PGE to go public, geothermal holding firm plan shelved
The country’s largest geothermal power developer PT Pertamina Geothermal Energy (PGE) plans to conduct an initial public offering (IPO) of its shares through the Indonesian Stock Exchange (IDX) later this year to raise public funds to develop untapped geothermal energy potential in the country. PGE’s IPO puts the government’s plan to establish a geothermal holding company on ice.
It was State-Owned Enterprises (SOE) Deputy Minister Pahala N. Mansury who disclosed PGE’s IPO plan. Pahala said last week that PGE – a subsidiary of state-owned oil and gas company Pertamina – would list its shares with the IDX in March and the IPO itself would be conducted in June, in which the company would sell between 20 and 30 percent of its shares to raise between US$400 million and $500 million.1
Pahala said the timing of the IPO was chosen to ride on the momentum of renewable energy. “We think the momentum is right. People are talking about decarbonization, especially after COP26 (climate conference in Glasgow), almost everyone is talking about new and renewable energy.”
Analysts are positive about PGE’s IPO plan, saying that PGE would be attractive for green savvy investors. PGE, currently the largest geothermal developer in the country, operates 672 MW of geothermal plants, or 30 percent of Indonesia’s geothermal capacity of 2,175.6 MW. And it needs more capital to further increase PGE’s geothermal capacity.2
Compared to other renewable energy sources, geothermal energy has some edges. First of all, it supplies electricity continuously, 24 hours a day, not intermittently like solar or wind energy. Secondly, it is relatively competitive, with a production cost at around 7 to 8 US cents per kilowatt hour (kWh). It is also more competitive even than solar energy, which in Indonesia costs around 6 US cents per kWh. Solar, however, needs an energy storage system to provide continuous electricity supply, especially at night, which costs another 6 US cents per kWh, and therefore, the total cost of solar energy is 12 US cents.3
Pahala, however, did not explain about the SOE Ministry’s earlier plan to establish PGE as a geothermal holding company that would acquire stakes of other state-owned geothermal companies, namely PT PLN Gas and Geothermal (PLN GG), PT Geo Dipa Energi and PT Indonesia Power.
Sources, however, said the plan to create the holding company had been put on hold for now, following opposition from the PLN Labor Union (SPPLN) and Indonesia Power Labor Union (PPIP) as they disliked the government’s plan to put all geothermal companies under PGE, which is under Pertamina. They also slammed the government’s plan to float PGE on the capital market, arguing that it would lead to the commercialization of electricity. They demand that the new holding firm be put under PLN, which has 39 years of experience operating and managing geothermal power plants.4
Among the three geothermal companies, PGE has the greatest assets, operating 672 MW of geothermal plants with total assets of Rp 35.98 trillion (US$2.5 billion), compared to 12.5 MW under PLN and 120 MW under Geo Dipa. Also, PGE has better access to commercial funding.5 Together, they have a combined installed geothermal capacity of 1,022.5 megawatts (MW), or nearly half of Indonesia’s geothermal capacity of 2,175.6 MW. If materialized, the new entity would be the biggest in the world in terms of installed capacity.6
With 2,326.7 MW installed this year, geothermal power plants are the second-largest renewable energy source after hydro energy. This is only 9 percent of the total geothermal potential in Indonesia, far from the target of 3,109.5 MW set in the National General Energy Plan (RUEN).7
The government aims to quadruple Indonesia’s geothermal capacity to 5,400 MW by 2030 or an additional 3,300 MW – of which PGE will contribute 920 MW.8 The Energy and Mineral Resources Ministry estimated that Indonesia had a geothermal potential of around 23,965 MW, the second-largest in the world after the United States, which has around 30,000 MW.
Stakeholders have already identified several hurdles in developing geothermal power plants in Indonesia: low offtake prices as well as complicated licensing and land permit issues, with most of the unexploited geothermal potential located in protected, isolated areas. This makes exploration costly and investors would need to build a grid to deliver the electricity to customers.9
A number of sources in the government have said that the plan to form the geothermal holding company was cancelled because PLN had, from the start, refused to merge its assets into PGE. Geo Dipa also refused to have its geothermal assets merged into PGE.
PLN reportedly lobbied a number of institutions, including the SOEs Ministry and the Finance Ministry, to cancel the geothermal holding plan. The state-owned power provider argued to the Finance Ministry that the formation of a geothermal holding company would cause its finances to deteriorate further.
A source at the SOEs Ministry said the consolidation of PLN's geothermal power plant assets, which are considered “green”, into the holding would make it harder for PLN to obtain low-cost financing because the company had been using the environmentally friendly assets as collateral to obtain green financing.
However, another source said the refusal was more a consequences of the sectoral egos of the two state-owned companies. PLN felt it knew the most about the electricity and power generation business. However, Pertamina thought that PGE knew best when it came to the exploration of geothermal energy sources in the upstream sector and power plants in the downstream sector.
This tug of war caused Pertamina to push PGE to immediately go public by itself — with or without the formation of a geothermal holding company. The establishment of the geothermal holding company had been intended to boost the valuation of the new entity before it listed on the stock exchange. SOEs Minister Erick Thohir is said to have given the green light to Pertamina.
Although it received the green light, PGE was not sure its IPO target for the first half of the year could be achieved, not to mention its targeted earnings of between Rp 5 trillion and Rp 7 trillion from its stock exchange listing.
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