Coal miners boost production to benefit from higher prices

Coal miners boost production to benefit from higher prices

Sudibyo M. Wiradji, The Jakarta Post, Jakarta

Indonesia's major coal producers are gearing up for higher production capacities to take advantage of the rising coal prices in the world's coal market.

Several mining companies have announced their plans to seek new mining areas while others will expand their production in their existing concession areas.

Coal mining giant PT Kaltim Prima Coal (KPC), for instance, will start exploiting this year the Bengalon area, part of its coal concession located at Sangatta, a small town in East Kalimantan, in a bid to increase the production from the existing mining areas.

The company is targeting 24 million tons of production in 2004, up from 18 million in 2003.

KPC, which exports its coal to the Asia-Pacific region and Europe, is now controlled by publicly listed PT Bumi Resources, which took over the coal mining company from Anglo-Australia mining giant Rio Tinto Group and British-American oil and gas company British Petroleum (BP) Plc in October last year.

KPC's concession area covers some 90,000 hectares and to date, only around 6,000 hectares have been explored. "Hopefully, more new deposits within the concession area will be found so that KPC will be able to further increase coal output," the company's spokesman said.

To support the mining in the Bengalon area, the company has acquired additional heavy equipment, such as bulldozers and excavators as well as building the necessary infrastructure, including the construction of a 50-kilometer road leading to a loading port in Bengalon.

Like KPC, another major coal producer PT Arutmin Indonesia, also carries out expansion projects in its coal concession in Satui, Senakin and Batu Licin in South Kalimantan, to increase its production to 18 million tons this year from 14 million tons in 2003.

To boost efficiency and become more profitable, the company has hired Australia-based Thiess Construction Indonesia to do the actual mining, especially in Satui and Senakin and PT Cipta Krida Tama to handle mining activities in Batu Licin.

"We hope the production activities in the three mining areas will enable us to reach the production target," said Zainuddin JR Lubis, a spokesman for PT Arutmin Indonesia.

State coal company PT Tambang Batubara Bukit Asam (PT BA) which operates coal mines in Tanjung Enim and Bukit Kendil in South Sumatra will also increase its production to 10.3 million tons this year from 10 million tons last year.

The company's president director Ismet Harmaini expressed his optimism that all the production could be absorbed by the market given the increase in the coal demand in the world.

To boost the sale on the domestic and international markets, the company plans to double the receiving capacity of its Tarahan coal terminal in Lampung to 80,000 tons from 40,000 tons at present.

Meanwhile, another South Kalimantan-based coal mining company PT Adaro Indonesia will increase its coal production at its Parungan, Tutupan and Wara coal mining areas to 23 million tons this year from 22.5 million tons in 2003.

Priyadi, one of the company's managers, said the company had also upgraded its coal port in the Kelanis area of South Barito regency in Central Kalimantan and improved the quality of its 80- kilometer road connecting the company's mining site to its loading facility to support the higher production target.

Under its mining plan, PT Berau Coal is projected to produce and sell 8.5 million tons in 2004, compared with 8 million tons in 2003.

To increase production, Berau Coal will also speed up exploration activities in new mining areas within its coal concession in Berau regency, East Kalimantan, the company's corporate secretary Ratmono Ratmansunu.

Under its mining plan, the company will spend some US$4.8 million in research and development both at the existing and new mining sites, he said.

Meanwhile, the Indonesian Coal Mining Association (APBI) chairman Bambang Susanto said that it was timely for Indonesian coal producers to increase production to take advantage of the shortage of the coal on the world market.

Bambang said that the shortage of coal internationally, which has led to a significant rise in coal prices has been partly caused by China's move to stop exporting its thermal coal of around 100 million tons. China used to export about 100 million tons a year, accounting for 29 percent of world demand.

"The coal shortage began in early 2004 and is expected to continue for the next five years," he added.

The price of coal averaged US$38.89 per ton for high quality coal, a jump from $24 in the second quarter of last year.

Such favorable condition, he said, provides a good opportunity for the country's coal industry to meet increased demand from international market.

The association said that the country's coal production in 2004 is estimated to increase to 119.7 million tons from 109.3 million tons in 2003 and 103 million tons in 2002.

Despite the bright outlook, problems related to fiscal policies and legal issues still persist, hampering new exploration projects. Among the problems are value added tax, illegal coal mining and Law No. 41/1999, which outlaws open-pit mining activities in protected areas.

Problems facing operation of the coal producers vary from one company to another. At particular mining sites, land issues and those related to the environment, demonstrations and job opportunities stand out. While at other mining firms, illegal mining activities have become serious problems.

Most of the illegal miners operate within a concession area of a licensed mining firm but they openly work and extract coal due to the lack of legal enforcement from the local security apparatus.

"Illegal mining will not only undermine our operation but also increase our production costs," said Zainuddin Lubis of PT Arutmin Indonesia.

Even though cases related to illegal mining have been reported to local government and security officials, illegal miners continue to operate with seemingly no impediments. "Therefore, we've reported the case to the Indonesian National Police Headquarters. We are still waiting for their response," Zainuddin of Arutmin said.

Ratmono of Berau Coal said that continuing efforts were underway by the company, in cooperation with APBI and local government and security people, to promote awareness about the advantages of legal mining and disadvantages of illegal mining. "Hopefully, with this approach, more illegal miners will stop and allow the legal miners to work more effectively," he said.