Illegal mining becomes major problem for coal producers

Illegal mining becomes major problem for coal producers

Sudibyo M. Wiradji, The Jakarta Post, Jakarta

Growing illegal mining activities and a lack of security and
order have continued to undermine the operations of the country's
mining companies, particularly those located in Central and East
Kalimantan.

Most of the illegal miners operate within a concession area of
a licensed mining firm but they can freely carry out their
activities due to the lack of legal enforcement from the local
security apparatus.

Illegal mining activities was not only harmful to the
government and licensed miners but also detrimental to the
environment surrounding mining areas. Unlike the mining companies
with operating permits, the illegally operating companies, all of
which are small-scale businesses, do not pay tax.

Besides illegal mine operations, many individuals, under the
pretext of the public interest, have frequently staged
demonstrations in several mining areas.

They have usually focused on sensitive issues such as the
environment and land clearance in the protests, which are often
used as a pretext to enable them to get jobs. The demonstrations
have, however, turned violent and damaged the companies' assets.

Regional autonomy, introduced several years ago to empower the
local economy, was wrongly perceived. With their additional
power, local authorities often imposed a variety of taxes on
local businesses, including mining companies. This has brought a
heavy burden to coal miners' operating costs.

Despite the lingering concerns plaguing Indonesia's mining
sector, several coal companies have reported an increase in
production from year to year, thanks to stable demand.

The country's coal production reached 100 million metric tons
in 2002, compared with 92.5 million tons in 2001. Coal production
is projected to continue to increase to 105 million tons in 2003.

Indonesia is predicted to become the world's third-largest
exporter of thermal coal in the near future after Australia and
China. Indonesia has approximately 35 billion tons of coal
reserves, of which 23 billion tons are proven.

The Indonesian Mining Association (IMA) has warned that major
issues such as legal and security uncertainties, combined with
high tax as well as legal inconsistencies resulting from regional
autonomy, could affect new mining development. No new major
mining developments or project expansions are currently
identified or under way.

Companies operating under contracts of work (COW) include PT
Kaltim Prima Coal (KPC), PT Adaro Indonesia, PT Arutmin, PT
Kideco Jaya Agung, PT Berau Coal and Indominco Mandiri.

KPC, which at present is equally owned by Rio Tinto and BP
Plc, is located in northeast Kalimantan. Its production is
15million tons annually. Three-quarters of the company's mining
production is directly exported to Asian markets, including
Japan, Taiwan and China, with the remainder going to Europe and
the USA.

Local company PT Bumi Resources announced early last week that
it had reached an agreement with Rio Tinto and BP to take over
their entire 100 percent ownership in KPC.

PT Adaro Indonesia, with its four deposits in the Tanjung
district of South Kalimantan province, commenced production in
1991 and has increased steadily since then. The company sold 18
million tons of coal, both to local and overseas buyers in 2001.

The company produced 20.8 million tons in 2002, compared with
17.7 million tons in 2001. It expects to produce 22 million tons
this year.

PT Adaro's Indonesia administration manager Priyadi said that
the demand for coal from the company had increased from year to
year due to the quality of the coal.

The company's sales reached 21.2 million tons, compared with
18.8 million tons in 2001. The company is projected to sell 5.7
million tons in the first quarter of 2003 and 22 million tons for
the whole of 2003.

Priyadi said that efforts were under way to further increase
production capacity to meet the increase in demand.

He said that the company's product was in high demand because
its product, envirocoal, was considered environmentally friendly.
"Our coal is exceptionally clean, with low sulfur and low
nitrogen, so when it is burned, the ash produced does not pose a
threat to the environment," Priyadi said.

The company also focuses on different countries as its target
markets to ensure stable sales of the product.

Meanwhile, PT Berau Coal's production reached 7,120 tons in
2002, compared with 6,740 tons in 2001, or a 5 percent increase.

PT Berau Coal's corporate secretary Ratmono said that the
company's projected production for 2003 was about eight million
tons. "The stable demand for coal from overseas and domestic
consumers has contributed to the company's continued production
since 1994," he said.

He said that the company sold 6.9 million tons in 2002,
compared with 6.6 million tons in 2001. Its projected sale is 8
million tons in 2003.

The company's coal reserves in Berau regency, East Kalimantan,
total 2.6 billion tons.
Of that amount, about 260 million tons can be mined. "This means
that we can produce approximately 8 million tons annually for 32
years," he said. -- Sudibyo M. Wiradji

-JP