Driven by increasing demand for energy at home, Adani Group of India, a US$5 billion company based in Ahmedabad, is looking to tap Sumatra coal to fuel its coal-fired power projects. Adani Group, which has grown into one of the fast growing business houses of the country with diverse interests in global trading, development and operation of ports, logistics power generation, has been recently aggressive in securing coal assets abroad as domestic supply does not suffice the surging demand that is mostly generated by increasing numbers of coal-fired power plants.
“We’re aggressive but selective in our endeavor to secure cola supply abroad,” Ganeshan V., president director and chief executive officer of PT Adani Global, an Indonesian unit of Adani Group, told Coal Asia in Jakarta recently.
In August this year, PT Adani Global signed a head of agreement (HOA) with state-owned mining firm PT Tambang Batubara Bukit Asam (PTBA) Tbk, and the South Sumtra’s provincial administration to develop a 270-kilometer railway track linking Bangko tengah in Muara enim regency where PTBA coal mine is located, and Tanjung Carat, Musi Banyuasin regency, where Adani will build a new coal port and stockpile.
Hoping to benefit from the rising demand for energy as a result of the continuously growing economy, Adani is expanding its electricity operations, targeting to reach a total capacity of 20,000 MW of coal-fired power plant by 2020. To meet the target, it will need 200 million tons of coal per year that is mostly imported from foreign countries , mainly Indonesia Australia and Africa.
Currently, Adani Power is developing 13,000 Megawatt (MW) of power plants, which includes the 4,620 MW coal-fired plant at Mundra, the 3,300 MW coal-fired power plant at Tiroda (Maharashtra) and the 1,320 MW coal-fired plant at Kawai (Rajasthan). Adani Power has commissioned 3 x 300 MW Mundra coal-fired power plants and it expected to further commission around 600 MW for every three months, he said.
Having branches in several countries, including Indonesia, Singapore, Dubai and Uni Arab, Emirates, Adani wants all of the imported coal to be transported by its own vessels through railways and ports it builds and operates, like Tanjung Enim-Tanjung Carat railway track , and Tanjung Carat sea port. Adani hopes that the development of coal infrastructure in South Sumatra will help it secure coal supply to feed all its power plants back home. It has also market a turning point for the Indonesian government to develop its coal industry, which has been until now hindered by poor infrastructure.
The US$1.65 billion projects, the first to be built by the private sector, will start early next year and is expected to be completed in between three and four years. The South Sumatra administration will provide all permits and land requirements for development of the infrastructure. It has allowed Adani to operate the infrastructure for 30 years since in operation. It is in line with Adani’s supply deal with PTBA which will last 30 years with an option of extension by mutual agreement.
The new railroad stretching over 270 km from Bangko Tengah in Muara enim regency to Tanjung Carat in Musi Banyuasin regency will be using tracks with 1435 mm gauge standard. There will be 10 stations in each of four regencies to be passed through by the railroad, which are Muara Enim, Lahat, Musi Banyuasin and Banyuasin. “We will use railway track used by electric train and we will also develop diesel fuel train in South Sumatra province,” Ganeshan said.
At the end of the railway line the company will build a 9-mile canal with a depth of 18 meters. Materials excavated for the project will be used to reclaim the seashore which is vulnerable to sea rise, to set up a 200-hectare coal handling port. The coal seaport will enable two vessels of an equal capsize to load coal at the same time. The seaport will enable two vessels of an equal capsize to load coal at the same time. The seaport will have a capacity to handle 35 million tons of coal per year and will be expanded to handle 70 million tons per annum.
PT Adani hopes to ink a sales purchase agreement (SPA) in the second quarter of the year and will continue with land acquisition.
“Based on the HoA, PT Adani and PTBA will sign a sales purchase agreement within one year after the HoA signing, but we expect it to take place as soon as possible so that we can start the land acquisition,” he said. The company has conducted a survey for the railway development, which is expected to complete in 2014.
“Initially, our total investment will be uS$1.65 billion. But it could be higher later,” Ganeshan said.
PT Adani will cover the costs of the two infrastructure projects and in return will hold 98 percent of the stakes, with the rest held by the South Sumatran administration.
When operational, the 270-kilometer railway will have a capacity to transport around 35 million tons of coal a year.
Ganeshan said that in the future the railway infrastructure would have a carrying capacity of 70 million tons of coal per year and the port will have a handling capacity of the same amount. “The infrastructure is expandable. PTBA will not be the only user of the infrastructure. Other companies can later become the users of the infrastructure,” he said.
He said that his railway development would not overlap other infrastructure being developed by other Indian companies in cooperation with Indonesian counterparts.
PTBA does not have shares in the projects, but it is committed to supplying Adani 60 percent of its annual production at prices to be set by the government. All of the coal supply will be transported through the railway infrastructure, which will pass through three regencies – Muara Enim, Lahat, and Tanjung Asin--, and shipped to India through the port in Tanjung Api-Api.
Currently, due to poor infrastructure, PTBA’s total production only amounts to between 12 and 13 million tons per annum. It is targeting to increase its production every year until it reach around 50 million tons by 2014 and later between 80 and 100 million tons in several years when all of the coal infrastructure projects finalized.
There are other railway tracks projects, including that connecting Tanjung Enim and Lampung, which are to be developed by PTBA in cooperation with the China Railway Group. Ganeshan said the development of the infrastructure would accelerate the growth of coal mining business in Sumatra, especially South Sumatra, where economic development is hindered by poor infrastructure, particularly transportation and electricity.
The poor infrastructure has caused many development projects to stall or postponed. Among the biggest projects is the US$3.2 billon aluminium smelter project that would have a production capacity of 500 tons. It would be run by Indian state-owned National Aluminium Corporation (Nalco), but has been put on hold for about two years due to its poor access to coal, despite the fact that the area has abundant coal reserve.
South Sumatra’s coal production totaled 15 million tons last year. Data from the ministry of energy and mineral resources shows that PTBA has a total coal reserve of 6 billion tons in South Sumatra, while total reserve in the province reaches 22.5 billion tons. The South Sumatra administration has also planned to develop an industrial area in Tanjung Api-Api that will badly need a great deal of energy, which is expected to be derived mostly from coal.
Ganeshan said that his company was also keen on developing similar infrastructure projects in other parts of the archipelago. “We have interests in energy and infrastructure. We’re seeking for opportunities in Indonesia, which for sure is an attractive place to invest in the infrastructure sector,” he said
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