PLN Has Managed to Issue Global Bond Worth USD 2 Billion for The First Drawdown Despite Skepticism Over Its Global Bond Program in 2018
Following to PLN’s plan this first half year to launch a new USD 5 billion global medium term note program, some may argue that PLN may struggle with its global bond plan. However, on May 16 2018, PLN has ultimately executed bookbuilding process for the first drawdown of the GMTN Program worth USD 2 billion in 2 (two) tranches of Senior Unsecured Fixed Rate Notes; tranche A worth USD 1 billion with tenor of 10 years and tranche B worth USD 1 billion with a 30 year tenor.
According to a study by IEEFA (Institute for Energy Economics and Financial Analysis (IEEFA), international capital markets might have overlooked PLN’s coal dependency and its shaky finances lingering question whether PLN can adjust to new market realities as it seeks USD 1 billion international bond support. A number of crucial issues were also raised according to study by IEEFA that could cause PLN’s bond issuance to seem unattractive. For one thing, when PLN’s current tariffs fail to cover its cost, it shall led to operating lost. In addition to that, PLN’s coal intensive growth plan exposes it to long-term financial risks that can be solved only by higher tariffs or long-term, and large, subsidies from the Indonesian government, the study indicates.
Considering PLN’s role as state-owned electric company to generate electricity for improving people’s welfare as mandated by the Preamble of the 1945 Constitution and as further elaborated by Article 33 of the 1945 Constitution, PLN’s charges for electricity are based on electricity tariff rates which are set by the Government in accordance with Law 30 of 2009 concerning electricity. Thus, electricity subsidy is structured in the State Budget (APBN) and/or Revised State Budget (APBN-P) for the difference between permitted charge of electricity and cost to produce electricity by PLN as stipulated in Ministry of Finance Regulation Number 44/PMK.02/2017 with the aim that people are benefited from affordable price of electricity.
Given legal framework explained, PLN legally has the right to utilize electricity subsidy from Government while within these recent 3 years compared to 3 years earlier PLN has still managed to save subsidies around 100 trillion*. This whole regard resulted from managing operating cost efficiency by reducing the use of fuel oil for power plant, another operating efficiency efforts and decreasing loan interest through debt reprofiling.
The debt reprofiling, as part of PLN’s effort in managing cost efficiency, was carried out through the issuance of the new issuance of USD 5 billion global medium term note program. In reference to PLN’s press release on 24th May 2018, PLN executed liability management process under tender offer mechanism or public offering with purpose to buy back or repay 69.10% of the total bonds of USD 2,5 billion maturing in 2019, 2020 and 2037; PLN’19 of 8%, PLN’20 of 7,75%, and PLN’37 of 7.88%. That said by removing bonds which were previously issued with higher coupon rate, PLN has managed to obtain interest cost savings by removing bonds with higher coupon rate at interest rate 5,45% and 6,15%.
Although some may argue that electricity subisidy injected by the government is the only way out to make PLN survive through the flat tariff until 2019, however PLN still booked net profit within amount of Rp 4,42 trillion though lower compared to 2016 revenue. Subsidy is proven not to be the only way to support the sustainability development of PLN. Indeed, in the midst of the increasing coal price which caused PLN’s cost of production increased Rp 16,46 trillion due to higher coal prices that was adjusted to market coal price, PLN was still able to make its effort for cost efficiency by lowering the use of fuel oil for power plants. As to the coal intensive growth plan exposed during 2017, Government through Ministry of Energy and Mineral Resources set the coal price cap at USD 70 per ton of coal by Decree of MEMR №1395K/30/MEM/2018 on the coal price for electricity supply for public interest since 12 March 2018. The ceiling price of coal for coal-fired power plant was implied to maintain electricity tariff with the purpose to protect people’s purchasing power towards electricity and to support competitive industry.
Apart from that, Government has released RUPTL 2018 that was changed due to the realization of macroeconomic indicator that gave impact on PLN’s sales growth of PLN in 2017 which was lower than target in previous RUPTL 2017–2026. Government through MEMR continue to encourage the development of new and renewable energy in power plant development planning by setting up higher portion target of approximately 23% by 2025* that address rapidly economics of renewables trend within RUPTL. Given Government’s arrangement of the planning setting (RUPTL) and primary energy supply aforementioned, its heavily-involvement may have viewed as PLN’s dependence on the Government. To conclude, as to remind all that these measurement taken is indeed Government’s duty as mandated by 1945 Constitution to control all aspects of national economic that includes electricity as it plays important significance to generate fully integrated electricity service to give as much as benefit as possible for public’s welfare.
[*] PLN’s Audited Financial Report 2016 (Restated)
[*] Access through http://www.pln.co.id/media/siaran-pers/2018/03/laporan-keuangan-pt-pln-persero-tahun-2017
[*] Access through https://www.esdm.go.id/en/media-center/news-archives/menteri-esdm-menyetujui-ruptl-pt-pln-2018-2027-pertumbuhan-yang-realistis-dan-meningkatkan-target-ebt
[*] PLN’s Offering Memorandum 2018 page 21 — Risks Relating to our Business and Operations