apbi-icma

THE TRANSFORMING OF INDONESIAN COAL MINING INDUSTRY

Presented at :Revitalization & Integration In Accelerating Sustainable Economic

Development Conference 2011

Jakarta International Expo Jakarta, April 14, 2011

By :Supriatna Suhala

(Executive Director of APBI-ICMA)

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OUTLINES

1. INTRODUCTION1. INTRODUCTION

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1.1. What coal do today( Injust 24 hours )

Produced 23 TWh of electricity more than gas, wind, hydro and solar combined.Generated power equivalent to 1,340 nuclear power plant.Provided more than half the electricity for 3 billion people 10 times the population of the U.S.Enable the production of 2.4 million metric tons of stell.Enhanced energy security for dozens of nations across the globe.Fueled about 60% of China’s industrial sector.Provided over 40% of the power for 300 billion e-mail, 110 million “tweets” and the activation of 300,000 Androids.

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AbundanceSecurityAffordabilityVersatilityAmenability to clean coal technology

1.2. Coal is the World’s fastest growing fuel for measurable reasons :

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1.3. The History of Coal Mining in Indonesia :

1941 : Production 2 million ton1950-1959 : The Era of “ Indische Mijnwet of 1899” ( 1st Democratic Era in Indonesian

History )1960-1966 : Law No.37/1960 – The Era of Nationalization, centralistic, government

interference through state owned company, foreign investment not allowed

1967 : Law No.11/1967 issued - Foreign Investment Allowed , COW system introduced

1973 : 150.000 ton ( the lowest point ever )1974 : - Revitalization of coal as primary energy source

- Rehabilitation of state’s coal mining company 1979 : Generation I CCOW ( Foreign Investment in Coal Sector )1980 : 338.000 ton1987 : 3.03 million ton ( Domestic consumption 1.52 ton million ton )1998 : 61.93 million ton ( at the end of Soeharto era ), Domestic consumption

15.39 million ton1998 : Economic crisis - Political reform. Democratic era began1999 : Autonomy era started - Autonomy law. Local government has the

right to issue mining license ( KP )

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1.3. The History of Coal Mining Industry in Indonesia

2009 : New Mining ( Mineral and Coal ) Law ,- Equal treatment for investor- No more COW and CCOW

- IUP system introduced through bidding system- DMO system for coal introduced

- ICPR ( Indonesian Coal Price Reference introduced )- The obligation to develop value added processing plant

be implemented

( Continued )

2000-2008 : Transition era- Transfer of Authority- New Tax Regime - Regional Tax Regime- New Environment Law- New Forestry Law- New Spatial Plan Law

1.4. The Role of Mining Industry in Indonesian Economic Development

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Contributor to 4% of total GDP in 2007 (excluding oil and gas).

Mining contribute to regional development and local communities.

The government revenues from taxes, royalties, and other non-tax revenues increased from Rp 29.8 T (2006 ), Rp 37.3 T (2007) , Rp 42.1 T (2008) and Rp 55.0 T (2009)

Providing direct employment ± 39 000 people and indirect employment ± 250,000 people.From 100% of mining revenue, About 65 % flows to Government Pocket ( royalty and various tax ), 15 – 20 % flows to vendor and employee and about 10-20% flows to share holders

1.5. Mining Business Development

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In 2006, 2007 and first half of 2008 the mining industry experienced a boom period driven by a sharp increase in prices of mineral commodities and coal. In 2009, the industry experienced moderate declining due to economic crisis in developed countries, and at the end of 2010 it started to increase again.In that period (2006, 2007, 2008 ) PricewaterhouseCoopers survey shows that EBITDA, Net Profit Morgin, Return on Capital Employed , Return on Shareholder Fund and Net Debt to Equity Ratio , from mining companies in Indonesia is above the world's average for the same sector.

1.5. Mining Business Development( continue )

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Indonesian mining industry sector experienced continued :1. “Strong Balance Sheet” - “Strong Profits”2. “Debt to Equity Ratio” - decline3. “Current Assets” - increasing

Increased investment in coal sectorFrom the second half of 2010 world demand on commodities has increased again until now.

2. PRODUCTION, EXPORT , DOMESTIC SALES, RESOURCES AND RESERVES OF COAL

IN INDONESIA

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2.1. COAL RESOURCES STATUS INDONESIA( 2009 )

Total resources : 104,842 M ton

Source : Indonesian Geological Agency

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2.2. COAL RESOURCE STATUS INDONESIA ‐ 2009Based on calorific value ( adb )

Source : Indonesian Geological Agency

Reserves : 21,13 b. tLignite : 29 %Subituminous : 60 %Bituminous : 11 %

11.23 b.tSUMATRA

Resources : 104,842 b. tLignite : 20 %Subituminous : 66 %Bituminous : 14 %

52.53 b.t

b.t : billion tons

0.01 b.t

51.92 b.t

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

9.90 b.t

Source: Badan Geology/Geological Agency,2009

2.3. INDONESIAN COAL MAP RESOURCES AND RESERVES

2.3. INDONESIAN COAL MAP RESOURCES AND RESERVES


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DISTRIBUTION OF INDONESIAN COAL RESOURCES REPORTED IN 2007

8%

48%

1 %

10%

32%SUMATRA

JAVA

KALIMANTAN

BALI

SULAWESIMALUKU

PAPUA

Distribution of Coal Resources Potential

2.4. DISTRIBUTION OF COAL RESOURCESIN INDONESIA

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Prediction

Note : *Calculated based on Government target on Primary Energy Mix ( Pres. Decree No.5 /2006 )

Million tonn

es2.5. INDONESIAN COAL PRODUCTION, EXPORT & DOMESTIC SALES

AND ITS FUTURE OUTLOOK TOWARDS 2025*)

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Source :Growth rate for Production : 7.00 %Growth rate for domestic in 2010 – 2015 = 12.87 %Growth rate for domestic in 2016 - 2025 = 9.00 %

Prediction

2.6. INDONESIAN COAL PRODUCTION, EXPORT & DOMESTIC SALES AND ITS FUTURE OUTLOOK TOWARDS 2025

( The scenario is based on BaU )

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No Country Total Production

1 China 2,971.4132 USA 918.7163 India 526.1454 Australia 335.2426 Indonesia 263.3367 South Africa 247.2975 Rusia 228.6028 Kazakhstan 96.2469 Polandia 78.03510 Colombia 72.90311 Others 251.602

Total 5,989.537

Source : Coal Information 2010

2.7. TEN LARGEST COAL PRODUCERS COUNTRY IN THE WORLD ( 2009e )

( Million tonnes )

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Country of Destination 2005 2006 2007 2008 2009

Japan 27,312.8 35,295.7 35,198.5 36,259.8 32,217.7Hongkong 9,408.6 10,985.2 11,235.5 10,497.1 10,714.2Korea, Republic of 14,376.6 21,314.1 27,371.5 26,286.8 33,418.4Taiwan 17,895.8 26,723.8 24,863.1 24,669.4 24,723.4China 2,503.2 6,656.5 14,122.3 15,673.7 39,330.8Thailand 6,404.5 8,475.1 11,963.2 12,822.8 11,229.7Philippines 3,906.1 5,818.2 6,023.5 6,338.0 7,518.1Malaysia 7,399.8 8,782.6 9,376.5 11,104.3 12,483.3India 16,255.4 20,742.4 25,179.1 26,327.5 39,108.9United States 2,050.3 3,740.8 4,557.7 3,993.8 2,081.6Netherlands 2,138.7 5,690.9 1,266.9 3,740.7 3,384.8Italy 6,285.5 7,637.8 6,193.8 5,592.8 5,797.0Spain 3,317.0 4,444.9 4,308.6 4,387.4 4,808.4Others 9,789.8 17,701.0 14,125.7 13,327.6 7,976.8Total 129,044.1 184,009.0 195,785.9 201,021.7 234,793.1

2.8. Exports of Coal by Mayor Countries of Destination, 2005– 2009Net Weight : 000 ton

Source : Statistical Yearbook of Indonesia 2010

20Source : Coal Information 2010

3. GOVERNMENT POLICY ON PRIMARY ENERGY MIX

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3.1. National Energy Mix 2010

National Energy supply is still dependent on fossil fuels of about 95.21%

Source : Ministry of Energy Mineral and ResourcesDirectorate General of New Renewable Energy and Energy Conservation

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3.2. Percentage of Coal in Energy Mix

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Sumber :

Handbook of Energy & Economic statistics of Indonesia 2009Center for Data and Information on Energy and Mineral Resources Ministry of Energy and Mineral Resources

POLICY DIRECTION

NRE

Gas

Coal

Oil

21 %30,7 %

43,9%

4,4 %

NRE

Gas

Coal

Oil

2010* 2015 20202025

ENERGY CONSERVATION(33,85%)

ENERGY DIVERSIFICATION

BAU**

Source: *Estimation 2010, DEN 2010-2025, **BAU EBTKE

PERPRES 5/2006 VISION 25/25

25 %

22 %

30 %

23 %

41.7%

20,6%

34.6%

3,1%

4300 Million BOE

2852Million BOE

1131,3 MillionBOE

3200 Million BOE

20%

30%

33%

17%

Source: Ministry of Energy and Mineral Resources , Directorate General of Renewable Energy and Energy Conservation

3.3. VISION 25/25

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4. THE TRANSFORMATION OF COAL INDUSTRY IN INDONESIA

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4.1. SHIFTING PARADIGM ON DEVELOPMENT PRIORITY TARGET FOR COAL INDUSTRY

Development Target Until 1999 From 2000

Increasing Government earring +++ ++

Regional Development ( Infrastructure ) +++ ++

Employment +++ +++

Community Development ++ +++

Environment Sustainability Aspect ++ +++

Economic Sustainability Development + +++

Technology Transfer +++ ++

Human Right Enforcement + +++

Local People Empowering ++ +++

Collaboration With Local Government ++ +++

Foreign Investment Encouragement +++ ++

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1 Legal Aspect Law No. 11 / 1967 Law No. 4 / 20092 Authority Central Government ( Strategic Mineral & Vital )

Provincial Government ( Central group minerals )RegencyProvicy, Central Government

3 Type of mining licensing COW ( KK )CCOW ( PKP2B)KP ( Central Government Mining Permit )SIPD ( Provincial Mining Permit )WPR

IUP( Mining Licensing )IUP Khusus

WPR4 Treatment to the Investor Discriminative ( unequal treatment ) Equal treatment5 Licensing Approval Direct Appointment Through bidding & Offering

6 Minimum Domestic Share Non Minimum 20 %7 Concession Area ( Coal )

ExplorationExploitation

Up to 1 million HaUp to 250.000 Ha

50.000 Ha15.000 Ha

8 Licensing Tenor COW / CCOW30 YearsExtension 2x Years KP : 10 YearsSIPD : 10 Years

IUP/IUPK20 YearsExtension2 X 10 Years

9 Taxation Non Tax RegimeRoyalty ( Coal )Corporate Tax ( Coal )

CCOW : 13.5 %CCOW : 1 Generation 45 %

IUP/IUPK : 4 – 7 %IUP/IUPK : 25 %

10 Penalty for Illegal Mining Soft penalty Hard penalty11 Domestic Market Obligation ( DMO ) Not regulated Regulated12 Indonesian Coal Price Reference

( ICPR )Not regulated Regulated

4.2. Transformation in Mining Law

5. CURRENT ISSUES IN MINING SECTOR

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Spatial Plan Law - Related to Land ConversionEnvironment Law related to Environment PermitMoratorium of Peat land and Primary Forest conversionsInfrastructure DevelopmentGovernment incentives for coal down stream industryValue added in coal

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5. CURRENT ISSUE

6. CLOSING

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6.1. CLOSING REMARKS

Indonesian coal production and export level may be guaranted for the next five years, amid significant increasing of domestic utilizations, due to :- sufficient coal reserves.- existing infrastructures are still able to

support production capasity up to 500 million ton per year.

- domestic consumption level will be far behind production capacity. 35

6.2. CLOSING REMARKS( continued )

Indonesian capabilities to fulfill the global increasing demand in the next 10 to 15 years may be questionable.The capabilities will be depended heavily on :- The future government policy on energy

especially coal.- The investment climate for infrastucture.

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THANK YOUSupriatna Suhala

Executive Director APBI-ICMAEmail : - [email protected]

- [email protected]

E-mail: [email protected] Kuningan Building, 1st Floor Suite A

Jl. H. R. Rasuna Said Blok X-7 Kav.5Jakarta 12940 - INDONESIA

Phone/Fax : 021-30015935, 30015936, 30015674Website : www.apbi-icma.com

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apbi-icma

Documents

coal law

coal sector

revitalization of coal

states coal mining company

mining revenue

new mining mineral

role of mining industry

mining business development