Indonesia Considers Three-Step Plan to Close Coal Plants

Indonesia recently introduced three options to shut down its coal-fired power plants in an effort to meet its net-zero emissions target. The lengthy lifespan of Indonesia’s coal plants, which generate most of the country’s power, are the main obstacle to meeting the nation’s emissions goal.

To address this issue, the country has established a financing platform for its renewable energy projects, which includes the program to halt the operations of its coal-fired power plants. Indonesia has also appointed PT Sarana Multi Infrastruktur, a state-owned financing company, to manage the funds.

Despite the lengthy process, experts are optimistic that stakeholders will be able to make headway with its plan to axe the plants.

Director of corporate planning and business development at PLN, Hartanto Wibowo, introduced the measures, which included independent power producer refinancing (“IPP”), a spin-off with blended financing and writing off PLN’s book. PLN is a vertically integrated electric utility company that is owned by the Indonesian government.

In a statement, Hartanto also revealed that PLN and PT Bukit Asam had entered into a principal framework agreement that would likely be executed using the spin-off blended funding option. PT Bukit Asam is a state-owned coal mining company. The agreement’s objective would reduce the coal company’s operational life to 15 years from 24 years. It would then be followed by Bukit Asam acquiring the Pelabuhan Ratu coal plant.

Thus far, however, the agreement is going through a due diligence process. Elrika Hamdi, an energy economist for the Institute for Energy Economics and Financial Analysis, states that issues that could come up when implementing the agreement included the financial condition of the coal mining firm and the complicated valuation process. In a recent interview, Hamdi explained that the process could be tedious, noting that there were still questions regarding how Bukit Asam would pay to acquire the coal plant — whether it would  look for lenders, use its cash equity or access the blended finance scheme, as this would reduce the financing cost.

When the president director of Bukit Asam, Arsal Ismail, was asked when the due diligence process would be completed, he explained that the signing of the agreement marked the start of a discussion on the economic, technical and feasibility aspects of the transfer of Pelabuhan Ratu to Bukit Asam. Ismail added that during this process, the company would also conduct an analysis of the blended funding option provided by the Indonesian government. He then noted that the company was focused on ensuring that Pelabuhan’s acquisition wouldn’t affect PLN and Bukit Asam’s financial conditions.

The difficulty of closing existing coal energy plants around the world illustrates why suppliers such as Warrior Met Coal Inc. (NYSE: HCC) may remain in business for a many more years than some activists would wish.

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