New Central Java Power Plant Faces Delays

Construction of a $4 billion project to build a 2,000 MW coal-fired power plant in Batang, Central Java, is facing slow progress due to land acquisition issues which have pushed it a year behind schedule, a senior government official said on Friday. The government has announced the tender winner for the project on October 2011, said Luky Eko Wuryanto, deputy minister for infrastructure and regional development at the Coordinating Ministry for the Economy.

Initial plans have scheduled Bhimasena Power Indonesia — a consortium that comprises Japanese J-Power and Itochu, as well as Indonesia’s Adaro Power, which won the tender, to commence construction for the plant last year, with commercial operations expected by 2017.

According to Luky, land acquisition was supposed to be completed six months after the announcement of the winning tender, while the project’s financial closure was expected within another six months.

“It [land acquisition] was supposed to be completed on October 2012 and construction was supposed to follow, however, in reality, it didn’t happen,” he said.

Bhimasena — of which J-Power controls 34% stake, Itochu 32% and Adaro 34% — has signed a power purchase agreement with state-controlled utility Perusahaan Listrik Negara for a 25-year supply of electricity from the Batang plant. Under the terms of the PPA signed on October 2011, the plant is expected to provide high-efficiency power generation and reduce PLN’s electricity generation costs, as coal is cheaper than the diesel many of PLN’s plants still rely on.

According to Luky, the delayed construction has cost the government an extra Rp 23 billion to Rp 25 billion to fuel some of its plants using diesel. Acquisition of the 226 hectares land required for the plant is currently 80% complete, but completion of the remaining 20% may extend to October.

Luky said the Batang plant is expected to supply electricity for PLN’s Java customers and any interference over its completion will cause a big gap in the future electricity supply for the nation.

The government is stepping up efforts to increase its electricity generation capacity to 55,000 MW nationwide in 2019 and intends to improve the country’s electrification rate — the proportion of households connected to the power grid — to 90% in 2020 from the current 70%. PLN’s capacity currently stands at approximately 30,000 MW and the company has estimated a budget of $90 billion will be required in 10 years to meet the aforementioned target.

The project, which is part of the government’s Master Plan for Acceleration and Expansion of Indonesian Economic Development (MP3EI), has met a number of constraints. Last year, Garibaldi Thohir, president director of Adaro Energy, the parent company of Adaro Power, complained that the project was hampered by the slow issuance of permit by the local government.