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Ongoing debate on the pros and cons of Pertamina Geothermal acquisition by PLN

Geothermal pipes of Pertamina, Indonesia (source: zmiyatul.blogspot)
Alexander Richter 17 Oct 2016

There is an ongoing debate about a possible acquisition of a stake in Pertamina Geothermal Energy by utility PLN in Indonesia, with synergies highlighted by the proponents and waste of funding by opponents.

The suggested acquisition of a stake in Pertamina Geothermal Energy by state electricity utility PLN in Indonesia is still topic of a hot debate.

In two separate pieces in the Jakarta Post, arguments are laid out for and against an acquisition.

In one piece, “PLN is advised against acquiring (a stake in) PGE“, while the other sees a “PLN, Pertamina synergy (that could) boost geothermal development“.

State-owned PLN has plans to acquire a 50 percent stake in the geothermal energy unit of Pertamina, as we have reported before. This is being pushed by the government of the country, which believes that it would allow it to appoint PLN to focus on geothermal development to meet the ambitious energy targets.

With the synergies of the both companies, efficiency could be increased and duplicate efforts of investment between the both state-run companies could be eliminated. This essentially seems to conclude the arguments for an acquisition.

The opponents of the acquisition say that instead of spending its limited funds for an acquisition, PLN should focus on “power plant construction, electrical substations and transmission lines” under the 35,000 MW program.

Under current plans, PLN will only provide about 5,000 MW of the additional capacity under the program, while the remaining 30,000 MW is set to be contributed by independent power producers (IPP). “The cost per kilowatt hour (kWh) of electricity from IPPs is higher than the cost of electricity generated by PLN,” an analyst by Indonesian Resources Studies said in a statement with the Jakarta Post.

Electricity supplied by PLN is about 20-25 percent cheaper than that from IPPs. “PLN’s portion in the 35,000 MW project has to be increased. Thus, rather than use the funds for the acquisition of PGE, it would be much more relevant for PLN to build power plants in order to minimize the dominance of IPPs,” he said.

Under the current structure, Pertamina Geothermal Energy has been selling steam to PLN, e.g. at Kamojang and this at prices that PLN was not happy with. This resulted in an ongoing struggle within both companies, which we reported on earlier this year. It seems like this deadlock back then resulted in the discussions now about preventing situations like this where two state-owned companies end up fighting instead of focusing on development.

So the debate continues and it will be interesting how it will evolve.