INDONESIAN COAL INDUSTRY UPDATE

CLEAN COAL DAY INTERNATIONAL SYMPOSIUMJAPAN , SEPTEMBER 8 - 9, 2014

Bob  Kamandanu 

Chairman  APBI‐ICMA

CURRENT STATUSCURRENT STATUS

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DESCRIPTION 2009 2010 2011 2012 2013 2014e 2015ePRODUCTION (MILLION TONS) 254 275 353 407 421 425.00 429.25EXPORT (MILLION TONS) 198 210 287 340 349 329.45 328.41DOMESTIC SALES (MILLION TONS) 56 65 66 67 72 95.55 100.84AVERAGE PRICE  OF COAL  REFERENCE/HBA   (USD/METRIC TON) 70.70 91.74 118.40 95.48 82.92 74.00 78.00

Source :Ministry  Energy  and  Mineral  Resources 

TRENDS OF PRODUCTION, EXPORT, DOMESTIC SALES OF INDONESIAN COAL AND AVERAGE PRICE OF COAL REFERENCE (HBA) IN INDONESIA

( 2009 – 2015e )

Note : Production in 2015 is assumed to increase 1% from 2014 due to Coal Production Control Policy by

The Government ( Ministry of Energy and Mineral Resources ) Domestic Coal Consumption in 2015 estimated by PLN & IPP and other industry demand

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e = estimation

COUNTRY 2011 2012 2013 2014e 2015eJAPAN 35,364.00 35,518.30 37,711.50 39,597.08  41,576.93 HONG KONG 11,868.20 11,984.80 12,964.30 13,612.52  14,293.14 SOUTH KOREA 39,598.20 37,899.10 36,273.30 34,459.64  32,736.65 TAIWAN 27,131.80 29,105.20 29,323.30 30,789.47  32,328.94 CHINA 104,143.40 115,702.10 130,393.40 136,913.07  143,758.72 THAILAND 13,293.90 14,676.00 14,365.00 12,928.50  11,635.65 PHILIPPINES 10,989.70 11,636.20 14,508.80 15,959.68  17,555.65 MALAYSIA 17,337.50 16,138.00 17,128.90 17,985.35  18,884.61 INDIA 74,723.20 96,076.00 118,288.50 124,202.93  130,413.07 USA  805.40 215.60 1,177.40 1,236.27  1,298.08 NETHERLAND 2,848.40 154.30 172.20 180.81  189.85 ITALY 5,080.80 4,082.80 3,016.60 2,714.94  2,443.45 SPAIN 3,559.30 5,704.80 4,078.00 3,670.20  3,303.18 OTHERS 6,654.30 5,414.00 5,924.00 6,220.20  6,531.21 TOTAL 353,398.10 384,307.20 424,325.20 440,470.63  456,949.14 

TO WHAT COUNTRY INDONESIA COAL EXPORTED ?TO WHAT COUNTRY INDONESIA COAL EXPORTED ?

Source : Statistical Yearbook of Indonesia 2014; Indonesia, Central  Berau  of Statistics   (BPS)

e : estimation

Note :    The  export  data  in  2014   and  2015    estimated  if  there  is  no  control  production  policy implemented by Indonesian  Government  , ( based  on  data  from  Indonesia, Central  Berau  of Statistics   (BPS) )

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WHAT IS THE DOMESTIC COAL DEMAND FOR POWER GENERATION ?

Source: PLN 5

WHAT IS CALORIFIC VALUE TREND FOR INDONESIAN COAL ?

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WHERE IS INDONESIAN POSITION IN THE FUTURE GLOBAL MARKET ?

Source : IEA, “Southeast Asia Energy Outlook”, World Energy Outlook Special Report 2013 7

Japan

143 Mt

Russia

100 Mt

S. Africa

76 Mt

Columbia

83 Mt

Thermal coal exportsThermal coal imports

China

230 Mt

India

122 Mt

N.Americas

8Mt35Mt

Indonesia

371 MtAustralia

182 Mt

S.Korea

102 MtTaiwan

71 Mt

Europe &

Mediteranean

220 Mt

Canada

4Mt

66 MtSE.Asia

10Mt

Source : Deutsche Bank 2013; other sources

2013 THERMAL COAL MARKET

ASIA IS STILL THE MAIN PLAYER IN WORLD’S THERMAL COAL MARKET 8

THE COAL PRICE EXPECTATION IN THE MEDIUM TERM

• Seaborne trade in 2015 looks still slightly over supplied (supply growth isexpected to exceed demand growth ). Real price recovery will depend heavily inthe world’s economic situation;

• Despite slow demand from China and India, the countries still expected to be thekey driver for 2015 coal demand. Potential increase of demand from Japan willalso become the key driver for 2015 coal demand;

• Indonesia and Australia will supply Asian Market as usual but more African andNorthern America’s coal will likely to enter Asian Market;

• Full price recovery can be expected will happen in early 2015. New coal powerplants will enter the grid in some Asian Countries ( India, Indonesia, Malaysia,the Philippines, Vietnam, Bangladesh, Pakistan, Srilanka etc ).

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ARE THERE OPPORTUNITIES FOR LOW RANK COALDEVELOPMENT IN THE FUTURE ?

• Roughly two billion people (close to 30% of world’s population) still have noaccess to electricity. The demand in developing countries is growing rapidly;

• Compared to other primary energy sources, coal is the most readily availableand provides the lowest cost fuel for power generation;

• Coal is the fastest growing fuel for the past decade, and will remain as thedominant fuel for global electricity;

• More and more coal‐fired plants are designed to use LRC, especially in thedeveloping countries.

• Indonesia has huge LRC deposit mostly situated in South Sumatera andJambi province.

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Low RankCoal

MediumRank High  Rank Total

ProductionLow Rank

CoalMediumRank High  Rank Total  Export Low Rank

CoalMediumRank High  Rank

TotalDomesticSales

PRODUCTION EXPORT DOMESTIC  SALES2011 8 251 94 353 6 194 73 273 2 56 21 79

2012 34 223 129 386 27 175 102 304 7 47 28 82

2013 37 243 141 421 28 183 106 317 9 56 33 98

8 6 234 27 7

37 28 9050

100150200250300350400450

REALIZATION OF INDONESIAN COAL PRODUCTION, EXPORT AND DOMESTIC SALES BASED ON CALORIFIC VALUE (2011-2013) Million Tons

Note  : Low  Rank Coal     :  ≤  5100  kkal/kg    ADB              ………………………….   <  4700  kkcal/Kg    GARMedium  Rank     :  > 5100  ‐ 6100  kkal/kg   ADB  …………………………..   4700  ‐ 5700  kkal/kg   GARHigh   Rank           :  > 6100  kkal/kg   ADB                …………………………..   ≥  5700  kkal/kg   GAR

Source : Ministry of Energy and Mineral Resources

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CHALLENGES FACED BY INDONESIAN LOW RANK COAL (LRC) IN AN EFFORT TO MATCH WITH CLEAN COAL TECHNOLOGY

• Improvement in technology in an effort to get a clean coal is neededespecially by utilizing low‐calorie coal that coal reserves are abundant inIndonesia;

• Depressed coal price for the last three years:need to develop production control mechanism to balance supply vs.demand;

• Developing proper regulatory framework:coal upgrading, export ban, export duty, increased royalty, divestiture issues;

• Infrastructure development to maintain a sustainable coal supply in meetinglong‐term demand;

• Global issue: air pollution from coal burning remains the single biggestchallenge facing the coal industry.

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PRODUCTION CONTROL ISSUE

• The government proposed to lock coal production in 2015 maximum of 425million ton. The production control will refer to production quotas made onprovincial bases;

• The detail implementation of the proposed policy is still being formulized bythe government and yet to be discussed with the industry;

• Implementation of this policy requires strong commitment from thegovernment. This has to be consulted with the parliament and approved byother relevant institutions including the Ministry of Finance;

• Significant discrepancies in coal production & export data betweengovernment agencies due to illegal mining is a low hanging fruit for GOI totackle.

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COAL REGISTERED EXPORT ISSUE• The government requires all exporter of coal (mining owner and trader) to be

registered as Registered Exporter (ET) at the Ministry of Trade (MoT);• The policy will take into effect on October 1st 2014;• Exporters must secure recommendation from the Directorate General of

Mineral and Coal before submitting ET application to the MoT. The process atthe MoT will take maximum of 5 working days provided all requirementshave been completed;

• Mining companies now are required to pay for coal royalties payment inadvance before the shipment;

• ICMA has been challenging this royalties payment requirement as it is not inline with provision in coal contract of work (CCoW).

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SUMMARYSUMMARY

SUMMARY

LOW RANK & CLEAN COAL INVESTMENT OPPORTUNITIES :• Coal upgrading at power plants (BOT): Implementing of Clean Coal Technologies to improve

CV, efficiency and reduce gas emissions;

• At mine‐mouth power plants, coal upgrading will further reduce transport & handling costs.

ASEAN Power Grid concept can be supplied by MMPP in eastern Sumatra with abundant LRC

reserves. MoU b/w Malaysia & Indonesia was initiated;

• Coal gasification/liquefaction: Demand is growing for fuel, chemical, fertilizer and other

industries; supporting infrastructure needed;

• In Indonesia, TEKMIRA as government‐owned researcher agency has opened for possiblecooperation with any parties to implement clean coal project.

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REGULATORY & INFRASTRUCTURE ASPECTS :• Indonesia remains the world's largest thermal coal exporter and the LRC portion

is increasing. However, sustainable coal supply depends largely on the appropriatepolicy;

• Currently no export restriction policy is in place for Indonesian LRC. However,requirements for obtaining registered exporter (ET) will likely hamper coal exportprocess;

• Export control is a temporary measure to balance coal supply and demand. This effortrequires commitment from producers, as well as government in curbing illegal miningactivities;

• The government should reconsider its policy to increase royalti tariff for IUP holder.17

SUMMARY

THANK YOUThe author gratefully acknowledges the sources of slides used in preparing this presentation

Chairman APBI-ICMAT : +62 21 3001 5935F : +62 21 3001 5936

Menara Kuningan Building, 1st Floor - Suite AJl. HR. Rasuna Said Block X-7, Kav. 5Jakarta 12940 – INDONESIAEmail: secretariat@apbi-icma.orgWebsite: www.apbi.icma.org

Bob KamandanuBob Kamandanu

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APPENDIXAPPENDIX

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UPGRADING COAL IMPLEMENTATION

Source : Tekmira, Ministry of Energy and Mineral Resources 20

Source : Tekmira, Ministry of Energy and Mineral Resources

ContinueUPGRADING COAL IMPLEMENTATION

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Source : Tekmira, Ministry of Energy and Mineral Resources

UPGRADING COAL IMPLEMENTATION Continue

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Continue

UPGRADING COAL IMPLEMENTATION

Source : Tekmira, Ministry of Energy and Mineral Resources

UPGRADING COAL IMPLEMENTATION

Continue

Source : Tekmira, Ministry of Energy and Mineral Resources 24