Government gives the green light to renewable power

OIL now accounts for only 15-20 percent of energy exports.

For decades the fortunes of the Indonesian economy have been intimately linked with the world price of oil and natural gas, as hydrocarbon exports have provided the main source of foreign exchange earnings and cheap energy for the domestic market.
Sovereign ownership of the country’s mineral resources legally rests with the people, for whom the Ministry of Mines and Energy administers their exploitation. Since 1968, the giant, state-owned energy firm Pertamina has been responsible for the practical side of these operations.

While keeping the ownership of reserves in Indonesian hands, the government has nonetheless been obliged to involve foreign firms in their exploitation, due to the need for capital and advanced technology. Partnerships are on the basis of fixed-term agreements, usually profit-sharing contracts.
From time to time, these deals expire, as has happened recently with the contract held by U.S. oil and gas firm PT Caltex Pacific Indonesia, covering the Coastal Plains Pekanbaru block in the province of Riau.

Officials want to reduce pollution and are keen to increase the use of renewable energy

Taking over that block will be the first big task of Indonesia’s new oil and gas implementing body, Barak, which has ended Pertamina’s monopoly of the sector. This change results from legislation passed last year aimed at liberalizing the industry.
With oil reserves becoming depleted and few new fields being discovered, increasing emphasis is being placed on natural gas. It is estimated that Indonesia has more than 130 trillion cubic feet of gas reserves. One particularly rich field lies in the East Natuna region and could become a major supplier for South East Asia in the future.
At a meeting of Asean energy ministers on the island of Bali in July, a memorandum of understanding was signed for the construction of a $7 billion gas pipeline across the Asean region, linked to Indonesia’s supply.
Energy Minister Purnomo Yusgiantoro hails this as a real achievement, and says an Asean Gas Consultative Council will be set up soon to oversee the realization of a gas grid.

INDONESIA’s third-largest coal producer is PT Bukit Asam.

Mr. Yusgiantoro is also keen to see domestic energy consumption switch to gas. He points out that people prefer to use oil-based fuel because it is still subsidized by the government. “But when the subsidy is lifted in 2004, this will hopefully trigger the use of natural gas,” he says.
Cost is not the only factor, as gas is widely viewed as being more environmentally friendly and the government is keen to reduce pollution.
In a similar vein, along with its Asean partners, Indonesia is investigating the possibility of increasing the use of new and renewable energy resources, though these are unlikely to provide a significant proportion of the region’s needs in the short-term.
While oil used to be king, coal is quickly catching up and is poised to become the new leading light of the country’s energy exports.

Oil currently accounts for 15-20 percent of exports. Back in the late 1970s and early 1980s, it provided four-fifths of Indonesia’s export earnings and was the driving force behind rapid economic development.
It is only a little over two decades since large-scale mining operations got under way, but since then Indonesia has become the third-largest producer of coal in the world. Production now runs at more than 70 million tons a year, a figure which government officials say should even double by 2005.
The plan is to develop the coal sector for domestic consumption, particularly for power generation, in order to preserve the oil and natural gas reserves for export markets. Even so, coal has still managed to make its way into
the top-10 league of Indonesia’s non-oil exports during the last few years.
However, the scope for big exports is restricted by the quality of the coal contained in Indonesia’s reserves. Estimates vary, but about two-thirds of reserves are of lignite, low-grade ‘brown coal’, which is best used in power stations.

President Director of PT Tambang Batubara Bukit Asam

Probably less than a fifth of the total is composed of high-quality coals such as anthracite, which is in demand and attracts the best prices on the world market.
Indonesia’s third-largest coal producer is the state-owned PT Tambang Batubara Bukit Asam, known as PT Bukit Asam. The company operates two coal mines in Tanjung Enim, South Sumatra, and Ombilin, West Sumatra. The mines are serviced by three port facilities and the company is upgrading rail connections to improve transportation.
The two mines produced more than 10 million tons of coal in 2001. All brands are of low ash and sulphur content, which is good for environmental reasons. About 80 percent of output is destined for the domestic market.
Company President Director Ismet Harmaini says: “We do produce high-quality coal, but it is only 20 percent of the total. We export mainly to Spain, Japan, Taiwan and Malaysia. Most of our coal is lignite.”
Mr. Harmaini wants PT Bukit Asam to branch out into electricity generation. He explains: “The country lacks energy. Our vision is to become an energy company, and the key is that we have the coal. Now we have to build power plants.”

Foreign partners are an important source of support for the sector’s expansion drive

TRANSPORTATION costs would be axed by building electricity-generation stations on top of coal mines.

His strategy is to build generation stations on top of, or near, the mines, so that the coal can be rapidly converted into electricity, without the cost of transportation across long distances.
Further down the line – and evidently with at least half an eye on boosting export sales as well as domestic demand – Mr. Harmaini is keen to promote coal liquefaction. He has plans to build a plant with a capacity of 100,000 barrels per day. This, too, is all part of his plan to convert PT Bukit Asam from a coal mining company into an energy enterprise.
The move into the power market could involve an alliance, not only with the Indonesian national electricity company but also with overseas investors. “We are looking for foreign partners,” says Mr. Harmaini.

PT Bukit Asam, which was founded in 1981 and is the only state enterprise in the Indonesian coal industry, is itself destined for the private sector.
The Mines and Energy Commission in the national parliament in Jakarta has approved plans to privatize the company with an initial public offering (IPO) of shares on the local stock exchange.
Mr. Harmaini says his company has plenty to offer potential buyers. “First, we have the biggest reserves, since 50 percent of all the coal in Indonesia is in our mine.
“Second, our financial situation is good, as our debts total only $2 million. We actually wanted to repay the debt this year, but the bank said to pay later,” he says.

Proposals to sell off an equity stake in PT Bukit Asam have been in the pipeline for several years, but unravelled amid the turmoil of the Asian financial crisis. This time, Mr. Harmaini hopes that privatization will come to fruition, not least because he views overseas partners as an important source of support for his company’s expansion drive.
“We hope that foreign investors will buy our shares when we go for privatization,” he says.
“We want to sell our shares because the prospects are very good. We hope that more investors will come to this country and give us funding. We hope that we will receive many offers.”