PTBA acquires PLN’s assets to rush coal-fired power plant retirement
State-owned electricity company (PLN) has kicked off its first coal-fired power plant (PLTU) asset spinoff to reach net zero emissions (NZE) target by 2060. Funded by blended financing, state-owned coal miner PT Bukit Asam (PTBA) is taking over PLN’s shares in PLTU Pelabuhan Ratu at US$800 million.1
PTBA recently signed a principal framework agreement (PFA) with PLN on Oct. 18 with PLN, agreeing to move forward PLTU Pelabuhan Ratu’s retirement date by 9 years. In the meantime, PTBA would optimize its coal, securing demand for 4.5 tons per year for the next 15 years, to operate the PLTU with 3 x 350 Mega Watt (MW) capacity.2
PLTU Pelabuhan ratu is the backbone of the southern region of Java’s electricity production. The plant began operations in 2012 and was originally meant to be retired after 24 years of operation. As a part of the agreement, the PLTU would move forward its retirement by reducing its operation period to 15 years
PTBA was chosen as the new owner of the PLTU due to the geographical proximity of the plant, which would make it relatively easier for PLTU Pelabuhan Ratu to integrate into PTBA’s supply chain.
According to Deputy State-Owned Enterprises (SOEs) Minister Pahala Mansury, PLTU Pelabuhan Ratu emits approximately 4 to 5 million tons of CO2 every year, which means that this accelerated retirement would reduce CO2 emissions by around 50 million tons.3
According to State-Owned Enterprises Minister Erick Thohir, PLN will use the funds they gained from the corporate action to further develop the nation’s renewable energy industry. PLN plans to sell more of its PLTU assets on the pipeline, with PLTU Pacitan expected to come next.
To acquire PLTU Pelabuhan Ratu, PTBA uses financing from the energy transition mechanism (ETM) payment plan, which is a financing plan that was made in collaboration between the Asia Development Bank (ADB) and Finance Ministry's investment vehicle PT Sarana Multi Infrastruktur (SMI). The ETM is a transformative, blended-finance approach that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity.
The ETM will comprise two multibillion-dollar funds. The first is devoted to early retirement or repurposing of coal-fired power plants on an accelerated timeline, and the other focused on new clean energy investments in generation, storage, and grid upgrades. It is envisioned that multilateral banks, private institutional investors, philanthropic contributions, and long-term investors will provide capital for ETM.4
One source in the government said it had other plans from the PTBA corporate action to buy power plants from PT PLN. The State-Owned Enterprises (SOEs) Ministry hopes that the purchase of the power plant assets can bring positive sentiment, especially to attract other potential investors to buy PLN's power plants "so that it is as if the PLTU that is about to retire is selling well in the eyes of investors", said the source.
One entity that was widely mentioned was the Indonesia Investment Authority (INA). Through the INA, the SOEs Ministry is offering other PLTUs. Moreover, the government has the ambition to achieve net-zero emissions by 2060. The investors approached have been pension funds from Scandinavian countries, including philanthropic funds from these countries.
A source familiar with the government's plan to terminate the PLTUs said the investor's intention in the PLN power plant was just for introduction. The source was not sure if the fund owners were willing to invest their money in PLN's power plants, whose operation period may not be long. The investors who were approached by INA actually preferred to look for investment portfolios for the long term. They were looking for investment certainty. In order to attract foreign investors, the offered assets should not be ones that are about to be retired.
Another source said PTBA was deliberately sacrificed to buy PLN's PLTU assets. He said the corporate action was more to save PLN's books and cash flow. It is only natural that the purchase of the PLTU gives negative sentiment in the market, especially since there are 33 percent public shares in PTBA. Meanwhile, the government already has a plan to retire PLTUs owned by PLN.
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