utility company in Indonesia

Source: Future Outlook PLN’s Coal Fired Power Plant By Helmi Najamuddin, Company Website

PT PLN (Persero)

PT PLN Tarakan

Regional Fully Integrated Electric Utility

PT Pembangkitan Jawa Bali

Electricity Generation

PT PLN Batam

Regional Fully Integrated Electric Utility

PT Indonesia Power

Electricity Generation

PT PLN Geothermal Geothermal Energy

Generation

PT Pelayaran Bahtera Adhiguna

Coal Shipping Activities

PT PLN Batubara Coal Supplier for PLN

PT Prima Layanan Nasional Enjiniring

Engineering and Construction Services

PT Indonesia Comnets Plus

Telecommunications for the Electricity Sector

Majapahit Holding B.V. Financial Institution

Note:- Excludes Joint Ventures

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Competitors overview and profile - 2

• PT PLN Persero (PLN) is Indonesia’s state-owned electric utility company, wholly-owned by the Government of Indonesia and is represented by the Ministry of State-Owned Enterprises (SOEs)

• —PLN is the major provider of public electricity and electricity infrastructure in Indonesia, including power generation, transmission, distribution and retail sales of electricity

• Under the New Electricity Law (No. 30/2009), SOEs, which includes PLN, have the first priority to decide whether to be the electricity supplier for the public needs of a specified area before such right can be awarded to anyone else

o If PLN declines to undertake a public electricity supply business for a certain area, the Government or regional governments may offer this right to regional-owned companies, private enterprises or cooperatives

o If there are no regional-owned companies, private enterprises or cooperatives that elect to supply electricity in that area, the Government is obligated to instruct SOEs (which includes PLN) to supply electricity to the area

Introduction and key business segments

Generation

• Controls approximately 28,308 MW of installed generating capacity, over 85% of Indonesia’s total

• Owns and operates 1,261 generation plants

• Main purchaser of electricity from Independent Power Producers (IPPs)

Transmission

• Sole provider of power transmission in Indonesia

• Approximately 36,741 kmc of transmission lines

• 66,354 MVA of transmission transformer capacity

Distribution

• Sole distributor of electricity to end customers in Indonesia

• Approximately 685,785 kmc of distribution lines and 36,430 MVA of transformer capacity

• Serving approximately 44 mn customers

Key business segments

Source: Future Outlook PLN’s Coal Fired Power Plant By Helmi Najamuddin, Company Website

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Key regulations and initiatives by governments

• Indonesia has been aggressive in its quest for increasing the penetration of electricity in its region. Currently, Electrification ratio (area having access to electricity to total area of Indonesia) is 75.3%. Due to its continuous efforts in rural electricity programing, Government plans to achieve 99.2% electrification by year 2020

• Due to lack of substantial budget, still there are areas which does not have access to electricity particularly outside Java-Bali region

• Based on PLN’s Electricity Business Plan (RUPTL PLN) 2011 - 2020, the growth rate of demand for electricity would be around 8.5%. GOI also plans to increase its dependence on Coal generation as being largest exporter of it, there by reducing demand for Oil fuels in future

• Under the Government's domestic obligation (DMO) program, larger coal companies in Indonesia must sell approximately 25 percent of their production domestically. Around 70 % of DMO coal goes to power plants operated by the country's state electricity company, PLN

Indonesia’s government plans to increase coal’s share in its energy mix in future

Source: EIA, Future Outlook Pln’s Coal Fired Power Plant By Helmi Najamuddin, Rukn Indonesia Demand Report 2012-2021

75.3

86.37

99.2

0

20

40

60

80

100

120

2012 2016 2020

Electrification ratio

Electrification ratio

62.80%

18.80%

0.80% 11.00%

6.50% 0.10%

2021

Coal

Gas

Oil fuel

Geothermal

Water

Others

51.08%

22.60%

15.01%

4.75% 6.44% 0.12%

2012

Primary energy mix - current and future forecast

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Conclusion

• Indonesia’s electricity demand is still high thus there is need of huge additional capacity of generation, transmission and distribution

• The government encourages participation of private sector to cooperate with PLN through EPC project, IPP project and PPP (Public Private Partnership) projects

• The government is committed to maintain the PLN’s financial viability in order to meet its obligations to other parties, by providing subsidies

• For the next 10 years, the electricity supply in Indonesia is still relying on CFPP (Coal fired power plant), it is because the availability of abundant coal as primary energy and cost of production is relatively cheap compared to other power generation, but still abiding environmental laws

• The government passed the 2009 Law on Mineral and Coal Mining No.4 to increase foreign investment into the mining sector. The law introduces more transparent and standardized tenders and licenses for mining blocks. As of 2012, the law is not fully implemented, though there has been some increase in investment levels since 2009

• Indonesia passed a new law for the electricity sector in September 2009, Law No. 30 of 2009,(Law 30). Law 30 introduces three key reforms:

1. PLN will no longer have a monopoly in supply and distribution of electricity to consumers

2. Private businesses may provide electricity for public use, but subject to a “right of first priority” granted to state-owned companies (ie, PLN)

3. A greater role for provincial and regional governments in terms of support for future projects, licence granting and tariff fixing

• This will generate avenues for private players to actively involve in PLN's IPP program for the 10 year period as it gives developers and lenders guidance as to what private sector IPP projects will be tendered out by PLN over the coming years

There is immense opportunity for private players to grow along with support of state owned PLN through IPP and PPP projects etc.

Source: EIA, Future Outlook Pln’s Coal Fired Power Plant By Helmi Najamuddin, Rukn Indonesia Demand Report 2012-2021

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Report prepared by

Name:- Suparn kumar kuer

Email id:- [email protected]

Contact no:- +91 9869712408

Thanks

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Indonesia's coal based power market

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