Inalum begins $1.9 billion expansion with new power plant

State-owned aluminium maker PT Indonesia Asahan Aluminium (Inalum) will spend around US$750 million on a steam-fueled power plant, which would double its production capacity, starting from mid-next year in anticipation of higher energy demand.

Inalum president director Winardi Sunoto said Friday that the firm expected to cover 35 percent of the 600-megawatt power plant project from internal cash. It was now seeking to generate the rest from external sources.

“The construction of the power plant will take up to 40 months, which is very long compared to a smelter or seaport, so it is the priority,” he told reporters after a meeting with Industry Minister MS Hidayat.

The new power plant project is part of $1.9 billion that Inalum will spend on a wide array of development projects over the next few years, including a new aluminium smelter and seaport.

This expansion will enable Inalum, the operator of Southeast Asia’s sole aluminium smelter, to double its capacity to 500,000 tons of aluminium ingots in 2019 following the acquisition of the firm from Nippon Asahan Aluminium (NAA), a consortium of 12 Japanese firms, in early November last year when its 30-year partnership ended.

To finance the projects, Inalum will prioritize the use of internal cash while seeking alternatives such as syndicated loans, bonds issuance and an initial public offering (IPO), Winardi said.

It would likely be ready for an IPO in 2016, but it will be subject to approval from its shareholders, he added.

Inalum currently has internal cash of around $400 million, according to Winardi.

The company has gradually increased its production capacity since its takeover. It produced about 260,000 tons of ingots last year, up 4 percent from 2012.

The firm expects to totally stop exports and sell its output domestically next year to meet surging national consumption.

The biggest portion of Inalum’s output is sold in Jakarta, followed by Surabaya, East Java, and Medan, North Sumatra, which jointly take up more than 200,000 tons.

Winardi said that Inalum also aimed to conclude a joint venture agreement (JVA) with state-owned mining firm PT Aneka Tambang for a refinery project in Mempawah, West Kalimantan, at the end of this year.

The construction of the refinery, which will process bauxite into alumina, is estimated to cost $1.5 billion. It will be able to produce 1.2 million tons of smelter-grade alumina, the key raw material to produce aluminium ingots, once it starts operation in 2017.

Inalum will need at least 1 million tons of alumina to make 500,000 tons of aluminium ingots. At present, it imports the material from Australia as Indonesia does not have an alumina refinery despite its abundant bauxite ore supply.

Inalum also expected to finish a feasibility study on its new aluminium smelter by year-end and obtain partners to execute the plan by next year, Winardi further said. The project might kick off either next year or in 2016, he added.

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