Tata’s tornado
Indonesia may be known as ‘The land below the wind', but for foreign players in the power market, conditions are about to get a whole lot stormier. Tata Power may well be headed directly into the storm if Indonesia's energy minister, Purnomo Yusgiantoro, carries through on his plans to renegotiate coal contracts with its overseas buyers, which could lead to higher royalty payments. Indonesia is the world's largest producer of thermal coal, and thermal coal is used to produce almost 70% of the total electricity output in India.
Like many other Indian and Chinese power companies, Tata has acquired significant stakes in a number of mining interests in Indonesia: last year, it bought 30% stake in PT Kaltim Prima Coal and PT Arutmin Indonesia for $1.3 billion. And as demand for power intensifies back home, in the face of rapidly advancing coal prices, they are keen to increase extraction.
Indonesia's energy minister Purnomo Yusgiantoro is reported to have said his government is in favour of a change in existing mining contracts after prices of various commodities, including coal and iron ore, almost doubled in the past year.
the mineable reserves in Indonesia total 1.2 billion tonnes.
As the largest private sector generator in India by capacity, with an aggregate capacity of
2,379 MW and a 49% stake in distribution company North Delhi Power Limited, Tata is under pressure to find swift and innovative ways to boost supply. Amidst a changing regulatory environment at home and rising coal prices, the latest challenges posed by Indonesia's government will be less than welcome.