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Global Business Guide Indonesia

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Energy & Mining | Balancing Domestic Demand and Exports in Coal

Domestic consumption of coal has been rising as PLN has been increasingly using it to generate electricity as part of the first Fast Track Program from 2004. Despite the efforts to diversify the energy mix and prioritise renewable energy as part of the second Fast Track Program; coal is still dominant. In June 2011 PLN proposed $3 billion USD of coal powered power plants under the PPP scheme (see Public Private Partnerships) illustrating persistant reliance. Meeting domestic energy needs has become an increased priority in energy resource production as electricity demand is rising by 9% every year and the National Energy Council has predicted Indonesia’s energy demand will increase three fold by 2030 from 150 MTOE at the end of 2010. This is reflected in the Law on Mineral and Coal Mining in 2009 whereby local mining companies are obliged to sell at least 24.2% of their production to the local market. Domestic demand is now constraining the amount available to export as domestic needs took up 24% of total production in 2010 but this figure is set to increase to 37% by 2015. The Ministry of Energy and Mineral Resources announced in January 2011 that a ban on exports of coal with a calorific count below 5,400 in order to conserve reserves as well as to urge producers to upgrade the heating value before it is exported, by 2014. The forecasted decline on coal export availability has worried countries such as India as well as local producers who contest the move as they lack the technology to undertake the value addition.

Expectations for the coal industry remain positive as demand from Indonesia’s key export markets as well as its own domestic market continue to grow and output targets are raised to keep apace. Increasing production will require intensive investment in exploration, further clarification on the implementation of the new mining law in order to lure foreign investors and improved infrastructure for the efficient transportation of coal. A $1.5 billion USD coal railway in Central Kalimantan is being offered under the Public Private Partnership scheme to replace the current transport methods of private roads then barged by river that is constraining coal production. The report on the project by the Governor of Central Kalimantan states that annual production of the area is only 1.5 million MET but would reach 10 MET in the first ten years with the construction of the new railway (see Transport in Indonesia: Roads & Railways). Accelerated infrastructure development is therefore a necessity to maintain the momentum in the coal mining sector. Scarcity of adequate transport facilities, particularly for mines situated in land and deep in the forest forces concession holders to construct their own infrastructure, which is not an attractive prospect for future investors. However the robust outlook for coal has attracted international interest in infrastructure related projects; Reliance Power Limited announced in May 2011 plans to make investments of $5-10 billion USD in coal mining infrastructure in Indonesia.

Established domestic companies have recently made moves into the market to take advantage of the boom in prices as thermal coal is expected to reach up to $170 a tonne in 2012 according to Nomura’s forecast. United Tractors, a heavy equipment firm that is part of Astra Group, having been engaged in mining contracting, made the move to acquire its own concessions in 2007. President Director Djoko Pranoto spoke with GBG about the companies’ involvement in coal: “We were already involved in Coal before in Berau Coal but during the crisis we sold the company. We have since then returned to this sector and see great potential”. Cipaganti Group, a transport service and heavy equipment leasing company also entered into coal in 2008. Investors are eyeing the sector with interest as coal stocks have risen in line with the market; the coal index on the IDX was up 39% in May 2011 from the same time last year keeping investors bullish on coal. Bumi Resources, the largest coal producer in Indonesia saw their share price soar well above this to 81.3% in the same period. The high profile deal between the Bakrie Group that owns Bumi Resources and Nathanial Rothschild’s Vallar is a signal of the high level of international interest that the sector is generating. The $3 billion USD deal will see Vallar taking stakes in both Bumi Resources and another Bakrie owned coal company called Berau Coal to form Bumi plc. The plan is for the firm to eventually list on the FTSE 100 index and reap further rewards from investors and index funds.

The fundamentals for Indonesia’s coal sector look positive in terms of demand, pricing as well as improving infrastructure and governing regulations. However, the coal sector faces a measure of uncertainty given the global pressure to reduce green house gases and further moves to price carbon emissions more stringently. While not posing an immediate threat to exports; Indonesia faces the challenge of meeting its own environmental targets and stance on climate change with that of its exports. As a vocal advocate for emerging markets to shape themselves as low carbon economies, President Yudhoyono must put these words into practice at home and abroad. Within Indonesia itself, environmental responsibility of coal producers has become a highly charged political issue as the impact of unregulated mining is made apparent in areas such as Kalimantan where the island’s ecology and wildlife have been heavily damaged while the local population have gained limited benefit. The Environmental Law No. 32/2009 and the Law on Mining and Minerals No. 4/2009 was designed to address these issues, but the damage that has been done will remain as a backdrop to how new coal concessions are delineated, business permits are administered and the future conduct of coal mining companies.

Statistical Review of World Energy 2011 icone pdf

Ministry of Energy of Indonesia Handbook 2010 icone pdf

Opportunities in Energy: Beyond Fossil Fuels
Opportunities in Energy: Beyond Fossil Fuels

Source: MoEMR

Global Business Guide Indonesia - 2012

Indonesia Energy Snapshot

Contribution to GDP: 3.44% (2016) Oil & Gas Imports: $1.22 billion USD (Jan 2016)
Proven Oil Reserves: 3.69 billion barrels (2016)
Proven Gas Reserves: 2.85 trillion cubic metre (2016)
Proven Coal Reserves: 28 billion tonnes total reserves (2015)
Proven Potential in Geothermal Energy: 27 GW
Proven Potential in Hydropower: 75 GW
Other Energy Sources: Coal Bed Methane, Biomass, Waste, Ocean Current, Solar, Wind.
Current Energy Mix: Petroleum 41%, Coal 30%, Natural Gas 23%, Renewables 6% (2014).