New investors to take over Kayan hydro power plants in N. Kalimantan
China-backed PT Kayan Hydro Energy (KHE) has a gigantic plan of building five hydropower plants in Bulungan, North Kalimantan, at the cost of US$17.6 billion to supply 11,000 megawatts (MW) of electricity. Ten years have passed since the company secured its location permit in 2012, but nothing has really happened. The government now has a different plan, to bring in new investors to kickstart the stalled hydropower project, that is expected to be integrated with what will be the world’s largest green industrial estate.
Bulungan Regent Syarwani said recently that KHE’s location permit expired in February and the administration had no plan to renew the permit as the company did not show any seriousness in realizing its investment plan.1 2 KHE, however, has its own version about the permit, saying that it had secured a spatial plan suitability permit (PKKPR) from the Agrarian and Spatial Planning Ministry in place of the location permit. Based on Government Regulation (PP) No. 21/2021, which was issued based on the 2020 Job Creation Law, the PKKPR replaces a location permit.
As pressure mounted on KHE, the company announced that it would soon start building the first, 900-MW hydropower plant as the company had secured most of the required permits, including to use forest areas around the Kayan River. The power plant will cost around $2.8 billion.3 Sinohydro Corporation Ltd., a subsidiary of PowerChina, will be in charge of the engineering, procurement and construction process of the hydropower plant. Construction is projected to be completed by 2025 and commercial operation will commence one year later.4
The government, however, seems to have a different plan. President Joko “Jokowi” Widodo’s righthand man Coordinating Maritime and Investment Minister Luhut Binsar Panjaitan has been courting investors that have interests in investing in North Kalimantan, including Andrew Forest of Australia, the founder of Fortescue Future Industries Pty Ltd 5 Tshinghan of China. Luhut is also said to back Garibaldi “Boy” Thohir to take over the stalled Kayan hydropower project. (See What we’ve heard)
Boy, who leads the consortium of domestic investors to build what is expected to be the world’s biggest green industrial estatate in Tanah Kuning, Bulungan, has an interest in seeing the hydropower project go ahead because the industrial estate will rely on the supply of its electricity from the nearby Kayan hydro power plants.
The Kayan hydropower project, better known as Kayan Cascade, will have five dam construction projects. Kayan 1 will have a capacity of 900 MW, Kayan 2 will have 1,200 MW, Kayan, 3 and 4 each 1,800 MW and Kayan 5 will have a capacity of 3,300 MW. KHE says it expects to complete all five projects in 10 years.6
The green industrial estate, owned by PT Kalimantan Industrial Park Indonesia (KIPI) and PT Kawasan Industri Kalimantan Indonesia (KIKI), is going to be worth US$132 billion. Boy Thohir said the estate did not involve the government’s money, as it was an entirely business-to-business initiative.
At the initial stage, local investors would work with investors from China and Abu Dhabi. In the later stage, Boy said, investors from Europe and the United States would join.7 Boy added that the green industrial estate was driven by rising global demand for green products. In the future, he said, demand for green products would continue to rise, and it was time for Indonesia to prepare itself for the new trend.8
The industrial estate will target the petrochemical industry, green aluminum, electronic aluminum, stainless steel, new energy battery plants, industrial silicon, polycrystalline silicon and solar panels. The estate will source its electricity from renewable energy, mainly from hydro power plants currently being built by Chinese investors on the Kayan river, and solar energy.9
President Jokowi, who broke ground on the construction of the green industrial estate last December, said the estate would transform the country’s economy from commodity-based to manufacturing-based.
A number of sources in the government have mentioned that Luhut Pandjaitan's efforts to take over the Kayan hydropower mega-project and its industrial area had actually been occurring since 2019, after the industrial area was included as a national strategic project (PSN).
One source added that the slow development of the Kayan hydropower plant was an opportunity for Luhut to take over the project.
However, PT Kayan Hydro Energy (KHE) had already started the groundbreaking of this project since 2014. The company had also obtained a business permit for electricity operations in 2019, which is valid for 30 years.
According to the source, the problem was that as the proponent of the project, the KHE had not yet reached an agreement with potential investors in the industrial area, who would also become consumers of the electricity generated from the Kayan hydropower plant.
In this tug-of-war, representatives of the Tsingshan Group in Indonesia – who claimed to be Luhut's envoy – wanted to take over the Kayan hydropower plant concession from the KHE. They had met Candra Limanjaya, the owner of the KHE.
A source who was aware of the meeting said that Tsinghan would develop the Kayan hydropower plant, along with its industrial area. This scheme would be similar to the development of the Morowali Industrial Park.
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