executive summary 2008_coal mining

DC INDONESIA – COAL MINING INDUSTRY

EXECUTIVE SUMMARY

INDONESIAN COAL MINING INDUSTRY CHALLENGES AND PROSPECTS

JUNE 2008

1. CURRENT ISSUES

1. Rising demand for coal follows growing industrial sector notably rapid growth recorded by China, India and Southeast Asia. The growing demand for coal also comes as a result of the soaring prices of crude oil and gas. Coal becomes more important as an alternative source of energy.

2. The total proven reserve of 6.9 billion tons, Indonesia could

rely on coal as a source of energy for 147 years. Meanwhile, the country’s oil reserves are expected to be depleted in 18 years.

3. The report issued by ABARE (Australian Bureau Research for Agriculture and Economic Resource) in March 2007 on coal trade in the world in 2005-2006 places Indonesia as the largest supplier of coal accounting for 25% of the total supply to the world market, followed by Australia, South Africa, China, Russia, Colombia, and the United States. In 2007, coal exports by Indonesia were estimated to reach 148.55 million tons in or an increase of 14.8% from 129.4 million tons in 2006.

4. Starting 2010, the government will impose coal exports maximum limit at 150 million tons a year to guarantee

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supply to meet growing demand in the country especially for power generating plants

5. The government has discussed the quota system with

producers and it has been part of conditions to be complied by contractors holding contract of works (COW/PKP2B).

6. In the past two years China and India have been more

aggressive in seeking coal supply from Indonesia, mainly in Kalimantan. China even offers to build railroads in South Sumatra to facilitate coal transports from interior areas to seaports in that region. The offer is to guarantee supply of 20 million tons from that region a year over a period of 15 years. It is more efficient to import coal from abroad such as from Indonesia and Australia than transporting it from northern China.

7. The draft Law on Mineral and Coal, which will replace the

Law No 11/1967 on general mining is still being debated by House of Representatives (DPR). The debates dragged on especially on the extent of the authority of the center and the regions in issuing license and on plan to replace working contract (CoW) Mining Business License (IUP).

8. The draft Law will simplify licenses into two exploration

license and production license. There will no new license for CoW, which is it be replaced with IUP (Ijin Usaha Pertambangan or Mining Business License), which will consist of two phases – Exploration IUP and Production Operation IUP.

9. Other important things regulated in the bill is the aspect of

added value with processing and refinery required to be held in the country encouraging the use of low rank coal. Also regulated are the use of local workers, local goods and services and partnership.

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2. OVERVIEW OF COAL MINING INDUSTRY

1. As a source of energy and the most potential substitues for oil, coal has followed the lead of crude oil in price. The world still has large reserve of coal that could be used as a cheaper source of energy although the price of coal has increased sharply.

2. The high need for coal by the new industrial countries forced

them to find a new supply source or increase volume from old suppliers.

3. Indonesia becomes one of the main coal suppliers in the

world is the target of many countries, including developed countries that have been relying on coal supply from Indonesia. Since the need for coal in the home country has increased rapidly, the Indonesian government began to make regulations on coal export sale, by fixing export quota limit.

4. Coal production from coal producer countries that relatively

keeps increasing, will not automatically increase sale volume in the world’s market, because the majority of coal production is used to fulfill their domestic needs.

5. China is the largest coal producer in the world with total

production in 2007 that reached 1,289.6 billion ton. Chinese coal production has increased rapidly since the last several years, with more than 100 million ton on average of production increase per year.

6. Indonesia occupies the fifth position in the world’s coal

production, has a total 174.8 million ton in 2007. 7. Coal production in Indonesia is dominated by mining

companies cooperating with the government (Contractors),

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which keep indicating a rapid production increase compared to the production growth of companies owned by the government and companies holding Mining Concession (KP or MA).

8. Coal consumption in Indonesia continues to increase each year, except in 2006, when it decreased from the previous year, because of decline of industrial sector performance in that year resulting from the skyrocketing price of crude oil, causing the decrease in the need for coal.

9. Power generating plants are still the largest consumers of coal. Coal consumption of power plants in 2006 totaled 32.665 million tons or 68% of the country’s total consumption of coal that year. Cement and ceramic industries are the second largest consumers using 7,546,004 tons in 2006.

3. COAL RESOURCES AND RESERVES

1. Indonesia’s coal is mostly of young age dates back to Miocene of Tertiary age. The coals in this category are lignite and sub-bituminous. In smaller volume, there is older age coal dates back to Eocene of Tertiary Age, consisting of Bituminous and Anthracite coal.

2. About 83.4% of Indonesian coal are younger age (comprising lignite (56.8%) and Sub-bituminous (26.6%). Olds coal shares only 16.6% of total reserves.

3. The world’s coal reserves recorded at the end of 2006 indicated that the United States of America is a country with the largest coal reserve in the world, with total reserve of 246.64 billion ton consisting of anthracite and bituminous that reach 111.34 billion ton and sub bituminous and lignite 135.30 billion ton.

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4. Indonesia that is the largest coal exporter in the world, owns its proven reserve of about 6.98 billion ton only.

5. Proven coal reserve of Indonesia in the last several years relatively indicates an increase although small. The intensifying activities of continued surveys on proven coal resources in Indonesia, performed by both new companies and mining companies that have operated for a long time, confirm total proven coal reserve in Indonesia more quickly.

6. For the time being, hypothetical or the roughest estimate of coal resource availability is relatively small, only 533 million tons which is located mainly in East Kalimantan.

7. Kalimantan and Sumatera are areas with the most potential coal resources and reserves in Indonesia. Kalimantan has mineable reserve amounting to 4.629 billion ton, or about 66.3% of total coal mineable reserve.

8. Sumatra coal could be represented by Ombilin Coal and Tanjung Enim Coal, both are being mined by PT. Bukit Asam (PTBA) state coal company.

9. Much larger Sumatra’s coal deposit is found in Tanjung Enim coal mining area which is controlled and operated by PTBA state coal mining company. Its total resources is 5,931 million tons with 870 million tons mineable. The coal has a high calorific value of 7000–8000 Kcal per kg with a low sulfur content (0.3–1.5%) and low water content (less than 7%).

10. Coal is also found in Java but in insignificant quantities. Coal

dating back to the Eocene is found in Bayah, South Banten, while coal dating back to the Pliocene is found in the southern mountain ranges, Trenggalek and Pacitan in East Java, Bogor and Sukabumi in West Java.

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4. POLICY AND REGULATIONS

1. The national energy policy of the Indonesian government as outline in the National Energy Policy Plan 2025 targets a cut in the use of oil from 55% in 2005 to 20% in 2025 with the use of coal raised from 15.7% in 2005 to 33% in 2025.

2. A notable change is to be made in the use of renewable energy in 2025 when renewable energy will account for 17% including biofuel 5%, geothermal 5%, biomass, nuclear, water and solar energy 5% and coal liquefaction 2% of the total energy requirement that year.

3. The draft law on mineral and coal, which is now still being

debated by the House of Representatives failed to be passed into law in April 2008 as expected as the lawmakers are still sharply split between cons and pros especially over the issue of working contract.

4. Under the new bill, IUP (Ijin Usaha Pertambangan or Mining

Business License) contractors are required to process and refine the raw material they produce in he country. This requirement as ruled in article 18 point 1 and point 3 of the draft law, is still being debated in the House of Representatives.

5. Coal Bed Methane is another alternative source of energy

available to be utilized by the country. The government offers CBM working areas in open areas, in oil and gas working areas, in coal working areas and in border areas between oil and coal concessions.

6. Indonesia has CBM reserves estimated to hold 453.3 TCF

found mainly in South Sumatra, Central Sumatra, Barito and Kutai. Smaller reserves are found in other regions in Kalimantan and Sulawesi.

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7. The delay in the process of passing the mineral and coal bill into law is caused by the fact that many still are against amending the working contract. They said the amendments will hamper the inflows of foreign investment especially into the general mining sector.

8. PMA companies operating in Indonesia could be 100% owned

by foreign investors or jointly owned by foreign and local investors with the status of limited corporation (PT) based in Indonesia.

9. PMA approval could be issued in Indonesia through the

Capital Investment Coordinating Board (BKPM) in Jakarta, or provincial investment agency (BPPMD) or through the Indonesian representative offices (embassies) abroad.

10. New applications for foreign investment projects in the

mining sector outside oil and gas sector, before the mineral and coal bill is passed into law, must be in the form of Contract of Work for Coal Mining Explorations between the prospective investors and the government.

11. The contract of work or the contract of work for coal mining

explorations was treated equal to investment approval by BKPM. Investment plan for the implementation of the contract and facilities used must be submitted to the BKPM with recommendation from the general mining director general.

5. OPERATIONAL RULES IN COAL MINING OPERATIONS

1. Coal mining operation still refers to the Law No. 11/1967

because of Mineral and Coal Mining Bill/MCMB is not completed yet, which is planned to be ratified by DPR. The main issue that delays immediate completion of Mineral and Coal Mining Bill is an article on transitional provision, in

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which KK (Work Contract) for mining businessmen will be replaced with Mining Operation Permit (MOP). MOP consists of two phases, namely MOP exploration and MOP production operation.

2. KP or MA is the first operational scheme in coal mining

industry which was introduced in 1969 which is still applied until now. The basic mining law (Law No. 11/1967) is also applied to coal mining operation. In 1969, after the introduction of Presidential Decree No. 29/1969, it was stipulated that all coal mining activities are subject to Kuasa Pertambangan (KP) or Mining Authorization (MA) scheme. Although the rules are also intended to attract foreign mining companies, until now the MA rights have been extended only to national companies, either limited liabilities companies (PT’s) or cooperatives. The incentives were not enough to persuade foreign investors to put their money in coal mining operation.

3. The Government issued Presidential Decree No. 49/1981, to

attract foreign investors by a new scheme, called Coal Cooperation Contract (CCC). This scheme was later called the First Generation CCC, because another type of CCC was introduced in 1993.

4. The government through a Presidential Decree No. 21/1993

invited private investors again to venture in coal mining under the CCC with modified stipulation, known as the Second Generation CCC. There were 19 PMDN companies licensed to venture in coal mining but two of them quit leaving 17 companies continuing their mining activities. Some of the 17 companies signing CCC of the Second Generation began production soon such as PT Antang Gunung Meratus, PT Gunung Bayan Pratama, PT Jorong Baratama Greston and PT. Bahari Cakrawala Sebuku.

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5. The agreements were based on the Presidential Decree No. 21 of 1993, which made some significant changes such as :

• PT Tambang Batubara Bukit Asam (PTBA) as the mining authorization (MA) holder was responsible for the

operational management of the contractors

• The contractors are the owners of all machinery and equipment

• Contractors are obliged to comply with the tax laws and regulations.

6. Through the Presidential Decree No. 75 in 1996, the

Government renewed the pattern of coal exploitation covering the aspect of investment through deregulation measure, simplification of the red tape and contract. One of the changes concerned regulations on contracts from Coal Cooperation Contract to Coal Contract of Work both for PMA and PMDN contractors. Under the Presidential Decree No. 75/1996, the coal mining authority, which was previously in the hand of PTBA, was returned to the Energy and Mines Minister with the General Mining Directorate General as the implementing body.

7. The basic elements of the CCOW arrangement which are included in the Presidential Decree No. 75/1996 are as follows : • The Contractor will directly conclude a coal contract

with the Government. As there will be no mining authorization the Contractors will be given “conjunctive title”, where they have right to proceed General Survey to Exploitation and sale in one package continuously, subject to approval of a satisfactory Feasibility Study and Environmental Impact Analysis Report and conformity with the terms and condition of the CCOW.

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• The Contractor is obliged to hand over 13.50% (thirteen and one half percent) of its coal production yield to the Government in cash at Free on Board price (FOB) or at the price of the Contractor’s final load out in the contract area (Point of Sale price). If the mining undertaking is carried out by underground mining and/or the coal produced is obviously of low quality, the amount of the production yield to be delivered to the Government may be considered for review, based on the result of an assessment submitted by the Contractor concerned.

8. To get a mining license or permit a contractor must submit

an application to the Minister of Energy and Mineral Resources through the Director General of Mines along with the following documents:

a. a topographic map to a 1:250,000 scale. b. an MOU for a joint venture between a foreign and

national party (not necessary if the contractor is not a joint venture.

c. a company profile on management, production and marketing capability, with a financial statement demonstrating that the company holds net assets of no less than two billion Rupiah.

d. a summary of the company’s experience in mining activities.

e. a work plan and budgeting program, including a brief description of the area being applied for, a work plan for each stage of activities, and an investment program.

f. an employment agreement with mining experts or statement of intent by mining experts to carry out the project.

9. There are four stages to be completed by investors before they start their coal mining operation:

a. General Survey Period – 1 year (+ 1 year extension)

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b. Exploration Period – 3 years (+ 2 x 1 year extension) c. Feasibility Study Period – 1 year (+ 1 year extension) d. Construction Period – 3 years

6. COAL MINING OPERATIONS AND PRODUCTION

1. There are two coal mining methods–open pit mining and deep mining. Open pit mining is used when coal is found less then 10 meters below the ground surface generally 5–6 meters below the ground surface. Mining could be made only by removing the upper layer of the ground. Deep mining is used when the coal lies more than 10 meters below the ground up to 100 meters. Drilling,therefore, is needed to create tunnel.

2. Process of coal mining generally includes removal of the cover layer, mining, reclamation and transport to piling terminal before the coal is shipped to the final destination.

3. There are various methods of exploiting coal deposits in Indonesia depending on the width of mining area and location of the mines as well as efficiency.

- First patern The mining company handles its self every phase of the job using equipment and its workers.

- Second patern A company names a sub-contractor to handle certain phases of jobs such as removal of outer layers in open pit mining, digging and reclamation (land fill).

4. KPC, Adaro, Kideco, Arutmin and Berau Coal are five largest coal producers in the country accounting for 70% of the country’s total production in 2007. KPC is the largest with production of 31.377 million tons. followed by Adaro with production of 20.614 million tons and Kideco 17.073 million tons.

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7. PROFILES OF MAJOR COAL MINING COMPANIES a. PT TAMBANG BATUBARA BUKIT ASAM (Persero), Tbk

• Through a Presidential Decree No. 49/1981, the government invited private companies to cooperate under a production sharing system to exploit coal mines in the country. PTBA was named as the mining authority holder for coal exploitation in the country. But through a Presidential Decree No.75/1996 and a Ministerial Decision No. 680/K/29/M.PE/1997, the mining authority was returned to the government in this case the Mines and Energy Minister to be implemented by the General Mining Directorate General.

• PTBA has become a publicly listed company since 1998/1999,

by selling part of its share in stock exchange following Government Regulation No. 50/1998 concerning privatization of state owned enterprises. Officially the company was registered as a public company in Jakarta and Surabaya Stock Market on December 23, 2002. Since then its name has become PT TAMBANG BATUBARA (Persero), Tbk or PTBA for short.

• PT BA is now operating two coal mines, i.e. Tanjung Enim in

South Sumatra and Ombilin in West Sumatra, which are supported by three wholly owned coal terminal, i.e. Tarahan in Bandar Lampung, Kertapati in South Sumatra, and Teluk Bayur in West Sumatra.

• The company has a total coal resource of 7,360 million tons

distributed in three coal mines, the largest one being in Tanjung Enim (80.3% or 5,910 million tons), follows by Cerenti Mines (18.3% or 1,346 million tons), and Ombilin (1.4% or 103 million tons).

• Unlike private CCOW companies, which experienced a

booming production in the last 5 years, PTBA production

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almost did not increase. It was 10,026 million tons in 2003 gradually declined to only 7,751 million tons in 2007. On the other hand, coal production by private companies, increased from 94,866 million tons in 2003 to 164,274 million tons in 2006, or about doubled in 5 years. PTBA is now the sixth largest coal producer after PT Kaltim Prima Coal, PT Adaro Indonesia, PT Kideco Jaya Agung, PT Arutmin and PT Berau Coal.

• Recognizing its transportation problem, PTBA is planning to

improve the efficiency and capacity of coal transportation by railway from the mining area to Tarahan loading port in Lampung and to Kertapati in South Sumatra.

b. PT KALTIM PRIMA COAL

• PT KPC established in March 9, 1982, as a limited liability company incorporated under Indonesian law and is classified as a PMA (foreign investment) company. PT KPC was then jointly and equally owned by Rio Tinto Limited and British Petroleum Company (BP).

• PT KPC was the largest coal producer in Indonesia, producing

31.377 million tons until October 2007, meanwhile, PT Adaro produced 20.614 million tons in the same year. In the period of 1996 – 2004, PT Adaro was always the largest and PT KPC the second largest producer.

• KPC has three mining concessions located in Pinang Block

(Sangatta), Bengalon Block and Separi Santan Block covering a total area of 140,522 Ha. As of mid 2004 the mineable coal reserves is estimated at 619 million tons, comprising 462 million tons at Pinang and 157 million tons at Bengalon, plus 2,200 million tons measured and indicated as resources.

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• The mines method applied by KPC is multi seam open pit carried out by 2,700 employees. KPC operates six to 12 individual open pits at any time, the average stripping ratio being 7.5 bcm (bank cubic meters) of overburden per ton of coal.

• The operation produces two main export quality products,

i.e.: a) Prima Coal, a high volatile bituminous steam coal with

high calorific value, very low ash, low sulphur and low total moisture.

b) Pinang coal with similar quality but has a higher moisture content.

• The nature of the deposit and the low ash content of the in situ coal will enable most coal to be mined clean. With selective mining, over 90% of the run-off-mine coal only needs crushing and blending to give export quality Prima Coal.

• A dense medium coal washing plant will treat up to 1.5

million tons per annum of contaminated Prima Coal to produce coal of the same specification as clean Prima. Washed and clean Prima Coal will be blended in a 60,000 tons final product homogenization stockpile. Pinang Coal will be stocked in a separate 20,000 tons final product stockpile.

• The mine site contains separate stockpiles for the Prima and

Pinang products, holding 60,000 Tons and 35,000 Tons respectively. Coal is reclaimed and transported by a 13 Km-long, 2,100 Tons/hour capacity overland conveyor to Kaltim Prima’s dedicated port facilities at Tanjung Bara.

• A 2.5 Km rock-fill causeway and trestle jetty out to a deep

water berth with 19.0 meters below mean sea level will enable ships of cup to 180,000 DWT to be fully loaded.

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• In 2006, KPC’ coal production totaled 35.301 million tons, of

which 1.188 million tons were sold on the domestic market and the rest exported. In 2007, KPC’s production rose to 38.455 million tons of which 2.727 million tons were disposed of on the domestic market and the rest exported.

c. PT ADARO INDONESIA

• PT Adaro Indonesia, one of the largest coal producers in Indonesia is now controlled by new owners after a long selling process. The company is now controlled by Edwin Soeryadjaya, the youngest son of William Soeryadjaya, the former automotive legend in Indonesia, the founder and the former owner of the big automotive Astra group.

• Adaro Indonesia is 91.8% owned by PT Dianlia Setyamukti and

8.2% by MEC Indo Coal from the United States.

• PT Adaro Indonesia’s coal concession is located on the eastern margin of the Barito Sub-basin, close to the Meratus Ridge. The Barito Sub-basin is the southern part of the Kutai Basin, a broad sedimentary basin that occupied South and East Kalimantan during Tertiary time. The Kutai Basin is one of transition between fluvial and maritime deposition.

• The Adaro coal resources are contained within seams in

Miocene sediment. Among a total of five resources regions have been delineated in the concession, Paringin, Tutupan and Wara have the greatest economic significance for exploitable coal reserves.

• The brand names of coal produced by PT Adaro Indonesia is

Envirocoal. Envirocoal is a sub-bituminous steaming coal with low polluting, moderate energy characteristics. Major success has been achieved in sales to Europe and the United States,

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where legislation limiting emissions from coal-fired power stations has created a strong market for the ultra clean coal.

• Adaro also transships coal through the Pulau Laut Terminal,

which commenced operations in 1997. The high capacity terminal has a throughput capacity of 10 million tons per year and can load Panamax vessels of up to 75,000 DWT in less than two days.

• The Pulau Laut Coal Terminal was designed as Southeast

Asia’s major bulk handling center. The coal terminal is developed by PT Indonesia Bulk Terminal (IBT), with a wealth of experience in bulk port operations, using one berth and 750,000 tons capacity stockpile area equipped with underground reclaim system to ship loaders capable handling 10 million tons per annum (MTPA) at a loading rates of 3,000 tons per hour (tph).

• In 2006, production of Adaro totaled 34.368 million tons ,

of which 10.024 million tons were disposed of in the country and the rest exported. In 2007, Adaro’s production rose slightly to 34.526 million tons , of which 9.293 million tons were sold in the country and the rest exported.

d. PT KIDECO JAYA AGUNG

• PT Kideco Jaya Agung is a foreign investment/PMA, incorporated on 7 September 1982 in Jakarta. The main objective of the company is to explore, develop and enhance the production of coal within the concept of coal cooperation contract No. J2/Ji-DU/40/82 between the company and PT Tambang Batubara Bukit Asam (PTBA–formerly Perusahaan Umum Tambang Batubara), approved by the Minister of Mines and Energy on 14 September 1982 to explore and develop coal resources in Block V, Pasir Regency,

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East Kalimantan for a period of 30 years from commercial production by royalty of 13.5% of FOB sales income.

• The company holds an authorized working area of 50,400

hectares which is 20% of original mining area after three times relinquishment.

• The company is applying an open pit mining system, utilizing

15m3 hydraulic shovels and 100 tons dump trucks to remove overburden in Pasir area in East Kalimantan.

• Inland transportation functions is to bring raw coal to

crushing plant and then to the stockpile in Tanah Merah Coal Terminal (TMCT).

• For an efficient inland transportation Kideco constructed the

private main haul road, having all-weather workable condition, from crushing plant to TMCT. This 40 Km haul road, in which took more than two years for its construction, having 12 meters traveling width, was designed and constructed to maintain 60 Km per hour trucking speed.

• Kideco is one of the companies enjoying the benefit of

increasing coal price. The company is now the third largest coal producer in Indonesia after KPC and Adaro, producing 18,890 thousand tons in 2007.

e. PT ARUTMIN INDOESIA

• PT Arutmin Indonesia was established on October 31, 1981, entered into a production sharing agreement with the Government of Indonesia through the state-owned company PT Tambang Batubara Bukit Asam (PTBA) on November 2, 1981 (Contract No. J2/Ji.DU/45/81), to explore and develop coal resources in Block VI area, Kotabaru, Tanah Laut and

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Banjar Regencies, South Kalimantan Province. First production commenced in 1981 and production target is 11 million tons per annum (mtpa) by year 2001.

• Arutmin is operating two mining areas, i.e. Senakin and

Satui. In Senakin, coal is produced from two locations namely East Senakin and West Senakin, which have a reserves of 420 million MT consisting of 170 million MT of thermal coal and 250 million MT of lignite coal.

• Senakin is one of the mining areas operated by Arutmin which

is located in Block IV, Kotabaru, Tanah Laut, East Kalimantan, Banjar Regency, South Kalimantan.

• The Arutmin coal is recommended for industrial, cement and

power generation applications. The coal is low in moisture and sulphur, high in volatile matter and moderate ash.

• In Satui mine coal is removed by open-cut methods using

loaders and trucks. Pits are developed by excavating from the sub-crop down dip. Overburden is dumped outside the operating pit until the predetermined maximum economic pit depth is achieved. Once this depth is reached, overburden dumping is switched to within the pit.

• Coal from Senakin, Satui and Petangis mines is exported

through the North Pulau Laut Coal Terminal (NPLT). Coal for domestic sales is transported direct to customers aboard self-discharging barges. NPLCT is located at Tanjung Pemancingan at the northern end of Pulau Laut, a 100 kilometer-long island off the coast of South Kalimantan in the Sulawesi Sea. The port was located at this position because the area is not susceptible to typhoons.

• Coal is transported from the mine barge ports to the NPLCT

by self-discharging barges. The initial fleet consists of four

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7,000 tons barges servicing Senakin, one 7,000 tons barge servicing Petangis, and four 3,500 tons barges servicing Satui.

• Arutmin is one of fast growing coal producer. Its production

increase from 7,006 thousand MT in 1996 to 15,394 MT in 2007, more than doubled in 10 years. The company has been selling more coal to domestic market, mostly to PLN, particularly in 2005.

f. PT BERAU COAL

• PT Berau Coal is now owned by Indika Group (controlled by the Sudwikatmono family) 60%, PT Armadian Tritunggal 30%, and Nissho Iwai Corporation 10%. Berau Coal surpassed Tambang Batubara Bukit Asam (TBBA) as the fifth largest producer.

• PT Berau operates the mine under a Coal Cooperation

Contract agreement signed on 26 April 1983 with PT Tambang Batubara Bukit Asam (PTBA), the state-owned company which was then holding exclusive authority to mine coal in Indonesia. Berau Coal was appointed as the sole contractor at a specific mining area in East Kalimantan. Currently the concession area covers some 1,200 sq.km.

• Lati area is in commercial production since 1st October 1994. Binungan commenced in 1996 and Sambarata in 2001. Other areas such as Kelai, Teluk Bayur, Punan, etc. are in exploration or feasibility study stage.

• In addition to its domestic power company contracts, Lati Coal has been exported to such different locations as Taiwan, Japan, India, Thailand, Bulgaria, and Chile.

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• PT Berau’s second mine, Binungan, has been in production since 1998. Binungan’s proven reserves is more than 100 million MT.

• Binungan possesses very low sulphur and ash contents making a product in great demand. With one base-load power contract already signed, its excellent quality is attracting attention worldwide.

• Sambarata is the third mine of PT Berau Coal which has a total reserves of 90.5 million tons measured. The coal from Sambarata is mainly used for blending products.

• Berau Coal commissioned a specially designed custom-built

semi submersible vessel, which transfers coal directly from the barge to the vessel using an elevator and boom conveyor system (semi submersible transshipment facility or SST). This facility was later named SST. Berau has a contractual guaranteed loading rate of 24,000 tpd. It is currently achieving a loading rate of 18,000 tpd.

• The SST Berau, which was specially designed and constructed for Berau Coal, is the only one of it kind in the world and gives the company a competitive advantage over other operations that use floating cranes or that transship to a coal terminal.

• The Suaran Port intended to serve Binungan mine, covers an area of approximately 700 hectares. The terminal complex at the port site includes the following facilities: Product coal stockpile with reclaim hopper, Barge loading conveyor, Wharf and dolphins, and Fuel storage tanks.

• Berau performed well in its coal production, domestic sales and export. In 10 years, from 1998 to 2007, its coal production increased by about 9 times, from 2,252 thousand tons in 1998 to 11,811 thousand tons in 2007.

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• Rising demand of coal from PLN’s power plants, Berau’s domestic sales increased more rapidly, from only 924 thousand tons in 1998 to 4,412 thousand tons in 2007.

• Its export was even developed much faster, only 1,234 thousand tons in 1998 to 7,540 thousand tons in 2007.

g. PT INDOMINCO MANDIRI

• Indominco’s Mining areas are in sub-dished Sangata, North

Bontang, South Bontang and Muara Badak in East Kalimantan. The coal deposit is located 20 km to the west of Bontang town, 39 km from the port.

• The company’s coal mining cover a total area of 25,000 km

which is estimated to have 62.4 million ton mineable reserve of a total coal resources of 283.9 million tons.

• The company started producing coal in 1997 at 1,198

thousand MT which then increased rapidly to reach 10,443 thousand MT in 2007 with an average growth rate of 15.7% per year in the last 5 years. The company has anticipated high growth rate by providing necessary facilities in the processing transporting the coal.

• The company’s coal export increased from 1,001 thousand

tons in 1997 to 12,062 thousand tons in 2007, almost times in 9 years.

8. DOMESTIC DEMAND FOR COAL

1. Coal consumption increased again in line with the improvement in industrial sector performance, and the demand for power energy continued to increase. This is

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because of the development of industrial and property sector, such as housing, and commercial property, such as office complex, shopping center, hotel, industrial estate, and so forth.

2. Domestic coal consumption will increase rapidly soon after

various projects of PLN (State Power Company) power plant with capacity of 10,000 MW using coal energy source operates in 2009.

3. Domestic coal sale in Indonesia from 2004 to 2007 relatively

fluctuated, because of increase in demand for coal and the world’s coal price, and numerous domestic coal users that purchased from spot market, resulting in decrease in domestic sale, because when the world’s price rose in the last several years, many coal producers and traders performed export sale.

4. Demands from almost all industrial consumers especially

from the electricity sector has increased sharply in the past five years. Demand from the electricity sector grew from 25.669 million tons in 2005 to 32,665 million tons in 2006.

5. Similarly demands from cement and ceramics industries

have also surged – from 5.152 million tons in 2005 to 7.546 million tons in 2006.

6. Textile industry owns a high dependence on fuel-based oil.

Therefore, with skyrocketing price of fuel-based oil, many parties change their fuel into coal, although they must modify their boilers or replace with new ones with coal as fuel.

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9. COAL EXPORTS

1. Starting 2010, the Indonesia government will limit coal exports to a maximum of 150 million tons to guarantee supply in the country. Coal requirement has increased fast in the country and the requirement is expected to surge in 2010 when the crash program, to build coal fired power plants with a total capacity of 10,000 MW, has been completed. The quota system has been included in the contracts held by contractors holding Contract of Work (CCOW/PKP2B).

2. The planned quota system already causes concern among

major coal consumers in the world, fearing that coal will be more difficult to get in the world market. The system is also almost certain cause an increase in price as Indonesia is now the world’s largest supplier of caol to the world market.

3. The main Indonesian coal user countries almost do not change

in general, because they are still dominated by permanent user countries of Indonesian coal. These countries are among others, Japan, which in 2007, purchased coal amounting to 18,209,715 ton, as recorded until November 2007. The coal purchase by Japan also experienced a decrease at end of 2007, because from 2,952,142 in January 2007, it decreased drastically in October 2007 to 881,197 ton.

4. India and China that become the countries with the largest demand for energy currently, purchased Indonesian coal mainly to fulfill the needs of their power plants. In 2007, their coal purchase reached 10,997,906 ton. The same with other countries, the coal purchase of India also decreased in several months approaching end of 2007.

5. Kaltim Prima Coal (KPC) continued to become the Indonesia’s largest coal exporter until 2007 after it had became the second largest exporter for several years.

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6. Adaro Indonesia that had became the largest exporter for several years, continued to become the second largest coal exporter until 2007. In 2007, its export reached 15,630,771 ton, decreased quite drastically from 2006 that reached 24,137,923 ton.

7. Kideco Jaya Makmur is the third largest exporter with

13,636,138 ton. After 2007, it exceeds export volume of Arutmin Indonesia that only reached 10,194,114 ton in 2007.

8. Indonesian coal is known as low rank coal, because almost all

products are included in lignite and sub bituminous types, 0with calorie ranging from 4,000 Kcal/kg to 5,900 Kcal/kg.

9. With high demand for coal at present, especially from new

giant industrial countries, such as China and India, which are technically capable to use this low rank coal, potential demand for coal resource of this type increases more.

10. COAL TRANSPORTATION AND TERMINALS

1. Transport of coal is now an emerging business. Coal transport is much briskers with the growing international and domestic coal trade notably in the past two years.

2. The expansion of coal mining industry has also contributed to

development of shipbuilding and ship repair industries in the country. Demands for new ships have increased and so have demands for ship repairs.

3. In PTBA’s Tanjung Enim mining unit, the coal is transported

by conveyors to the distribution station and from there to the piling facility before being loaded to trucks and then railway cars. The conveyors in Tanjung Enim total 30 kms in length.

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4. In Kalimantan, coal mines are generally far from coal terminal. Adaro mine, for example, is located in Hulu Sungai Utara and Tabalong, located 75 km from the port of Kelanis at Barito River, Central Kalimantan. Trucks are used to carry coal to the port. The transport cost therefore is higher, but Adaro’s production cost is cheaper as the top soil covering the coal deposit is thinner, therefore the stripping ratio is lower.

5. Coal is transported from mine field to be stockpiled for

crushing and washing in a processing plant. Processed coal is then transported from the stockpile yard the processing plant to loading port or terminal stockpile, or directly loaded to the ship using loading cranes. Depending on distance and some other factors, the coal may be transported by heavy duty trucks, trailer road trains, railways or belt conveyors.

6. In Tanjung Enim mining unit of PTBA, coal is transported

from processing plant to coal terminal at Tarahan (420 km from Tanjung Enim) and Kertapati (164 km from Tanjung Enim) by railways trains.

7. PT Adaro Indonesia, one of the largest coal producing

companies in Indonesia, transports its coal from its mining area to Kelian terminal (75 km) by using 120 tons capacity side-dumping double trailer road trains with BHP prime mover. The company is also utilizing triple trailer trains with up to 200 tons capacity.

8. PT Kaltim Prima Coal (KPC) is using belt conveyor to

transport its coal from Sangatta mines to Tanjung Bara Coal terminal (13 km).

9. The essential equipment in the terminals is loading and

unloading cranes. Loading ports are located in coal producing centers (particularly in Kalimantan and Sumatra) while the

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unloading ports are in coal consuming centers (in Java and importing countries).

10. The largest coal terminal is the Indonesian Bulk Terminal

(IBT) which is located on South Pulau Laut island, developed jointly by Consolidated Bulk Handling of Australia and PT Terminal Batu Bara Indah of Indonesia.

11. The Indonesian Bulk Terminal is serving Adaro coal mines. It

is the latest common-user deep-water port with an initial stockyard capacity of 1,600,000 MT and capable of handling up to 200,000 DWT vessels. Commencing operation in 1997.

12. The second largest terminal is Tanjung Bara Coal in East

Kalimantan which was developed by Kaltim Prima Coal (KPC) at Sangatta, north of Samarinda, East Kalimantan.

13. The state owned PTBA operates 4 coal terminals, namely

Kertapati and Tarahan in South Sumatra, Teluk Bayur in West Sumatra and Pulau Bai in Bengkulu. Another terminal is being planned which will be located in Tanjung Api-api, South Sumatra

11. HEAVY EQUIPMENT ON COAL MINING INDUSTRY

1. Heavy equipment sector in Indonesia has indicated a better performance within the last three years, following a large expansion in mining, plantation, forestry, and construction sectors, which triggers a sudden increase in demand for heavy equipment.

2. The Association of Heavy Equipment Industry of Indonesia

(Hinabi) projects that the sale of heavy equipment this year can reach above 7,000 units. This amount increases by 25%

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compared to the 2007 sale that was estimated to reach 5,590 units.

3. The improvement in mining industry performance, especially

coal, also supports performance of heavy equipment business players, mainly four main players in Indonesia, namely United Tractors, Trakindo, Hexindo, and Intraco Penta.

4. The number of coal mining contractors, therefore, has

increased with the growing demand for their services. There are 150 mining service companies registered at the energy and mineral resources ministry, but only 20 of them actively operate in the service industry.

5. Among large contractors dominating the job of mining coal

are PT Pama Persada Nusantara, PT Thiess Contractors, PT Petrosea, PT Bukit Makmur and PT Darma Henwa.

6. At present, there are about 57 coal mining companies

operating in Indonesia. From this amount, 47 are operating in Kalimantan, 4 in Bengkulu, 3 in West Sumatera, 2 in Riau, and 1 in South Sumatera.

7. Indonesia has three companies assembling heavy equipment

including Excavators, bulldozers, motor graders, wheel loaders and dump trucks. They are PT Komatsu Indonesia which produces Komatsu brands, PT Natra Raya, producing Caterpillar products, and PT Hitachi Construction Machinery Indonesia producing Hitachi products.

8. Sales of heavy equipment in Indonesia are all handled by sole

agents. Sole agency was required by the government regulation as foreign companies were not allowed to do retail business. However, now they are allowed to sell their products directly to users although they still maintain the old system of using sole agents.

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9. The sole agent for Komatsu is PT United Tractors, that of

Caterpillar is PT Trakindo and that of Hitachi is PT Hexindo Adiperkasa.

10. United Tractor with Komatsu and Trakindo with Caterpillar

dominate 70% of the market of heavy equipment in Indonesia. In 2007, amid strong demand, Kobelco and Daewoo and other unknown brands also enjoyed good sales.

11. Heavy equipment market in 2008 is projected to increase by

25%. Numerous orders have come from mining, plantation, construction, and forestry sectors, thereby encouraging producers to work hard in order to increase production.

12. The Association of Heavy Equipment Industry of Indonesia

(Hinabi) recorded that in 2007–2008, total capital expenditure of the national heavy equipment producers was estimated to increase US$ 200 million.

13. In line with the development of mining industry, especially

coal mining, heavy equipment financing in Indonesia in 2007 increased quite significantly by 17.8% to Rp 22.088 trillion. In addition to the mining sector that contributed a quite considerable purchase, plantation and construction activities improved significantly in 2007.

14. Joint venture companies still dominate business in heavy

equipment leasing in Indonesia. Joint venture companies are superior financially and experience as the co-owners of joint venture companies are dealers or manufacturers of heavy equipment.

15. In 2007, Dipo Star took over from Orix as the largest leasing

company providing credits for the leasing of heavy equipment.

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16. Major heavy equipment leasing companies in Indonesia are

affiliated with heavy equipment producers or dealers.

12. DEVELOPMENT OF 10.000 MW COAL FIRED POWER PLANTS (PLTU) CRASH PROGRAM

1. The increasing demand for electric power energy, with limited power production capacity of PLN (State Power Company) currently, results in frequent disturbance of power supply for both household and industrial sector, and other lines of business.

2. With the power supply deficit in several years to come,

because of incompliance of power need development with the increase in power capacity of PLN, the government assigns PLN to accelerate development program of 10,000 MW PLTU (coal-fired power plant) that is planned to operate in 2010.

3. In 2003, power production of PLTU with coal energy source

reached 31,736 GWh in 2003, or increased from 29,313 Gwh in 2002. Slightly decreasing to 30,806 GWh in 2004, this coal-based power production increased quite high to 33,253 GWh in 2005, and increased significantly to 38,361 GWh in 2006.

4. The use of coal as power plant energy source continues to

increase, in line with reduction of fuel-based oil use for power energy source.

5. In 2002, the use of coal as power energy source reached

14,054,377.5 ton and continued to increase gradually until 2007 that reached 21,843,000 ton.

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6. The development project of 10,000 MW PLTU will spread in 10 locations in Java with capacity of 7,000 MW and other 25 locations outside Java with capacity of 3,000 MW.

7. Banten is a region in Java Island and in Indonesia that has the

highest additional capacity of PLTU, namely 2,165 MW, produced by PLTU Suralaya, Labuhan, and Lontar.

8. West Java is the second largest capacity in PLTU

development, namely 2,040 MW, from its two power plants, namely PLTU Indramayu and Pelabuhan Ratu.

9. Several projects of PLTU in Java have executed the

development contract on March 12, 2007, among others PLTU 2 East Java Paiton 1 x 600 MW with contract value of Rp 777,293,309,274, and PLTU 1 Banten-Suralaya with contract value of Rp 951,667,973,128.

10. Several projects of PLTU that will enter contract execution

phase are among others, PLTU East Nusa Tenggara, PLTU Riau Islands, PLTU West Kalimantan, and Central Kalimantan, and PLTU 1 in East Java.

11. Several projects of PLTU are still in tender process because in

several locations, tender process cannot be performed or repeat tender must be held because the number of tender participants has not fulfilled the given amount.

12. The management of PLN decided to distribute the operation

of 10,000 MW PLTU Crash Program in Java-Bali system to subsidiaries and holding companies, respectively 4 units of PLTU for PT Indonesia Power, 4 units for PT PJB, and 2 units by PLN head office (holding).

13. A number of PLTU included in the crash program that have

completed some of their construction portions and will be

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ready to operate in 2009, have build cooperation with several coal producers among others, PT Bara Mutiara, PT Titan Mining, PT Arutmin cooperating with PT Darma Henwa, and several other coal mining companies to supply their needs.

13. PROSPECT OF COAL BED METHANE

1. Coal Bed Methane (CBM) is methane gas formed by microbial activity (biogenic) or heat (thermogenic) during coal formation process commonly found/trapped inside coal layer and constitutes one of the environmentally clean energy resources that has been used in many countries.

2. The Minister of Energy and Mineral Resources, Purnomo

Yusgiantoro, stated that on January 15, 2008, the Government will offer CBM work territory in several groups of work territory, namely in open areas, in oil and gas work territory, in coal work territory, and in the contact area between oil and gas and coal work territories.

3. With a total CBM reserves of about 453,3 trillion cubic feet,

Indonesia is of ten mentioned to process the world second biggest CBM reserves. Regrettably, as far as utilization is concerned, its nil.

4. Until now there is no CBM gas being produced in Indonesia,

either as a pilot project, let alone commercially. Therefore, the business undertaking of CBM is very new to Indonesia. Thus, the participation of the nine companies is a good beginning for future CBM development in Indonesia.

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executive summary 2008_coal mining

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