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Adaro Energy gets its long-delayed power plant on track

BANGKOK After more than four years of delay, Adaro Energy's power generation project in the Indonesian province of Central Java is finally on track, the company's CEO has said.

The 2,000-megawatt coal-fired plant, the first by the coal producer, was held up by land acquisition issues. Now that Adaro has received the necessary funding and regulatory approvals, however, it has begun clearing land and laying the foundation for construction.

"The progress is in line with the promise to the Indonesian government [to complete it] by 2020," Adaro CEO Garibaldi Thohir told the Nikkei Asian Review in Thailand, adding that the grid that connects to the power plant will be ready by 2019 "for sure."

In June, Adaro and other members of the consortium in charge, which includes Japan's Electric Power Development and Itochu, signed a $3.4 billion loan to jump-start the project.

BIGGER PICTURE The plant is part of an ambitious plan by the administration of President Joko Widodo to construct 35,000MW of generating capacity by 2019. Current capacity meets only 90% of demand throughout the Indonesian archipelago.

In the past, such infrastructure projects were often carried out by state enterprises. The current plan opens up opportunities for the private sector to participate, a move welcomed by Adaro. "Indonesia needs Adaro, and Adaro needs Indonesia," Thohir said.

Despite the current commodity rout, Thohir said prices of coal will recover as demand grows in neighboring countries. As of early November, prices for Australian thermal coal, a benchmark for Asia, had recovered to $80 a ton, the highest since January 2014.

Adaro is upbeat about its coal sales, predicting that power plant projects in Indonesia and elsewhere in emerging Southeast Asia will ensure coal demand for many years to come.

The company's entrance into the power plant business will also support its domestic coal sales. The Central Java power plant will use 7 million tons of coal every year, for which Adaro will act as the main supplier.

Financial closure on a smaller project in South Kalimantan Province, a partnership with Korea East-West Power, is expected by the end of December. The 200-MW power plant will require 1 million tons of coal annually. Additionally, Adaro has inked a partnership with China's Shenhua Overseas Development and Investment for a 600-MW power plant project in East Kalimantan Province that is currently undergoing feasibility studies.

"The 35 gigawatt is a need for the country, whose economy has been able to grow above 5% despite the slowdown in China and Europe," Thohir said. "The market is there."

Diversifying from its portfolio of thermal coal, Adaro in mid-October finalized its acquisition of a 75% stake in Indomet Coal Project in Kalimantan from Australian mining giant BHP Billiton. The $120 million deal will allow Adaro to enter the coking coal market. Also known as metallurgical coal, this type of coal is mainly used in steel production. The major use for thermal coal, by contrast, is in power generation.

From January to September, Adaro sold 40 million tons of coal, a 2% decrease from its sales in the same period of last year. Its revenue fell 15% to $1.78 billion, but its net profit rose 16% to $209 million.

"No one can predict the selling price of coal," Thohir said. "One thing for sure, Adaro has been able to control costs in the last three years. During the bad time, we can survive and during the good time, we will not only survive but run."

Nikkei staff writer Erwida Maulia in Jakarta contributed to this story.

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