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TAMBANG, September 13, 2012 | 23.45
BRACING FOR BIOMASS ENERGY

By: Anajarus Edam

A convoy of medium-sized trucks is seen zigzagging, avoiding potholes, big and small, along the hollow Yos Sudarso street in the city of Medan. There seem to be no single inch left for a smooth surface along the road which splits the Medan Industrial Areas (KIM in its Indonesian abbreviation) into two. The poor condition is inescapable since fully-loaded trucks of various kinds, from medium- to jumbo size, pass the street transporting industrial products and raw materials on a non-stop, day-to-day basis.

There is something odd from the sight of the said medium-sized trucks. Generally, trucks crossing the KIM transport heavy materials such as iron or steel. The convoy that afternoon looks odd since they are loaded with wood chips, bark or sawn timber, which are more commonly used as firewood by housewives. Two trucks that come last are seen transporting "somewhat more prestigious" loads, namely palm shells.

Entering the area 3 of the KIM, the trucks are parked in line on the roadside, ready to unload in front of a building located within a complex of buildings belongs to PT Global Inovasi Prima (GIP), a subsidiary company of PT Growth Steel Group (GSG), a group of business dealing with power plant engineering. PT GIP manages the biomass power plant “Biomassa” which belongs to the GSG.

Operation of the Biomassa plant was launched on 9 July 2012 with an official launching by the Energy Minister Jero Wacik. The steam-based plant has a capacity of 2 x 15 MW. It will allocate 10 MW of electricity for the group's factory in the field of integrated steel industry. The remaining 20 MW will be sold to the North Sumatra regional branch of the State Electricity Company (PLN in its Indonesian abbreviation).

As a company dealing with integrated steel industry, PT GSG does not have that much difficulties to produce its own material for the construction of the biomass power plant. The group has produced almost 70 per cent of the materials required for the construction on its own. "We still need to only import the generator from China," said Naik Tjan, Director of PT GIP who manages the Biomassa plant.

The plant uses organic materials as its fuel, especially palm shell. The rest could just be "anything" from rice husks, pollen, wood, wooden boards, used twigs or rubber tree wood. During the last few months, re-planting of forests has been ongoing at some rubber plantations, either state-owned or private in the region of North Sumatra.

It takes as many as 600 tons of organic materials everyday to run the plant. A number of local businesses have become GSG’s partners to supply the materials. Every kilogram of such "garbage" is priced at Rp. 200. The most expensive is of course that of palm shell at around Rp. 600/kilogram. This is understandable as the group must compete with other industries also looking for palm shell as raw material.

The palm shell, especially those originated from North Sumatra and Riau areas, have been heavily exported. During the inauguration of the Biomassa power plant last July, Minister Jero Wacik had called CPO producing companies to reduce export of palm shell and pay more attention to domestic industry’s requirements. If such an appeal goes unheeded, the government could rule out or reduce palm oil export for the benefit of domestic electricity industry as well as other industries requiring the material.

Not only has the government appealed for palm shell export restrictions, it has also issued regulations to encourage the construction of biomass power plants in Indonesia. One of such rules is issued in 2012, namely the ESDM Minister Regulation No. 4/2012 on purchase price for PT PLN of types of electricity categorized as ‘small and medium scale- new and renewable energy’ or ‘Excess Electricity’.

The purpose of the regulations is to encourage the purchase of electric power and electric power plants using renewable energy sources, such as biomass, biogas and municipal waste. It also rules for setting up the purchase of excess power by state-owned enterprises, local government owned enterprises, private enterprises, cooperative agencies and NGOs. The regulations further obligates PT PLN to purchase electricity from power plants using small and medium scale renewable energy with a capacity of up to 10 MW, with the intention to strengthen the local electricity distribution system.

The purchase prices of Biomass and Biogas -based electricity are regulated by the said ESDM Minister’s regulation, at Rp. 975/kWh x F if interconnected on medium voltage electricity grid, and Rp. 1,325 /kWh x F, if interconnected on low voltage electricity grids. The F factor is appropriate incentives for the purchase of electricity power by of PT PLN (Persero) based on location. For the areas of Java, Madura and Bali, F is equal to 1. For the areas of Sulawesi, Kalimantan, East Nusa Tenggara and West Nusa Tenggara, F is equal to 1 and 2. Meanwhile for the areas of Maluku and Papua, F is the equivalent of 1 and 3.

The said prices are definitely higher than those of fuel-based electricity, which is not renewable. For that interconnected on medium voltage grids, the price is set at Rp. 656/kWh x F while those on low voltage grids, the price is at Rp./1,004 kWh x F. But prices of biomass and biogas -based electricity are still relatively cheaper than urban waste-based electricity with zero waste technology. The purchase price for power of this type to PT PLN is of Rp. 1050/kWh on medium voltage grids, and Rp. 1,479/kWh on low voltage grids.

In addition to purchase price ruling, the Government has also issued a regulation to attract more parties to be involved in the biomass power plant development, among other by giving tax incentives for imported goods and value added. The Finance Minister has issued regulation No. 21/2010 on the elimination of duties for import of components to be used in the establishment of renewable energy power plants, as well as regulation No. 130/2011 on deduction of companies and value added taxes.

Establishment of a biomass power plant looks promising from a long term investment point of view. Beside, the power plant of this kind is very eco-friendly. The purchase price obligated to PT PLN and other facilitation provided by the Government, however, are not the ultimate appeal for PT GSG in building the Biomassa plant. It was the unstable electricity supply by the North Sumatra branch of PT PLN which was deemed unsatisfactory to aptly sustain the production of GSG owned steel mills, which have produced steel of internationally recognized quality which had enticed the business group to build a power plant of its own. This was stated by Ridwan Kusuma, the group’s Sales Engineer who guided TAMBANG Magazine in a site visit there in July 2012.

Indeed, the North Sumatra province including the city of Medan faced a severe lack of electricity supply a few years ago. The city often experienced blackout. The people have several times protested the situation to the PLN, who in return set out a rotation system. In the evening at around 20.00 until 24.00 West Indonesia time, the industry was barred from using electricity, as it was prioritized for household needs. "This is of course not an ideal condition for industries who should rely on a steady 24 hours electricity supply," Mr. Kusuma told our reporters. To overcome the dire situation, the group’s CEO Fadjar Suhendra initiated a plan to build a power plant on its own. The choice then fell on a biomass power plant.

Previously, Mr. Suhendra, the owner of the GSG, already had experience of managing an own power plant, through one of the group’s subsidiaries, PT Sumatera Growth Industry. The current group of business is actually originated from the establishment of PT Growth Sumatra Industry 42 years ago. At the time, electricity supply in Medan was still very unpredictable. Mr. Suhendra then started the initial plans for a power plant by buying secondhand fuel-based machines from Japan. At that time fuel was still very cheap. Moreover, there was still no discrimination between industrial and subsidized fuel.

Mr. Suhendra is undeniably a visionary entrepreneur as at the times when the terms “environmentally sound”, “Kyoto Protocol” or “Doha Round” were still foreign, he rightly predicted that scarcity of oil would eventually bring up costs for fuel-based power plants. In 2007, when CPO industries sprung up in North Sumatra and Riau provinces, palm shell from CPO processing were not considered as valuable. They were thrown away as useless wastes only. Mr. Suhendra then introduced his idea to his employees to build a power plant with palm shell as fuel.

The group’s first ever biomass power plant was that of its subsidiary’s, PT Growth Sumatera Industry, founded in 2008 with a capacity of 15 MW. The power plant was capable of meeting the group’s needs for its industry. In fact, there was a surplus of 5 MW since PT GSI only required about 10 MW of electricity. “To be self-reliant in terms of electricity supply was indeed a milestone for us,” said Mr. Kusuma proudly. The advent of PT GSI’s biomass power plant had attracted the interest of the North Sumatra branch of PT PLN. The plant’s performance was also very convincing. All the more so, PT GSI had been very cooperative with the PLN. A proposal for the establishment of another power plant with a capacity similar to the existing one was initiated with the objective of selling the electricity to PLN to meet the needs of the city of Medan. The GSI - PLN collaboration eventually started in 2009.

Such cooperation is deemed to be highly successful and profitable. Some subsidiaries of the GSG therefore also followed suit in building their own power plants to cater their factories’ needs as well as to be sold to PLN. "We strived for adjustments of the quality of the electricity to fullfil the needs of PLN," stated Naik Tjan, who is responsible for all electricity producing companies under GSG. Additionally, the group expanded to Simalungun, North Sumatra, with the establishment of a power plant with a capacity of 2 x 15 MW. Those of the same capacity were also built in Palembang, South Sumatra, and Cilegon, West Java, all of which are already in operation. PT GSG is currently building biomass power plants of 2 x 15 MW capacity in Pontianak, West Kalimantan, and in Banjarmasin, South Kalimantan, both are still in completion.

The group has continued its cooperation with PT PLN (Persero). The two companies have already agreed to substitute the entire diesel based power plants belong to PLN outside of Java. Until recently, the GSG-owned biomass plant in Medan has successfully "killed-off" four diesel based power plants in the city. The Biomassa power plant which was inaugurated last July by the Energy Minister is the fourth built by PT GSG in Medan.

The Biomassa power plant was built in an area of two hectares. Located on Tidore street, Complex KIM stage 3, the plant had already started its operation in full in June 2012. An amount of 220 billion was required to build the plant. For its daily operation, PT GSG must spend approximately Rp. 360 million only to buy 600 tons of organic material for fuel with the average price of Rp. 600/kilogram.

Not only had the Biomassa plant provided extra value to organic materials which are normally thrown away, the plant had also increasingly made palm shell a very valuable stuff. Currently the North Sumatra regional branch of PT PLN purchases 45 MW of electricity from private suppliers, with 35 MW or 78 percent of which being supplied by PT Growth Steel Group. The existence of the Biomass plant has helped PT PLN avoiding further complaints from the citizen due to unreliable electricity supply. Only a few years ago, almost every weekend the Medan residents held demonstrations to sue the PLN. "We have arguably contributed to make the works of PLN quieter, so that they could get more restful sleep" said Mr. Kusuma jokingly.



BOX

Mr. Fajar Suhendra established PT Growth Sumatra Industry (GSI) in Medan 42 years ago. The company is engaged in the field of steel construction industry. In the course of time, the company has built an organic-based steam power plant (PLTU in its Indonesian abbreviation), especially using palm shell as fuel. The power plant’s construction is under the management of PT Growth Asia which was established in 1989. PT Growth Asia is a subsidiary company of PT Growth Steel Group (GSG). Among his employees, owner of PT GSG Fadjar Suhendra is known as a leader with full innovation and far-reaching vision. At the beginning of the establishment of the factory, it produced steel mills, pipe and rubber plantations, and factories components for the domestic market. In 1996, PT Growth Asia expanded its business, focusing more on components for copper and gold mining industries.

Currently the subsidiary companies of GSG are known to produce products for large-scale mill liners for processing of minerals in the mining industry. The steel makers have only consumed used iron bars for its factories, no manufactured iron products are used as its processing materials, as explained by Ridwan Kusuma, GSG’s Sales Engineer at a company visit last July. The company mainly produces grinding mills and steel mills to be used for processing at gold mines. The quality of the company’s products has been recognized internationally and could compete with similar products from a handful of countries. According to Mr. Kusuma, there are only three other countries capable of producing tools for gold mining processing with such a primary precision, namely Australia, Canada and the United States.

Most of its products are used in gold mines in various countries. In addition, its products are also used in the palm oil processing industry, cement factory and so on. Marketing of GSG products had already penetrated all established markets in Europe, United States, Asia and Africa. The company has also representative offices in Australia. Domestically, its products are widely used in the mining industries, for instance in Timika and West Nusa Tenggara. The success story of mastering the world’s market has helped the company clinched a "Best Performing Exporter" awards from the Ministry of Industry of Indonesia in 2006, 2008 and 2010.

In Medan, PT GSG has built as many as 4 units of biomass power plant, each with a capacity of 2 x 15 MW. Outside Medan, it currently constructs more biomass power plants in West- and South Kalimantan. Whereas in Palembang and Jambi, the GSG biomass power plants are already in operation. The company’s biomass power plant in Cilegon, West Java has been supplying electric power to PT Indoferro. The iron and nickel ores smelter is owned in partnership with Lee Metal Co. Ltd. (Singapore) and PT Synergy (Hongkong). GSG holds the majority of the shares at 70%, while the two partners hold 15 percent each.

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