(AFP) Utility giant Tenaga Nasional Bhd said its plan to acquire a coal mine in Indonesia's Kalimantan on Borneo island was to protect against a sudden rise in coal prices.

TNB chairman Jamaludin Jarjis, quoted by Bernama today, said under its new fuel policy to diversify into coal, it would be deemed irresponsible if it did not ensure a steady coal supply.

TNB has proposed to buy the Indonesian coal mine, owned by Dynamic Acres Sdn Bhd, for RM226.1million.

The energy giant currently depends on gas for its power generation however, it faces higher prices as Petronas has requested an increase in price.

Petronas has submitted to the government a proposed new rate for its liquefied natural gas. The government is expected to announce the decision at the end of the year.

At present, about 80 percent of TNB's generation capacity is produced with natural gas.

Jamaludin had said TNB could not object to Petronas's price hike as it had been supplying gas at half the price fetched in the world market.

The subsidy provided is not sustainable over the long run and is not fair to other sectors, he said.

With the proposed purchase of the coal mine, Jamaludin said TNB hoped to source around 30-50 percent of its coal requirement internally with the rest being sourced from the market.

Coal-fired power plants

Over the next 10 years, three major coal-fired power plants are expected to be in operation, namely Janamanjung in Perak, Jimah in Negeri Sembilan and Pulau Bunting in Kedah.

Jamaludin said TNB would continue to pursue for a hike in electricity tariff rate should the government approve a gas price rise for Petronas.

TNB would also lower the electricity reserve margin that it has to bear to around 10-15 percent in the medium term from the current 30 percent, he announced.

Jamaludin said compared with no more than five percent reserve margin in the US and 2.5 percent in Japan, the 30 percent level in Malaysia was too high a figure.

Maintaining huge reserve margin was costly because with national demand standing at 10,000 megawatts, the reserve capacity of 3,000 megawatts is equivalent to US$3billion worth of power left idle, he said.

Jamaludin said TNB could lower the reserve margin to a more manageable level of 10-15 percent in the medium term, he said.