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Boom times

Oilfield Technology,

With domestic consumption forecast to rise in the future, India, China and other Southeast Asian countries increasing their reliance on imported thermal coal for power generation, and Australia currently discussing various emissions trading schemes that could impact competitiveness in international markets, Indonesia’s vast coal reserves remain an exciting attraction for investors despite many uncertainties that cloud the industry.

The steady flow of investment into Indonesia could become a torrent if legislators can untie some regulatory knots.

Despite a Domestic Market Obligation (DMO) ruling coming into effect at the start of this year, certain issues remain unclear, such as what volumes of what coal types would be required by industry and how the DMO regime would be legally enforced. Producers also want transparent and fair rules in place regarding domestic pricing.

An implementing regulation for a 2007 zoning law has also caused dismay, and mining associations have asked for a judicial review of the 2009 Mining Law, which threatens to limit the work that mining companies can outsource.

Despite all the uncertainty, mining investment in Indonesia was calculated to have totalled over US$ 1.8 billion last year, a 9.5% increase on 2008. Government sources predict a further rise to US$ 2.5 billion this year.

Addressing concerns
There were signs in the Q1 of this year that the Government is moving to address the concerns of investors. Two implementing regulations to the 2009 Mining Law were issued at the start of February. One of them – Government Regulation No. 23/2010 (GR23) – clarifies the divestment obligation for foreign investors set out in Article 112 of the Law.

It now seems that foreign shareholders have to divest 20% of ownership in mining concessions to local parties within five years of production commencing. GR23 also clarifies some aspects of the divestment process.

The Indians are coming
India’s power output is scheduled to grow from 120 GW now to 315 GW by 2016/17. But the gap between consumption and domestic production is expected to continue to expand. This has left power producers with little option other than to source coal from abroad.

At present, Indonesia supplies approximately two thirds of India’s total thermal coal imports. India’s imports are expected to amount to around 28 million t in FY2009/10 before rising to 48 million t in FY2010/11, according to India’s Power Ministry. But some analysts have predicted that imports could reach the 80 – 100 million t range by 2013.

Indonesia’s location offers tremendous potential savings on freight. This is an advantage that could be magnified in the years to come if a carbon tax system is ever imposed on the maritime industry.

This explains the multiple expressions of interest in Indonesian mining from Indian conglomerates, such as Coal India, PTC India and Tata Power Co.

Beyond India
Indian companies are not the only ones attempting to increase their stakes in the future of Indonesia’s coal industry.

Churchill Mining and partners Ridlatama Group are already investing heavily in Indonesia in the East Kutai Coal Project in Kalimantan, and investors from the Middle East are helping to build a number of coal-related infrastructure projects in Indonesia and are examining coal mining projects.

Focus on East Kalimantan
PT Tambang Batubara Bukit Asam has pledged to invest some Rupiah 1.5 trillion (US$ 163 million) to acquire two coal mines in East Kalimantan by 2011 and the company is also building two coal-fired power plants near its mines in South Sumatra.

Bukit Asam had previously expressed an interest in acquiring BHP Billiton’s stake in the Maruwai mine in Central Kalimantan, as have domestic companies, including PT Bumi Resources, PT Medco Energi Internasional, PT Adaro Energy, PT Aneka Tambang and PT Indika Energy.

PT Berau Coal is looking to raise capital to expand operations at Berau’s mine in Tarakan, East Kalimantan. Berau said its total coal output would rise to around 30 million t by 2013, double its volume last year.

PT Indo Tambangraya Megah (ITM), is also looking to acquire a mining concession in the region, a deal the company hinted could be concluded in Q1 this year at a cost of more than US$ 100 million depending on proven coal reserves.

Author: Michael King

You can read the full version of this article in the April issue of World Coal, subscribers can login here to download the issue, to subscribe click here.

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