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Wed, 09 Mar 2011

BLOOMBERG/Indonesia Coal Areas Have Infrastructure Hurdles, WoodMac Says

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By Kartikay Mehrotra
Indonesia’s new coal supply areas in South Sumatra and the Wahau field must overcome infrastructure limitations to help meet demand from emerging markets including India, according to Wood Mackenzie Consultants Ltd.

“There is currently insufficient infrastructure in these areas to support large-scale coal exports,” Rohan Kendall, an analyst at Wood Mackenzie, said today at a conference in New Delhi. “There are numerous projects proposed which combined would add 140 million metric tons per annum of capacity. We believe that some of these are unlikely to progress given regulatory challenges.”

Indonesia, the world’s largest exporter of power-plant coal, will account for 40 percent of growth in seaborne thermal supply of the fuel over the next 10 years, according to Wood Mackenzie. Indian companies including Reliance Power Ltd. (RPWR) and the Adani Group are securing coal supplies as they build generation plants to meet electricity demand in Asia’s second- fastest growing major economy, after China.

The Wahau coal field, located in East Kalimantan on Indonesia’s part of Borneo island, and the South Sumatra basin will contribute to the growth of Indonesia’s seaborne coal supply, according to Kendall.

“There is $8 billion of infrastructure projects in the pipeline in these emerging areas that will support export growth,” he said.

The emerging basins are attractive for Indian power generators because they contain abundant reserves and production costs are low, according to Wood Mackenzie.
Lower Costs

“The costs of investing upstream to secure coal requirements are much lower than Indian power generators would otherwise pay if they were to purchase all of their coal on the seaborne market,” Kendall said.

Indian utilities will need to boost coal imports as the gap between domestic supplies of the fuel and demand will triple within seven years, ICRA Ltd., the Indian unit of Moody’s Investors Service, said last month in a report.

Indonesia’s coal output this year may reach 320 million tons to 330 million tons, below the target of 340 million tons, as rainfall disrupts mining, Bob Kamandanu, chairman of the Indonesian Coal Mining Association, said in Jakarta on Feb. 1.