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.