Indonesia to have greater bargaining power in global coal market<\/p>\n
Publicly listed coal producer PT Bumi Resources made headlines
\nlast year after it acquired thermal coal producer PT Kaltim Prima
\nCoal (KPC) from Anglo-Australian mining firm Rio Tinto and Anglo-
\nAmerican energy giant BP for US$500 million.<\/p>\n
The acquisition has transformed Bumi into the country's
\nlargest coal producer with a production of 31.2 million tons last
\nyear. Output is expected to jump to 43 million tons this year.<\/p>\n
Aside from KPC, Bumi also controls coal producer PT Arutmin
\nIndonesia, one of the lowest cost mining operations in the world.<\/p>\n
Bumi president director Ari S. Hudaya shared his views with
\nThe Jakarta Post's Rendi A. Witular in a recent interview on the
\noutlook of the global coal market in 2005 and challenges faced by
\nIndonesia in boosting coal export.<\/p>\n
The following is an excerpt of the interview.<\/p>\n
How are local coal producers doing these days?<\/p>\n
Indonesia has huge prospects to become the world's largest
\ncoal exporter. We have around 1 trillion tons of reserves, but
\nthus far we have only been able to produce 110 million tons (last
\nyear) in total. The output is more than enough to supply domestic
\nneeds, which amount to around 35 million to 40 million tons. Due
\nto the small domestic demand, there is a huge excess of supply of
\naround 70 million tons, which all goes for export.<\/p>\n
By capitalizing on the excess and the huge reserves, Bumi is
\nexpected to become the largest thermal coal producer in Asia.
\nWith such a position, Bumi, and Indonesia in general, will have
\ngreater bargaining power in the international coal market,
\nincluding having a \"say\" in deciding the coal price.<\/p>\n
Indonesia has never earned such power despite its huge export
\ncapacity. Why? Because most local coal exporters are not owned by
\nIndonesians, but by foreign-based companies. And as a totally
\nIndonesian-owned company, Bumi will try to gain that bargaining
\npower.<\/p>\n
Next year, we plan to produce around 54 million tons, and by
\n2007 or 2008 we expect to produce around 70 million tons.<\/p>\n
How do you see the prospects of coal demand in 2005?<\/p>\n
We expect that next year coal demand will remain bullish.
\nAside from being driven once more by China, the demand will also
\nbe fueled by the rising economic growth in India. As we know,
\nIndia's new government expects the country's growth to reach 7
\npercent next year, meaning that they will need more coal for
\ntheir electricity plants.<\/p>\n
According to a study, with such growth India will need around
\n40 gigawatts of electricity. To maintain its power supply, India
\nwill need an additional 160 million tons of thermal coal (next
\nyear). India now produces around 350 million tons, but all of
\nthis is for domestic demand. Thus far, we have exported around
\n1.5 million tons of coal to India.<\/p>\n
Other potential markets next year will be Latin America. There
\nis a slight shortage of coal in that region following an increase
\nin demand from the United States. Coal producers such as Colombia
\nhave to shift their coal export to the United States, leaving
\nother countries short.<\/p>\n
This shortage is currently being filled by Arutmin. Thus far,
\nwe have sold some of our coal to Brazil and Chile. But the volume
\nis still small due to transportation problems.<\/p>\n
There is also a great demand from Europe, but this is not our
\ntraditional market because it is far, and we have to compete with
\ncoal producers from Africa, which manage to sell the coal cheaper
\ndue to the lower transportation cost.<\/p>\n
However, Bumi already has a strong customer base in Germany,
\nItaly and France. But again there is tight competition from
\nAfrica.<\/p>\n
As for our traditional market, that is in Asia, Japan accounts
\nfor the larger chunk of our coal. Around 40 percent of Bumi's
\ncoal export goes to Japan, with the remaining to South Korea,
\nTaiwan, Malaysia and the Philippines.<\/p>\n
Coal demand in Japan is likely to soar following plans by
\nseveral of its nuclear-based power producers to convert their
\nplants to coal-based plants because of environmental concerns,
\nand the fact that the government is unlikely to extend their
\nnuclear operating licenses.<\/p>\n
However, until now we still don't how large their demand is.
\nFor sure, we are planning to sign several immediate contracts
\nwith producers just in case the plan materializes.<\/p>\n
For the local market, I heard that you are currently in talks to
\nsupply to power producers Paiton I and Paiton II.<\/p>\n
Yes, we are still in negotiations with Paiton I to supply coal
\nfollowing its plan to expand the capacity of the power plant. But
\nPaiton I has not decided on the volume of the coal. For 400
\nmegawatts, a power plant would need around 8 million to 10
\nmillion tons of coal with 5,000 calories.<\/p>\n
For Paiton II, they need around 1 million tons. But we are
\nstill in discussion on that, we have just submitted the tender
\nproposal.<\/p>\n
How do you see the coal price for 2005 then?<\/p>\n
Our coal contract in general is renewed every year. Around 50
\npercent of our contracts are due in March and April, meaning that
\nwe have already renewed most of our contracts.<\/p>\n
As for coal prices, if we can achieve in average of between
\nUS$40 and $50 per ton next year that will be fantastic. It will
\nbe the best year for coal producers.<\/p>\n
Can local coal producers maximize this opportunity?<\/p>\n
The problem faced by local coal producers right now is not
\nabout how to seek buyers but more of insufficient infrastructure
\nto explore and to transport the coal, to enable producers to
\nimmediately increase their output.<\/p>\n
The government should provide adequate infrastructure needed
\nto support the industry, such as railways, ports and vessels. The
\nrailways are needed to maximize the transportation from coal
\nmines in remote inland areas to the coast before being
\ntransported by ship.<\/p>\n
But most of the ships that transport our coal overseas are
\nowned by foreign-based operators. You can just imagine what will
\nhappen if the coal is already available but there are no vessels
\nto transport it.<\/p>",
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