indonesiacoal indutry outlook_english

ByJeffrey MulyonoChairman of Indonesian Coal Mining Association(APBI-ICMA)

INDONESIAN COAL INDUSTRY OUTLOOKPresented at Indonesian – Japan Coal PolicyDialogue and Coal SeminarTokyo, March 26th - 27th, 2009

3/12/2009

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PRESENTATION OUTLINE

• INTRODUCTION• How much Coal Reserves can be found in Indonesian ?• What is Indonesian Coal Quality ?• What is production, export and domestic sales levels ?• What is Government of Indonesian plan for coal ?• What is long run prediction for production, export and domestic

utilization of coal ?• Indonesian new mineral and coal low, is it favorable or

unfavorable for investment ?• Closing Remarks

INTRODUCTION

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Up to mid 2008, the mining industry both in Indonesia and globallyexperienced significantly high performance.For Indonesia, PricewaterhouseCoopers reported that in the lastthere year EBITDA Margin, Net Profit Margin, Return on CapitalEmployed, Return on Shareholders fund, and Net Debt to EquityRatio were above the sector global average.The mining industry continues to be an important contributorto the Indonesian economic.The industry also continue to make significant contributions to theIndonesian GDP and Export, as well as to Regional and CommunityDevelopment.Since September 2008, the price of all mining products has beendecreasing significantly and reduced the profitability of miningcompanies for the year 2008.The year of 2009, will be very hard for mining companies.

HOW MUCH COAL RESERVES CAN BE FOUND IN INDONESIAN ?

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DISTRIBUTION OF INDONESIAN COAL MAP RESERVES (IN PERCENTAGES)

5

8 %

39 %

3 %34 %

16 %

Distribution of Coal Reserve Potential

The biggest reserves are located in 3 provinces, in South Sumatra (39 %), East Kalimantan (34%), andSouth Kalimantan (16%).

Source : Center for Geology, Geology Agency 2006

INDONESIAN COAL MAP RESOURCES AND RESERVES (BILLION TONS)

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Reserves : 18.70 billion tons

11.55 b.tSUMATRA

Resources: 93.40 billion tons

52.53 b.t

b.t : billion tons

0.01 b.t

40.47 b.t

0.23 b.t 0.002 b.t 0.15 b.t

7.15 b.t

Source: Geological Resources Centre (+ Joint Study with NEDO) – 2007March 2009, it was reported become 104.7 Billion ton Resources

RIAURESOURCES = 2,057.22MINEABLE = 15.15

NANGROE ACEH DARUSALAMRESOURCES = 450.15MINEABLE = n.a.

WEST KALIMANTANRESOURCES = 527.52MINEABLE = n.a

CENTRAL KALIMANTANRESOURCES = 1,399.21MINEABLE = 48.59

EAST KALIMANTANRESOURCES = 19,567.79MINEABLE = 2,410.33

PAPUARESOURCES = 138.30MINEABLE = n.a.

WEST SUMATRARESOURCES = 719.09MINEABLE = 36.07

BENGKULURESOURCES = 198.37MINEABLE = 21.12

SOUTH KALIMANTANRESOURCES = 8,674.56MINEABLE = 1,787.32

SOUTH SULAWESIRESOURCES = 132.01MINEABLE = 0.06

SOUTH SUMATRARESOURCES = 22,240.40MINEABLE = 2,653.98

COAL RESOURCES AND RESERVES DISTRIBUTION BY REGION (M.TONS) 2007

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WHAT IS INDONESIAN COAL QUALITY ?

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INDONESIA COAL QUALITY BASED ONTHE SPECIFIC ENERGY (KCAL/KG)

62%

13%

24%

1%

Medium Quality

Low QualityHigh Quality

Very High Quality

(6100-7100 kcal/kg)

(>7100 kcal/kg)

(< 5100 kcal/kg)

(5100-6100 kcal/kg)

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How many coal mining iN Indonesian today ?

What is production, Export and domestic sales levels ?

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COAL MINING PLAYERS GROUP (2007)

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INDONESIA’SCOAL PLAYER

GROUP

COAL CONTRACT OFWORK

(CCOW HOLDER) **)

MININGAUTHORIZATION

(MA HOLDER)***)

STATED OWNED (PTBA)*)

Contribute 4,0% ofNational Coal

Production


Production


Production

*) 1 Company in Production**) 36 Companies in Production

44 Companies in Exploration, Feasibility Study and Construction***) 129 Companies in Production

PRODUCTION, EXPORT AND DOMESTIC SALES (HISTORICAL DATA ,1996 - 2008) (Million Tons)

Government Version

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35.3

10.9

48.840.9

13.2

53.946.7

15.4

60.653.9

19

72.257.2

22.1

75.663.4

27.3

91.573.4

29.2

102.585.3

35.74

114.393.76

37.1

132.4110.79

41.3

153.2144.94

45.54

193.55

158.6

62.5

215

160.27

79.14

233.62

0

50

100

150

200

250

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Export Domestic ProductionSource : - Directorate of Mineral and Coal Enterprise – “Indonesia Mineral and Coal Statistic 2005”

- APBI-ICMA

WHAT IS GOVERNMENT OF INDONESIA PLAN FOR COAL ?

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EXISTING/THE CHANGING FACE OFINDONESIAN ENERGY MIX (2006 – 2025)

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Geothermal 1.4%

Renewable 3.4%

2025

Coal33%

Gas30% Oil

20%

Coal Liquefaction2%

Renewable Energy5%

Geothermal5%

2006

PRESIDENTIAL DECREE NO. 5 TAHUN 2006CONSERNING NATIONAL ENERGY POLICY

Increased usage of low rank coals for domestic use, coal liquefaction and upgrading brown coal (‘UBC’) will be key factors in increasing domestic coal usage.

WHAT IS LONG RUN PREDICTION FOR PRODUCTION, EXPORT AND DOMESTIC UTILIZATION OF COAL ?

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PRODUCTION, EXPORT AND DOMESTIC SALES (FUTURE ESTIMATION, 2005 – 2025) (Million Tons)

APBI-ICMA Version

16

110.8

41.4

153.4 145

48

193158.6

62.5

215

160.27

79.14

233.62

169

75

244

170

90

260

153175

326

184

180

364

150

236

421

0

50

100

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2015 2020 2025

Export Domestic ProductionSource: APBI-ICMA 2009.

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Have you heard of Indonesian new mineral and coal law ?

Is it favorable or Unfavorable for investment ?

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There are still many question marks for the new law ?

The answers are still to be waited. The new law will rely heavily on many still to be issued government regulations for its implementations

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The Essence Of The New Law

The law replaces the mineral and coal mining law No. 11/1967. However,the mineral and coal mining law will rely heavily on many still to issuedgovernment regulation for its implementations .

New Contract of Work (CoW) and Coal Contract of Work (CCoW) systems will no longer be available. But all existing contracts will be respected.

All investor (both foreign and local) will be treated equally. Both investors will be able to apply for a form of mining license (IUP or IUPK) .

An IUP is requires for exploration, development and production stage.An IUPK is applicable for State Reserves Areas (SRA)

Existing Mining Companies should process raw minerals in domesticprocessing and smelting facilities within five years after the law entry intoforce.

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The Essence of the new law(continued)

All investment (both foreign and Indonesia) must now be carried out pursuant to an “IUP” or “IUP Khusus”/IUPK”.

An IUP is applicable for general mining.

An IUPK is applicable for any mineral or coal in The State Resources Areas (SRA)

State Reserves Areas (SRA’s) are to be determined by the Central Government with approval from parliament.

Stated Owned Companies are to be prioritized for the development of SRA’s.

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MINING AREAS

Metallic – Mineral :

Non Metallic Mineral :

Sand & Stone Aggregates :

Coal :

IPR :

Maximum 100.000 Ha – Exploration StageMaximum 25.000 Ha – Production Stage




Individuals 1 HaGroup 5 HaCooperation 10 Ha

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MINING TERMS

IUP :EXPLORATION STAGE :Coal and Gemstone → 7 yearsMetallic Mineral → 8 yearsNon Metallic Mineral → 3 yearsStone Aggregate → 3 years

EXPLOITATION STAGE:Coal, Metallic Minerals → 20 years (can be prolonged 2 x @10 years)Non Metallic Minerals → 10 years (can be prolonged 2 x @ 5 years) Stone Aggregate → 5 years (can be prolonged 2 x @ 5 years)

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MINING TERMS (CONTINUED)

EXPLORATION STAGE :

Coal → 7 yearsMetallic Minerals → 8 years

PRODUCTION STAGE:Coal, Metallic Minerals → 20 years

can be prolonged2 terms @10 years

IUPK :

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WILL NEW MINING LAW BE FRIENDLY TO NEW INVESTORS ?

The answer will be left to the implementing DerivativesRegulations (Government Regulation).

No more of CoW/CCoW in the future will be the main factor indeclining of grass root investment.

Well regarded Lex specialist concept embedded in someCoW’s/CCoW’s will be no more used in the IUP Concept,accordingly the new law may provide only low level of certainty.

The idea to re-sizing of the mining become anotherdisincentives factor.

The obligation to invest in domestic infrastructure of mineralprocessing and smelting makes mining sector less attractive forlow and middle class investors, but give more economic Impactto the country.

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WHAT IS GOOD IN THE NEW MINING LAW COMPARE TO THE OLD ONE ?

The new law treats both foreign and local investors equally(no more discrimination in government treatments). Bothforeign and domestic investors will be able to apply for aform of mining license.

Exploration Licensing (IUP) must be issued through atender process, rather than direct appointment, so it’smeans more transparent system compare to old one.

Hard Sanction for :Illegal minerGovernment official whom did misconduct andmismanage in giving licensing.

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GOVERNMENT REGULATIONS Which are still in the kitchen

• Domestic market obligation• Coal pricing index ( basset indexes )• Mining zone• Mineral and coal enterprises activity• Supervising and controlling mining activity• Mining Reclamation, mine closing and Post Mining

Activity• Added value of mineral processing obligation

DOMESTIC MARKET OBLIGATION

By having DMO on place, How Foreign Country can rely on Indonesian Coal for their Full Supply.We are now discussing with Government to treat upgrading entity as Industrial entity, so it means Raw Coal Supply to this entity is calculate as DMO and consequently the output is free to be tradedBy then it is attractive enough for Investor to invest . This kind of investment to market the product elsewhere

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CLOSING REMARKS

• Coal production growth in Indonesian will continue through the year2009.Slowing demand from the international market may be offset by theincreasing demand from the domestic market.

• The natural production level could be much more greater. Only if thebottle neck in the infrastructure (specially in land transportationsystem) can be eradicated.

• The government of Indonesian, is committed to encourage privatesectors to invest in coal mining industry especially in introducing newclean coal technology such as : coal liquefaction and coal gasification.

• The government of Indonesian is committed to promote theapplication upgrading brown coal technology by coal industry inorder to utilize abundant low rank coal in Indonesia.

Indonesian Coal Mining AssociationEmail: [email protected]

Menara Kuningan Building, 1th Floor, Suite AJl H.R. Rasuna Said Block X-7 Kav.5Jakarta Selatan 12940 - INDONESIA

Phone/Fax : (62 21) 3001 5935, 3001 59

THANK YOU

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