Mon, 15 Feb 2010

From: The Jakarta Globe

By Janeman Latul
State-owned coal miner PT Tambang Batubara Bukit Asam’s $1.06 billion rail project in Sumatra faces more delays, and the cost of the project is likely to rise by more than 10 percent, a source close to the project told the Jakarta Globe.

Bukit Asam and its partners are trying to negotiate a new price with the contractor, and as a result construction may not begin until the second quarter of this year, the source said over the weekend.

Bukit Asam president director Sukrisno confirmed on Sunday that the project faced more delays and that the cost would rise, but he declined to confirm the 10 percent figure.

“We are finalizing the EPC [engineering, procurement and construction] contract with [contractor] China Railway. If it’s not finalized then we can’t start,” Sukrisno said. “There has been an increase in the project value, and therefore we have to evaluate and negotiate first.”

Bukit Asam hoped that it could solve the issue with the contractor and start construction this quarter, Sukrisno said.

The project involves the construction of a 300-kilometer railway from Bukit Asam’s Banko coal concession in South Sumatra to the port of Srengsem in Lampung.

It was originally announced in 2006. The following year Bukit Asam, Transpacific Railways and China Railway Engineering formed a joint venture company - PT Bukit Asam Transpacific Railway - to develop the project. Bukit Asam has a 10 percent stake, Transpacific 80 percent and China Railway the remaining 10 percent.

However, the project has faced delays because the government did not issue implementing regulations for the 2007 Railway Law until October.

“The companies in the consortium are negotiating with China Railway about the new price of the project,” the source said. “Based on both parties’ calculations and a hired mining consultant from Australia, the project value has increased by more than 10 percent. It should be finalized by the end of February but the project’s construction may not start until the end of the first quarter or early in the second quarter.”

Completion of the project would mark the first time private investors have held a controlling stake in a railway since state-owned railway operator PT Kereta Api took over the nation’s railways in 1963. The 2007 Railway Law rolled back Kereta Api’s monopoly on the country’s rail network.

Discussing financing of the project, Sukrisno said the joint venture had finalized arrangements with the Export-Import Bank of China this month.

“China Exim Bank has committed to finance 85 percent of the project, up from 70 percent previously,” he said.

The rail project will allow Bukit Asam to significantly boost output from its Banko mine. Currently, the mine produces around 11 million to 12 million tons of coal a year.

If the rail project is completed by 2013 as scheduled, coal output could be increased by 5 million tons in 2014, 10 million tons in 2015 and 22 million tons in 2016, Sukrisno said.