Higher diesel prices will raise costs, hurt profit: Bumi

Higher diesel prices will raise costs, hurt profit: Bumi

Claire Leow, Bloomberg/Jakarta

PT Bumi Resources, Indonesia's largest coal exporter, said higher fuel costs after government subsidy cuts will reduce profit by as much as 10 percent and increase mining costs.

"What I produce now for US$18 to $19 a ton will cost between $20 and $21 a ton," Bumi President-Director Ari Hudaya said on Friday in a telephone interview. "It will hurt our internal forecasts slightly, maybe 5 percent to 10 percent," he said, declining to give specific forecasts.

The government said on July 8 that it would raise the price of diesel fuel used by miners from Aug. 1 to reduce subsidy payments. Mining accounts for 10 percent of Indonesia's economy.

Jakarta-based Bumi increased net income 10-fold to Rp 1.21 trillion (US$124 million) in the year ended Dec. 31, when it benefited from subsidized fuel.

Bumi may report earnings per share of Rp 127.66 a share in 2005, from Rp 62.45 in 2004, according to the average of 10 estimates collected by Thomson Financial.

Bumi became Indonesia's largest coal exporter this decade after buying Kaltim Prima Coal and PT Arutmin. The units produced 36.4 million tons of coal last year from two mines in Kalimantan.

Bumi is aiming to lift coal production by 20 percent this year, Hudaya said.

From March 1, the government had set a price of Rp 2,200 a liter of diesel for industrial use, a gain of 33.33 percent from Rp 1,650 previously.

"All the fuel we use is industrial diesel," Bumi Finance Director Eddie Soebari said on Monday in a telephone interview from Canada. "Before the subsidies were removed, fuel costs accounted for about 13 percent of our costs. If they are removed, it could go up to 25 percent. For sure, it will hurt."

The cost of $21 to extract a ton of coal is "still competitive" as Indonesia has the lowest costs for mining the fuel, Hudaya said by telephone.

Bumi shares have gained 5 percent this year lagging the country's benchmark stock index which gained 11 percent.