Coal main source of energy for power plants 

The soaring prices of oil lately has prompted the government to look for alternative sources of energy. The government, which has subsidized oil fuel (BBM). The subsidy swells with the soaring prices of oil and growing consumption. The government is now aware that it has been late in seeking to develop cheaper alternative sources of energy such as coal that could be used to fuel power plant, cement plant and steel plants. 

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The government lately has been more serious in seeking to reduce oil consumption and use coal, which is much cheaper to generate power. The government plans to build coal fired power plants (coal PLTU) with a total capacity of 10,000 megawatt of electricity power in the next three years The plan has boosted coal production in the country. 

World's second largest exporter 

The soaring oil prices also lifted the prices of coal in the world market to an all time high in 2005. 

Currently, Indonesia has become the second largest producer of coal in the world after Australia. Three years ago, Indonesia was only the fourth after Australia, China and South Africa. The country's production of coal has risen fast in the past decade. In 1992, the country's coal exports totaled only 15.2 million tons valued at US$ 602.6 million, up to 73.1 million ton valued at US$ 1.76 billion in 2002. In 2005, exports already reached 105 million tons. 

Little Interest in Investment 

Indonesia is now the second largest exporter of coal in the world but it is only the seventh in production. The country's coal reserves are only 0.5% of the world's total reserves placing the country outside the ten largest in the world. 

Under the present production rate the country's proven reserves will be depleted in 37 years if no new reserves are found. Currently Indonesia is exploiting its coal reserves for the consumption of other countries. It is feared, therefore, some day the country may have to import coal. 

The coal market is firm, the price is high and demand growing, but there is little interest shown by investors in coal mining venture. Investors are especially discouraged by unfavorable policy and regulations adopted by the government. Currently, the government and the House of Representatives are still studying and preparing a draft law on coal mining. It is not known when the bill will become law. Meanwhile, investors want to see legal certainty in the mining sector. 

Environmental damage 

Illegal mining has been rampant causing problem to investor and damage to the environment. Illegal mining was held responsible for extensive damage to the environment in coal mining areas in East Kalimantan and South Kalimantan. Illegal miners destroyed protected forests and steal coal from the mining concession of investors. 

Coal Market in the World 

Large energy demand in fast growing China and India has contributed to a surge in demand for coal in the world market. Coal demand has also increased in Asean countries, which also are looking for alternative sources of energy to reduce consumption of oil. In the past 5 years, coal trade expanded in volume from 609 million tons in 2000 to 755 million tons in 2004. In 2004, the world's coal consumption was estimated to reach 4,646 million tons. 

Part of the coal supplied to the market is the type of steam coal used as a source of electric energy and for boilers. Coking coal is used as fuel for steel factories accounting for only 12% of the total coal consumption in the world. 

Indonesia has put behind China and South Africa in coal exports as the two countries have reduced their exports with the growing domestic consumption. 

China, with production of almost 2 billion tons of coal, was the world largest producer in 2004, but it was also the largest consumers followed by the United States and India. 

The world's production of coal in 2004, was estimated to reach 4,629 million tons, up 9.4% from 4,231 million tons in 2003. The production did not include brown coal or lignite, which has low calorific value. 

Based on data issued by the World Energy Council, Indonesia has proven coal reserves of only 4.97 billion tons or 0.5% of the world's total proven reserves. However, according to the Ministry of Energy and Mineral Resources, the country proven coal reserves total 6.9 billion tons. 

World Energy Council has proven coal reserves of 909 billion tons including 246 billion tons in the United States, which has the largest reserve in the world. 

Structure of Coal Mining Industry in Indonesia 

Types of Coal and Specifications 

There are two different types of coal--hard coal and brown coal or lignite: 

** Hard coal has a calorific value of more than 5,700 kcal/kg (23,26 MJ/kg). Hard coal consists of steam coal, coke, bituminous coal andanthracite. 

** Brown coal has a low calorific value including lignite and sub bituminous coal that can be used as fuel for power plants. 

** Steam coal is used by boiler/steam generators and heating ovens. Steam coal includes anthracite and bituminous coal. Its Gross Calorific value is larger than 23,865 kJ/kg (5,700 kcal/kg). 

** Coke could be used as a reductor in blast furnace. Its gross calorific value is larger than 23,865 kJ/kg (5700 kcal/kg), which free from dust. 

** Sub bituminous coal has a gross calorific value of 17,435 kJ/kg (4165 kcal/kg) and 23,860 kJ/kg (5,700 kcal/kg). 

** Anthracite is the highest in quality with calorific value of more than 6900 kcal/kg. It has the characteristics like those of steam coal. 

** Lignite has a gross calorific value of less than 4,165 kcal/kg (17,44 MJ/kg) containing volatile matters of more than 31% in dry form. Lignite is often called Low Rank Coal, or Brown Coal. 

** Coke is the result of carbonization of steam coal under high temperature. Coke is used as a redactor in steel smelting. 

Most coal deposits in the country date back to the tertiary age formed 65 million years ago. Most or 83% of them have brown coal in the category of lignite and sub-bituminous, with a small part (20%) in the categories of Bituminous and Anthracite. 

Indonesian coal is known to have low dust and sulfur contents, therefore, is more suitable to function as fuel or as steam coal causing less pollution. 

South Sumatra has the largest coal deposits 

Coal reserves are found in various areas in Sumatra, Kalimantan, Java, Sulawesi and Papua. The largest deposits are found in South Sumatra, East Kalimantan and South Kalimantan. 

According to a latest estimate, Indonesia has a total reserve of 57 billion tons but proven reserves are only 6.9 billion tons that were considered profitable, but with the soaring prices of coal, the reserves considered feasible for exploitation have increased to 12.4 billion or the same as the measured deposits. 

Status of coal mining companies 

Coal mining industry has expanded fast after the government invited foreign investors to venture in coal mining in 1983 under working contract. (KK). Previously coal mining was done only by two state companies which were later merged into PT Tambang Coal Bukit Asam (PT BA). 

The first working contract was signed in 1983 by 10 companies of which 9 already producing at present such as PT Adaro, PT Kaltim Prima Coal, PT Arutmin, which now dominate coal

production in the country. 

Later the government signed second generation of KK between 1993 and 1996 with 18 other companies of which 8 have been operational and 4 have quit or cancelled investment. 

In 1996, through a presidential decree No. 75/1996, renew coal mining pattern covering investment aspects through deregulation, simplification of procedure, and contracts. One of the changes concerned Coal Cooperation Contract/CCC becoming Coal Contract of Work (CCOW), for foreign and domestic contractors. 

The government also issued a presidential decree No. 85/1996, returning the authority over coal mining previously held by PT Persero Tambang Coal Bukit Asam (PT BA) to the government represented by the General Mining Directorate General. 

The authority over coal mining (KP) and coal mining working agreement (PKP2B) is held by the minister in coordination with governors and regents/mayors, in line with their respective authorities. It was also regulated that contractors (KK) and (PKP2B) are required to hand over 13.5% of their production in cash to the government (based on GOB prices). 

Most of the present coal producers are from the third generation of working contract (KK), but the largest producers are from the first generation. Until 2005, more than 140 companies signed working contracts, but now only 83 of them still active including 27 already producing coal. 

The government has also issued regulation on small mining companies holding coal Mining Authority (KP). KP holders include firm with the status of limited company and cooperatives. 

Based on the law No. 22 in 1999, regents are authorized to issue KP license for to operate small mines. 

Generation I contractors control coal resources 

Most coal resources in the country are controlled by first generation contractors and state coal mining company PT Tambang Coal Bukit Asam (Persero). Among the holders of Generation III contract there are only two contractors having coal resources of more than 1 billion tons of coal namely PT Pendopo Energi Coal in South Sumatra and PT Yamabhumi Palaka in West Kalimantan, but the two companies are still in the process of explorations. 

PT Yamabhumi is the only one signing working contract in West Kalimantan and finding large coal deposit of 4.21 billion tons. 

PT Kaltim Prima Coal, the largest coal mining company 

Large coal mining companies generally hold the first Generation Working Contract and they are generally foreign investment companies, which, based on their contract are required to divest the majority of their shares to local partner after operating for more than 10 years. 

The divestment process, however, is not always running smoothly. For example, PT Kaltim

Prima Coal (KPC), the country's largest coal producer and exporter, could not yet finished the process of divestment after years of negotiations. KPC started commercial operation in 2992, therefore it should have sold 51% of its shares to local investors in 2002, but the process was delayed as the East Kalimantan regional administration has not yet fully accept the agreement reached between KPC and the central government. 

Lately, PT Adaro, the country's second largest producer, also faced dispute among its shareholders over the sales of the former stake of the Swabara Group by Deutsche Bank to PT Dianlia, which is owned by Edwin Soeryadjaya. Deutsche Bank earlier seized the stake from the Swabara Group and sold it to Dianlia. 

With the surge in the prices of coal, many coal mining companies, which almost collapsed in the wake of the monetary crisis in 1997/1998, now regain strength with bright prospects. As a result many investors tumble over each other to take control of a coal mining company now. 

Bumi Resources Group/ Borneo Lumbung Energi 

PT Bumi Resources (PT BR) became the country's largest producer of coal after acquiring KPC and PT Arutmin Indonesia, which is the fourth largest coal mining company. PT Bumi Resources acquired 80% of Arutmin from BHP Mineral Exploration Inc in 2001 and bought the remaining 19.9% later from PT Ekakarsa Yasakarya Indonesia. 

In 2003, Bumi Resources acquired the entire shares of PT Kaltim Prima Coal through its subsidiary Sangatta Holdings Limited and Kalimantan Coal Limited, making it the country's largest producer of coal producing up to 45 million tons of coal in 2005. 

However, in Mach, 2006, Bumi Resources decided to sell its entire stake in PT KPC and PT Arutmin to PT Borneo Lumbung Energi at a price of US$ 3.2 billion. Bumi Resources decided to sell 95% stake in PT Kaltim Prima Coal (KPC) and 100% stake in PT Arutmin Indonesia. PT Borneo Lumbung is a unit of an investment company PT Renaissance Capital, which is partly owned by Suryadinata Sumantri and Samin Tan, both former consultants. 

Bumi, after selling its productive assets acquired PT Pendopo Energi, which has large coal reserve in South Sumatra, but not yet producing. Bumi plans to build a coal liquefaction plant using coal to be supplied by PT Pendopo Energi Batubara in South Sumatra. With the take over of KPC and Arutmin from Bumi Resources, PT Borneo Lumbung Energi became the country's largest coal producer. 

Kaltim Prima Coal 

PT Kaltim Prima Coal (PT KPC) in East kalimantan, was established by Rio Tinto and BP in 1991 and began operation in 1992 with three coal mines namely Sangatta, Melawan and Bengalon mines. 

The concession area of KPC is located in the area called Pinang Dome, which has big reserves of high quality coal. Based on a study in 2005, KPC has a measured reserve of 525

million tons and indicated reserve of 76 million tons and potential reserve of 601 million tons. 

KPC operates one of the largest open pit mines in Indonesia with a depth of 0.15 -15 meters. Its largest mine in Sanggata is equipped withconveyor belt of 13.2 km between the mine and its coal piling terminal in Tanjung Bara from which coal is shipped to buyers, The terminal could accommodate 220,000 DWT ship. 

The job of mining is handled by Thiess Contractors and PT Pama Persada in Sangatta and Melawan. In Bengalon, KPC named PT Darma Henwa as the contractor. 

In 2005, coal production of PT KPC totaled 28.2 million tons relegating PT Adaro as the largest producer in Indonesia. Coal produced by KPC has a calorific value of 5048--6988 Kcal/kg. Around 97% of its production is exported mostly to be used as power plant fuel. Around 79% of its sales are on contract and 21% are disposed of on spot market. 

Arutmin 

PT Arutmin, which was established by BHP Mineral Exploration Inc, was a pioneer among coal mining contractors holding the Generation I working contract. The company signed its working contract in 1981. Now Arutmin operates four coal mines in East Kalimantan namely Satui, Senakin and Batulicin, which hold high calorie coal of 6,00-6,00 Kcal/kg and Asam-asam having coal with a lower calorific value of 5.000 kcal/kg, which is suitable for power plant fuel. 

By June, 2004, the coal reserves of Arutmin totaled 538 million tons including 253 million tons in proven deposit and 105 million tons in probable reserve. Of the total, 170 million tons are thermal coal with low content of sulfur and 250 million tons are sub-bitumen with low calorific value. 

The coal mines of Arutmin are closer to the coast , therefore, transport costs are cheaper and the ground is sloping that stripping is easier. Currently the Satui mine has exceeded its peak productivity, therefore, Arutmin has started deep mining in that area and move more activity to mines having coal with low calorific value. 

In 2005, Arutmin produced 16.8 million tons of coal and 93% of the production was exported to Japan, Hong Kong and Europe. Around 89% of its sales are on contract. 

Adaro Coal 

PT Adaro was established by Australia New Hope Corporation in cooperation with Swabara Group through PT Asminco Bara Utama. Its coal mines are in Tanjung, South Kalimantan, which started production in 1991. The coal mines have a total reserve of 3 billion tons but commercially exploitable deposits are only 600 million tons. 

Its coal has a low sulfur content of 0.1%, ash content of 1.2% and low nitrogen content that it is good for power plant fuel. Its coal layers are thick as thick as 30 meters as against 6 meters in other deposits. Its coal product is sold with the brand of Envirocoal. 

PT Adaro operates open pit mines using bulldozers, excavators, loaders and trucks. It hardly need exploding, therefore, mining cost of cheaper. However, it has to build road as long as 74 kilometers to the stockpile place and to the Barito river from which the coal is transported with barges. 

In 2005, Adaro produced 26.7 million tons of coal. Around 65% of its coal production is exported such as to Taiwan, China and India. The rest is sold to power plants of PLN or IPP. In 2002, Adaro ownership was taken over from Asminco by Deutsche Bank, over failure to repay a debt to the bank following the monetary crisis. In 1997, Asminco borrowed US$ 100 million from Deutsche Bank to buy the shares of Adaro from PT Tirtamas Majutama and PT Panca Muspan using the shares as collateral. 

After the take over, Deutsche Bank sold the shares in 2002 to PT Dianlia Setyamukti, which is owned by Edwin Soeryadjaya,Teodore Rachmat and a number of other businessmen at a price of US$ 42.2 million. 

With the take over, the shareholders of PT Adaro included PT Dianlia Setyamukti 51%, MEC from the United States 8.2%, and New Hope Corp from Australia 40.8%. Early 2005, New Hope agreed to sell the shares of PT Adaro to its local partner at a price of US$ 378 million. 

In June, 2005, an international consortium made up of the Government of Singapore Investment Corp., Kerry Group, Goldmand Sachs Investment Inc, and Citigroup Inc, acquired the stake of PT Dianlia at a price of US$ 950 million. 

When the coal prices rose, and Adaro posted handsome profit, the old owners accused Deutsche Bank of selling the shares at much too low price, compared to he selling of the stake of New Hope to PT Dianlia and the selling of the shares again t the foreign consortium. 

The price was much to low especially if compared to the selling price of KPC and Arutmin of US$ 3.2 billion by Bumi Resources. The legal suit against Deutsche Bank is still in process in a Singaporean court. 

Kideco 

PT Kideco Jaya Agung holds the first Generation KK. It operates in Pasir, East Kalimantan. The company has a reserve of 809 million tons. Its type of coal is similar to that of Adaro with low sulfur and ash content, therefore, it is good to fuel power plants. 

The majority of its shares are held by energy company Samtan Co. Ltd. From South Korea. It has long term contract to supply coal to a number of power plants in Korea. 

Kodeco has open pit mines. Its coal production is transported by trucks to a coal terminal in Tanah Merah spanning a distance of 39 kilometers. In 2005, the company produced 18.1 million tons, up from 16.9 million tons in the previous year. 

The company, which signed its contract of works in 1982, was required to divest the majority of its shares to a local investor in 2003. After the process of open tender, PT Indika Inti Corpindo, succeeded in taking over 41% stake in PT Kideco Jaya Agung at a price of US$ 149.65 million. Now the shareholders of Kideco are Samtan Co. Ltd, 49%, PT Indika Inti Corpindo 41%, and PT Source Mitra Jaya 5%. 

Indika Group is an offspring of the Subentra Group, formerly owned by Sudwikatmono. One of his children Agus Lesmono founded the Indika Group to carry on the family business. 

In cooperation with PT BA and Huadian Group the Indika Group also plans to build a power plant in Sumatra. 

Banpu Group 

The Banpu Group is a Thai company operating in coal mining industry. It began operation in Indonesia in 1991. It signed the first generation KK with the government through PT Jorong Barutama Breston to operate in South Kalimantan. Later its acquired a number of mining companies n Indonesia such as PT Indominco Mandiri , also a coal mining contractor, PT Trubaindo and PT Kitadin, all already operational. 

The Banpu group also has two mining companies Sumatra namely PT Bara Sentosa Lestari and PT MPN, which is still in the phase of feasibility study. The Banpu group, however, plans to sell the two companies as their operating cost is too high. 

With four coal mining subsidiaries already producing, the Banpu Group is the fourth; largest coal producer in the country after Bumi, Adaro, and Kideco. In 2005, the Banpu group produced 12.4 million tons of coal. PT Indominco Mandiri contributed 7.4 million tons to the production, PT Jorong Barutama 3 million tons, Trubaindo 1.6 million tons and Kitadin 0.3 million tons. 

The Banpu group hopes to increase its production especially from Indominco, which has a reserve of 45 million tons and Trubaindo with a reserve of 52 million tons and Jorong 36 million tons. 

PT Bukit Asam 

PT Tambang Batubara Bukit Asam (Pesero) Tbk. is a state company established through a merger of two state companies Tambang Batubara Bukit Asam and Tambang Batubara Ombilin. 

PT BA has two mining units namely the Tanjung Enim unit in Tanjung Enim, South Sumatra and the Ombilin unit in Sawahlunto, West Sumatra. The Ombilin unit is a deep mine now no longer exploited. Earlier, Chinese investor indicated interest in exploiting the deep mine of Ombilin. 

PT BA has large coal reserves namely 1.5 billion tons including 873 million tons in Tanjung Enim, 569 million tons in Cerenti, and 91 million tons in Ombilin. Lignite dominates or 57.7% of its coal reserves, followed by sub-bituminous (37.1%), and bituminous (5.2%). 

Most of coal production is disposed of on the domestic market mainly to supply the Suralaya PLTU in Banten. Coal from Tanjung Enim is transported by railway over s distance of 400 kilometers to the Tarahan port in Lampung from which the coal is shipped over the sea. 

Transport has often causes a problem especially as the railway could only carry 7.2 million tons a year while PT BA wants to increase its shipment to 10 million tons a year to Suralaya. PT BA, therefore, plan to build new rail track to increase the transport capacity from the mine. 

In the past three years its coal production dropped from 10 million tons in 2003 to 8.6 million tons in 2005. 

PT BA planned to acquire a number of coal mines in Kalimantan, but now he plan was postponed as the government plans merger of three state mining companies PT BA, PT Timah, and PT Aneka Tambang. 

Berau Coal 

PT Berau Coal, which operates in Berau, Kalimantan, hold the first Generation KK signed in 1983. The company was established by PT United Tractors and its Japanese partner Nissho Iwai. 

Berau Coal has a large reserve of 745 million tons. In 2005 its production totaled 9.2 million tons. 

The company has built 33 kilometers of road to facilitate transport of coal to a barge terminal in Suaran from which coal is loaded to ship in the sea. 

In 2004, PT United Tractors sold its shares in the Berau Coal to PT Armadian Tritunggal, which is owned by Jodiono Tosin (former executive of theSalim Group), David Lansa (the owner of PT Bumi Makmur, the coal mining contractor of PT Berau Coal), and Rizal Risjad (of the Risjadson Group). 

In June 2006, the Farallon Capital and a number of Indonesian business leaders were reported seeking to take over Berau Coal from PT Armadian Tunggal but no confirmation of he report. 

Production Aspect 

Coal Production up 14.3% annually 

The country's coal production has increased rapidly in the past five years with KK companies the largest contributor. In the 2000-2005 period, coal. production rose 14.3% annually--from 77 million tons to 150 million tons. Coal production of KK companies rose 16% annually from 61 million to 132 million tons. 

The soaring oil prices contributed to the increase in demand for coal boosting production in

the country. 

Demand for lignite or brown coal is expected to increase especially from PLTUs in the country. 

Production by provinces 

Kalimantan accounts for more than 90% of he country's coal production. By provinces, East Kalimantan is the largest producer turning out 77 million tons in 2005. 

Coal from East Kalimantan is highly competitive because of its closer proximity to growing markets in Asia. 

Production by companies 

Indonesia's coal production is more than 80% dominated by six producers--Borneo Lumbung Energi (owner of KPC and Arutmin) turning out 45 million tons in 2005, followed by Adaro with production of 26.7 million tons, Kideco 18.1 million tons, Banpu Group 12.4 million tons, Berau 9.2 million tons and PT BA 8.6 million tons. 

Individually, the largest producing company is PT Kaltim Prima Coal (PT KPC), which produced 27.64 million tons in 2005, followed by PT Adaro. In 2004 PT Adaro was still the largest producer. 

KPC has opened a new mine in Bengalon, which is expected to push up its annual production and keep it as a lead producer. 

Technical Aspect 

Coal mining methods 

There are two coal mining methods--open pit mining and deep mining. Open pit mining is used when coal is found less then 10 meters below the ground surface generally 5-6 meters below the ground surface. Mining could be made only by removing the upper layer of the ground. 

Deep mining is used when the coal lies more than 10 meters below the ground up to 100 meters. Drilling, therefore, is needed to create tunnel. 

Open pit mines, generally has lignite and sub-bituminous coal, which have low calorific value. Most coal mines in the country are open pit mines both in Sumatra and Kalimantan. 

Deep mines generally have bituminous and anthracite coals with high calorific value. Exploitation of deep mines in Indonesia has been made only in Ombilin, Sawah Lunto, West Sumatra. 

Process of mining coal and transport 

Process of coal mining generally includes removal of the cover layer, mining, reclamation and transport to piling terminal before the coal is shipped to the final destination. 

Mining operation covers: 

** Land clearing and removal of the ground upper layer to be used later for reclamation after the mine is closed. 

** Digging 

Shovel and trucks are needed in open pit mining. Stripping ratio (SR) is a ratio in m3 of soil to be removed to produce 1 ton of coal. The closer the coal layers to the ground surface the lower the stripping ratio and the cheaper the mining cost will be. The coal mines of PT Adaro have a low SR of 3-4 and that of PT KPC have a stripping ratio of 6-8. 

** Processing and Piling 

Coal directly from mines called run-of-mine (ROM), often contain undesired materials like rocks, and mud. The first has to be removed. Processing of coal washing is aimed at guaranteeing quality to meet requirement. 

After he processing coal is sent to piling place and to be ready for shipment to end users. 

Coal Transportation 

Coal is transported with conveyor belts, trucks or railway or barges or through pipes after being mixed with water. 

Exports are transported with ships with the types of Handymax (40-60,000 DWT), Panamax (60-80,000 DWT) to ones measuring Capesize (80,000+ DWT). Coal international trade in 2003 totaled 700 million tons and 90% of which were transported by sea. Sea transport may contribute up to 70% to the total transport cost of coal. 

At present Indonesia is producing coal in Sumatera and Kalimantan Island. In South Sumatera, PT Bukit Asam is using railways from their stockpile in Tanjung Enim to coal terminal in Tarahan, Lampung. PT BBA has three coal terminals. The Tarahan Port in Bandar Lampung has a 42.5 ha area with a capacity of 12 million tons/year and is able to moor a maximum of 80,000 DWT vessel. The Kertapati Pier ha a 1.5hectare area with a capacity of 2.5 million tons / year and is able to moor an 8,000 DWT barges. The third port port is located in Padang West Sumatera to serve their Ombilin coal mines. 

In Kalimantan, where no railways exist, most of inland coal transportation is conducted by trucks and barges. KPC and Indominco havecaptive coal terminals. Their coals are forwarded to the coal terminals by trucks and belt conveyors. 

Currently, Indonesia operates 24 coal loading terminals, including three cape-sized terminals, one panamax terminal and three handy-size terminals, with a total export capacity

of more than 75 million MT/year. Four additional coal terminals are planned, including Bengalon by KPC, Sebuku by Cakrawala Sebuku, Bontang by Indominco Mandiri and East Kalimantan by Indexim. 

Below is a list of the largest coal loading ports currently in operation in Indonesia. 

** The Indonesia Bulk Terminal (IBT), developed jointly by Consolidated Bulk Handling of Australia and Terminal Batubara Indah, is the latest common-user deep-water port. IBT, which commenced operation in 1997, is located on South Pulau Laut, a large island off South Kalimantan. It lies on major domestic and international shipping routes. IBT has a stockyard capacity of 800,000 MT and is capable receiving 80,000 DWT vessels. IBT is expanding its storage capacity to 1.6 million MT, with a capacity to handle 200,000 DWT vessels. 

** Tanjung Bara Coal Terminal (TBCT), a 500,000 MT capacity stockpile, was developed by KPC to load its own coal production into ships of up to 200,000 DWT. TBCT is located in north Samarinda, East Kalimantan and has been operational since 1991. 

** PT. Dermaga Prakasa Pratama (DPP), an independent company, developed a deep-water coal terminal located at Balikpapan, East Kalimantan. The facility provides services to coal mining companies operating along the Mahakam River, such as Multi Harapan Utama, Tanito Harum, Kitadin, Bukit Baiduri and Fajar Bumi Sakti. The terminal jetty is capable of handling 80,000 DWT bulk carriers. 

** Terminal Batubara Indah (TBI) in Cirebon, West Java, has a stockpile capacity of 50,000 MT and a handling capacity of one million MT/year. TBI handles mostly coal requirements of the Cibinong cement plant and other nearby industries, and receives regular deliveries from Adaro, Arutmin and other coal mines in Kalimantan. 

To anticipate the increase of coal production in Kalimantan, Government is preparing a study to bulit a railway system in Kalimantan particularly to tranport the coal from Central, East, and South Kalimantan. 

Equipment needed 

Technology and equipment needed in coal mining depend on the types of the mines and the size of the mining. In open pit mining by major coal mining companies PT Bukit Asam and PT Arutmin the main types of equipment are as follows: 

* Bucket wheel excavator as digging equipment . 

* Belt conveyor as transport equipment from the mines. 

* Spreader to spread the ground in piling place. 

* Stacker reclaimer to handle coal in stockpile. 

* Shovel and trucks to support mining operation. 

In open pit mining the main types of equipment are shovels and trucks. 

Coal mining operation 

There are various mining methods: 

First method: 

The mining company handles its self every phase of the job using equipment and its workers. The benefit is the continuity of production is better guaranteed, production cost could be reduced such as through greater efficiency by using bucket wheel and conveyor belt. 

The disadvantage is that it will need large number of workers that will need more accommodations and facilities. In addition it will need to have or rent sufficient sets of equipment. 

Second method: 

A company names a sub-contractor to handle certain phases of jobs such as removal of outer layers in open pit mining, digging and reclamation (land fill). The benefit is that it will need no large investment and large number of workers. It also does not need to buy or lease all sets of equipment needed in the operation. 

The disadvantage is that the company will continue to rely on other companies for mining technology and completion of work that the risk is greater of failure in finishing the job as scheduled. 

The two methods are often combined by large coal mining companies like PT Bukit Asam, which operates large deposits in the area of Air Laya in which mining is handled itself by PT BA by using bucket wheel and conveyor belts to carry coal from the mines to piling place. The job of removing the outer layer of the ground is handed over to a contractor. 

Small and medium companies almost entirely rely on contractors to do almost all phases of the jobs as they could not afford to buy expensive heavy equipment. 

After the 1998 monetary crisis growing coal mining companies have to relay on contractors to do the mining as they would not want to risk investing in heavy equipment and employ many workers needed in the operation. 

In 2002, around 40% of mining companies relied on contractors to the job of coal mining and in 2004, the percentage rose to 60%. 

Role of coal mining contractors 

The number of coal mining contractors, therefore, has increased with the growing demand for their services. There are 150 mining service companies registered at the energy and

mineral resources ministry, but only 20 of them actively operate in the service industry. 

Among large contractors dominating the job of mining coal are PT Pama Persada. Perusahaan, PT Thiess Contractors, PT Petrosea, PT Bukit Makmur and PT Darma Henwa. 

PT Pama Persada Nusantara as Market Leader 

This company is a subsidiary of PT United Tractors Tbk., a heavy equipment assembling company and agent for Komatsu heavy equipment and Nissan dump trucks. 

PT Pama is a coal mining contractor starting operation in 1993 producing almost 5 million tons of coal a year. In 2002, its production totaled 28 million tons up 17% from 2001. In 2005 its production totaled 35 million tons. 

Its main client is PT Adaro. It handles the job of mining and removing the outer layer of ground in open pit mining. 

Its latest project is to mine coal for PT Arutmin Indonesia, in South Kalimantan and for PT Jembayan Muarabara, in East Kalimantan and for PT Tanjung Alam Jaya. 

Its other regular clients include PT Indomico Mandiri--Banpu, PT Kaltim Prima Coal, PT Multi Harapan Utama, PT Tambang Batu Bara Bukit Asam, and PT Kideco Jaya Agung. 

PT Pama Persada had a 42% share of the market of coal mining contracts in 2004 and earned a total income of Rp 3.8 trillion that year. In 2005 its income shot up to Rp 6 trillion. 

PT Thiess Contractors Indonesia 

Thiess started operation in Indonesia in 1972, and since then it has take part in the construction of a number of projects in the country including the Halim Perdana Kusuma airport of Jakarta, the Simpang airport of Pekanbaru, pipeline project in Binolirik, Sumatra and power plant in Balikpapan. 

In 1984, Thiess sold its business unit in the country. In 1998 it restarted operation in the country through PT. Thiess Contractors Indonesia with the foreign investment facility. Since then PT. Thiess Indonesia has carried out a number of projects valued at US$ 1.3 billion in the country related to mining sector, oil and gas sector and infrastructure sector. 

Big projects the company has built include: 

Projects of PT. Kaltim Prima Coal, in East Kalimantan. From June, 1999 to August 2002, PT Thiess Contractors Indonesia in Sangatta mined 5.5 million tons of coal and removed overburden. Its other jobs were to move oil stockpile, rehabilitate mines and mine coal using Auger. Mining with Auger gave additional coal production of 275,000 tons for KPC. 

Early September 2002, PT Thiess Contractors Indonesia received a new contract to build 5.5 kilometers of coal transport road to be completed in January, 2003. The contract

included removing ground outer layer and overburden as well as mining of 230,000 tons of coal in the Pelikan open pit mine. 

Projects of PT. Arutmin, in South Kalimantan. Thiess has long business ties with PT. Arutmin since PT. Arutmin started operation in Indonesia in 1989, when Thiess was given the job of building infrastructure project to facilitate the mining operation. 

In June, 2002, PT. Arutmin and PT. Thiess reached an agreement under which Thiess took over the entire job of coal mining for PT. Arutmin in South Kalimantan including operation and repair of heavy equipment. 

Thiess did all the jobs of mining operation including digging of overburden, coal mining, coal transport and loading to ships, rehabilitation of mining areas, mining plan. It guarantees coal quality. 

Senakin mine produces 450,000 tons of washed coal a month. 

Projects of PT. Kideco Jaya Agung, in East Kalimantan. Since 1993, PT Thiess Contractors Indonesia played an important role in the mining of coal for Kideco in East Kalimantan. 

It has handled jobs valued at more than US$ 287 million. It produced 2.5 million tons of coal for Kideco, processing it and transported it to over a distance of 36 kilometers to the port site using trailers with a carrying capacity of 100 tons. Sets of equipment in the projects includes 360-ton and 240-ton excavators loading 32, 150-ton and 100-ton haul trucks, 13 units of bull dozers. The income of the company in 2004/2005 was more than US$ 360 million. 

PT BUMA  

PT Bukit Makmur Utama Mandiri (BUMA) is the main contractor for the coal mines of Berau Coal. Bukit Makmur is a subsidiary of the BUMA group, which is also a 50% owner of PT Armadian Tritunggal, which itself is the majority shareholder of Berau Coal. 

PT Bukit Makmur was established in 1988 by Johan Lensa and family. It is also known to operate large fleet of Hino trucks. Before being a mining contractor, PT Bumi Makmur operates in the building of oil palm plantations such as those of the Astra Group, and the Salim Group. With the large fleet of Hino trucks Bukit Makmur became a coal mining contractor. PT BUMA also a contractor for Adaro, Kideco, Lanna Harita, etc.. In 1998 the income of PT BUMA was recorded at only US$ 5 million but in a few years later in 2005 its posted an income of US$ 279 million and he income is forecast to rise to US$ 390 million in the following years. 

Coal Mining Cost 

The coal mining costs are determined by stripping ratio, the distance between mines to stockpile in crushing plant and the distance between the crushing plant and the sea port. See the following table. 

Based on the data from DPMB the lowest price of coal at the mouth of mine with stripping

ratio of 1 is US$ 6 per ton not including costs of reclamation, royalty, and shipping cost at port. If he SR is higher the coal mining cost is higher. 

Based on a calculation by the Institute of Energy Economics of Japan in 2001, coal procurement cost in Kalimantan was US$ 25/ton for coal with a calorific value of 5,900 kcal/kg. Now with the soaring oil prices, the cost of coal procurement is estimated to rise 15%-25% to US$ 28--US$ 32/ton 

According to the International Energy Agency (IEA), which groups industrial countries, coal procurement cost on FOB from Kalimantan is around US$ 23-US$ 40 /ton or averaged US$ 26/ton, broken down as follows: 

* Cost of mining operation US$ 8--18 /ton (averaging US$ 10.5/ton) 

* Capital cost US$ 7.5 /ton 

* Transport cost US$ 7.5/ton 

* Loading/unloading cost US$ 3 /ton 

IEA said coal open pit mining cost in Kalimantan is the second lowest in the world after in Wyoming open pit mines in the United States. 

Government Policy in Energy Sector 

Until now oil and natural gas still the main sources of energy in Indonesia, which exports of most of its cheap sources of energy. 

However, with the soaring oil prices, the government announced a new energy policy in January, 2006 to reduce dependence on oil as a source of energy as follows: 

--The role of oil is to be reduced to 26.2% in 2025 

--The role of natural gas is to be raised to 30.6% in 2025 

--The role of coal is to be raised to 32.7% in 2025 

* Utilization of brown coal 

* Coal Liquefaction 

* Briquette  

--The role of geothermal is to be raised to 3.8% in 2025 

--The role of renewable energy is to be raised to 4.4% in 2025 

--Fulfilling fossil energy in the country by phasing out export. 

See the following table. 

The contribution of coal to the country's energy consumption is forecast to more than double in the next 20 years. 

Decline in Investment Interest 

Ironically, when the coal prices are climbing, there has been no new investment in coal mining industry since 1998. Investment in coal mining has declined since 1998. In 1998, investment in coal mining was valued at US$ 1.9 billion down to US$ 174 million in 2003. 

Meanwhile it is estimated that the country needs US$ 750 million in investment for explorations if it is to maintain its present level of production. Now investment is mainly for exploitations and expansion of the existing mines. Investors choose to acquired the existing mines rather than investing in explorations for new deposits starting with feasibility studies. 

PT BA, for example, has stopped explorations and started eyeing coal mines already in operation in Kalimantan. A number of other local and foreign mining companies also show the same inclination. There are a number of factors discouraging new investment in coal mining industry as follows: 

a. Legal and business certainty 

The implementation of the regional autonomy law in 2001 has brought about various problems concerning confusion in authority between the center and the regional administrations. Based on the Law No. 22 in 1999 on regional administration, and government regulation (PP) No. 25 in 2000, regional administrations have the authority to operate natural resources in their respective areas and are responsible for the preservation of the environment in line with the law regulation. On the other hand the Law No. 11 in 1967 remains effective causing confusion to new investors as until now the new Law on Mining is not yet issued to accommodate the interest of the autonomous regions. 

b. Overlapping and Conflicting Regulations 

In 1999, a number of regulations and policies were issued hampering efforts to develop the mining sector such as the Law No. 41 Year 1999 on forestry banning mining operation in protected forest areas. The law has hampered development of 150 KP/KK/PKP2B projects in protected forest areas. Autonomous regional areas have issued many coal KP licenses conflicting with the regulation issued by the central government. 

c. Taxation Policy 

PP No. 144 in 2000 changed the status of coal from goods exempted from tax into one imposed with tax causing difference in interpretations between PKP2B companies and the government. 

The government has called on PT Kaltim Prima Coal, PT Arutmin and four other coal mining

companies to settle their unpaid coal royalties from 2001-2005 worth Rp 3.91 trillion. The government is entitled to a 13.5% revenue share from the coal sales as a royalty payment. The coal miners have refused to pay the royalties on the grounds that the ministry of finance must reimburse the VAT they paid since the issuance of the government regulation no. 144 in 2000. The coal contractors argued that the so called first generation CoW, known as PKP2B, stipulates that they must be exempted from paying any other taxes. The first generation coal miners are also exempted from paying 5% coal export tax, which was introduced last year and therefore the government should also reimbursed the tax. 

d. Regional Compensation and tax on heavy equipment. 

The Law No. 34 in 2000 amending the Law No. 18 of 1997 on regional taxes and compensation, expanded tax objects in motor vehicles.. All motor vehicles that are used in all types of road are classified as heavy equipment. 

e. Illegal Mining (PETI) 

Illegal mining has been rampant in the country. They mine coal in concession areas of coal mining companies causing big losses to the companies. The illegal miners not only steal coal, but they also cause damage to the environment in area under the responsibility of licensed coal mining companies. 

Illegal mining often is large scale. PT Arutmin, in South Kalimantan, is subject to illegal miners who use a fleet of 200 trucks and 16 excavators. They transport their output using a road and a jetty built across environmentally sensitive coastal marshlands. 

Illegal miners account for as much as 4 million of the 22 million tonnes of coal mined in South Kalimantan annually; this represents a loss of output worth US$ 92 million at current prices. Much of the province's illegal coal comes from the mine area PT Arutmin owns. Industry sources report an environment of intimidation and threats of violence. PT Arutmin has considered demanding the government to pay compensation for damage caused by the illegal miners. 

Investment Cost in new coal mines 

A coal mining venture in Central Kalimantan, with mine 100 kilometers from the first piling terminal in the Barito river and 200 kilometers fromtransshipment place. Explorations have been made and the mine is ready for exploitation over a period of 10 years with an annual production of 2 million tons. Around US$ 32 million are needed to develop the mine including US$ 25 million for investment and US$ 7 million for working capital. 

Coal Trade 

More than 70% of Coal Production Exported 

Indonesia exports 70% of its coal output. Demand for coal grows with the soaring prices of crude oil. Coal is used especially to fuel power plants. In the past 7 years the country's coal exports have increased 12.2% annually--from 47 million tons in 1998 to 106 million tons in

2005. 

Large producers such as Kaltim Prima Coal (KPC) generally exports most of their production. KPC exported 26.6 million tons of its total production of 27.6 million tons of coal in 2005. See the following table. 

Indonesia exports coal mainly to Japan, Taiwan, South Korea Hong Kong, and India. Exports to Japan totaled 24 million tons in 2005. Exports to Japan is stable as it has not built new coal fired power plants in the past several years. Other Asian countries are still building more coal fired power plants. 

Demand Aspects 

Coal requirement in Indonesia to rise 

Domestic consumption of coal averages only 40 million tons a year or 30% of the country's production. The largest consumer are coal fired power plants, accounting for 63% of the domestic consumption, followed by cement factories and pulp industry. See the following table. 

Coal consumption in Indonesia is relatively small in comparison to its production. Coal accounts for only 35% of energy generated in the country as against oil energy of 41%. The composition is expected to change in favor of coal in the coming years with the government's program toeconomize on oil. 

The government has launch a program to use more coal instead of oil to fuel power plants. PLN is to build coal-fired power plants with a total capacity of 10,000 megawatts to be completed in 2010. An additional supply of around 26 million tons of coal, therefore, will be needed. Including consumption for the new plants, and coal fired power plants to be built by Independent Power Producers (IPP), the country's coal consumption in 2010 is estimated to total 91.9 million tons. 

Currently coal consumption for the country's cement industry is around 5.5 million tons and the consumption is forecast to rise to 7.5 million tons n 2010. Coal is also expected to be used by growing number of other industries like textile industry and boilers. 

The country will save up to 50% of fuel cost if oil is substituted with coal. Textile industry will need around 500,000 tons of coal a year of oil is to be substituted with coal for fuel. The consumption could rise to 1.2 million tons a year in 2010. 

Suralaya coal-fired power plant is the bigest user of coal in Indonesia, followed by Paiton Energy. In cement industry, PT Indocement in Citeureup, West Java, is the bigest user, followed by PT Cement Gresik in East Java. The following table shows the domestic coal user in 2003-2004. 

Domestic market Obligation 

With the rising prices of coal and the increase in demand consumers begin to fear

of scarcity of supply in the future especially as coal producers tend to exports their production. 

Under the working contract, the state has only 13.5% split of coal output produced by contractors. They are not required to give priority to domestic consumption. The problem faced by the country in the case of gas is feared to repeat itself in coal. 

Gas is exported on long term contracts with buyers abroad while consumers in the country are facing scarcity in supply. 

The Association of Coal Mining (APBI), therefore, has proposed a formula requiring coal producers to observe domestic market obligation/DMO, under which they will export coal only when domestic consumption has been fulfilled. APBI Executive Director Soedjoko Tirtosoekotjo saidDMO could reach 40% of the country's total production. 

The government is still studying the DMO formula to be adopted. Call for the ruling of DMO is stronger after PLN is charged with the task of building coal power plants with a total capacity of 10,000 MW until 2010 

Marketing Aspect 

Contract sales dominate coal trade 

Contract sales dominate coal trade. Only a small part of coal production is sold on spot market. PT Arutmin sells 90% of its coal production on l contract and KPC sells 80% of its production on contract and Bukit Asam sells its entire production on long term contract to PLN. 

Thermal coal dominates coal production in Indonesia suitable for coal fired power plants. Supply to spot market comes mainly from small producers or illegal miners. Spot market is estimated to reach up to 8 million tons a year. 

Coal prices up again 

The price of coal of 6,700 kcal /kg peaked in 2004 and early 2005 at US$ 53.47 per ton, according to Barlow Jonker Spot Price. The highest price was US$ 62.9 per ton late 2004 triggered by panic buying following the surge in oil prices. Toward the end of 2005, the coal price fell with large stocks. 

The prices of coal in Indonesia vary by types and calorific value. Early 2006, the export price on FOB averaged US$ 40.69 per ton. 

Indonesian Coal Price Index 

Ironically, Indonesia, the second largest exporter of coal in the world, has no own price reference. The country uses the price references of Barlow Jonker (Coalfax), Argus (coal daily), etc.. 

APBI and coal business players and Argus Media Limited then initiated the formulation of Index Harga Batubara Indonesia (Indonesian Coal Price Index/ICI) set by a panel of 23 agencies including producers, consumers, and supporting industries. 

The price index is published by PT Coalindo Energy, which is owned by coal business players. 

The benchmark prices are for three grades--Coalindo ICI-1 with a calorific value of 6,500 kcal/kg, Coalindo ICI-2 5800 kcal/kg and Coalindo ICI-3 500 kcal/kg. Coalindo ICI-3 could become a reference for coal of low calorific value used by PLN. 

The prices of Indonesia coal as published in June, 2006 were around US$ 51.66 --US$ 48.94 per ton of ICI-1. Officially the price of Coalindo ICI will be published in July, 2006. 

Prospects of coal as a source of energy for Indonesia 

The government in a blue print for energy management said that coal will account for 32.7% of energy supply in the country in 2025. Step toward realization of the target has been made with the construction of PLTUs to replace oil fired power plants. 

If the oil prices are still higher than US$ 50 a barrel, coal will have good prospects as an alternative source of energy. 

Projection of domestic requirement 

Earlier the government predicted that the country will need 58.5 million tons of coal in 2010, up to 95.6 million tons in 2020. The requirement is expected to be much higher with the rising oil prices. 

The coal requirement to feed power plants alone is expected to reach 100 million in 2010 not including around 7.5 million tons for cement industry, and 1.2 million tons for other industries such as textile industry. 

The government has said to use low rank coal to fuel power plants such as lignite of which the country has large reserves. 

If the country is to maintain its annual exports of 125 million tons, the country has to produce up to 225 million tons of coal in 201, up from around 150 million tons at present. In order to reach the goal, the country will need to invest US$ 750 million--US$ 1 billion in this area. 

Industrial Risks 

There was little interest in coal as fuel because of a number of factors, It causes much pollution than oil fuel and it is less efficient to use coal that oil, but now with the oil prices soaring, coal is high in demand. It has suddenly become an important alternative source of energy. 

Coal mining, even the open pit mining in Indonesia, has been accused of causing extensive

damage to the environment as it requires wide operation areas. 

The risks that have to be faced by coal mining companies include: 

--Failure in finding adequate coal reserve for commercial exploitation. 

--Oil price fluctuation that will determine the prices of coal in the world market. 

--International pressures necessitating additional cost to comply with the rule of preserving the environment. 

--Coal mining is a long term venture therefore, there are risks of changes in the government policy that could cause additional burden for the investors such as in taxes and overlapping concession licenses. 

--Too many levies both legal and illegal, and inconsistent and conflicting regional regulations hampering investment. 

Conclusions and Recommendations 

Conclusions 

** Coal becomes a cheap alternative source of energy after the soaring oil prices. 

** Indonesia has potential reserves of coal found in various areas notably in South Sumatra, East Kalimantan, and South Kalimantan. 

** Indonesia's coal production rose sharply in the 2000-2005 period, up by 14.3% annually on the average from 77 million tons to 150 million tons. 

** Around 90% of the country's coal production comes from East Kalimantan and South Kalimantan. 

** Around 80% of the country's coal production is dominated by six large producers namely Borneo Lumbung Energi (which owns KPC and Arutmin), Adaro, Kideco, Banpu Group, Berau and PT BA. 

** Indonesia is the world's second largest exporter of coal after Australia. 

** Indonesia has comparative advantages over other coal producing countries as it is geographically closer to consumers and its coal mining cost is cheaper especially in the production of thermal coal to fuel power plants. 

** Domestic consumption of coal is relatively small. With oil much more expensive, the government has launched a policy to use more coal to fuel power plants by planning building more coal fired power plants with a total capacity of 20,000 megawatts. The program will certainly push up demand for coal in the country in the next three years. 

** It is estimated that in 2010, the country will need 100 million tons of coal up from 40 million tons in 2005. In order to meet the requirement and export commitments, the country needs to increase production to 225 million tons in 2010, up from around 155 million tons at present. 

** The large export commitments necessitate exploitation of new deposits to meet domestic requirement. However, until now there is little interest shown by new investors in coal mining because of various factors including the government policies not seen as favorable by investors. 

** Around US$ 1 billion are needed in investment to finance development of new mines to be able to produce 225 million tons needed in 2010. 

Recommendations 

** The government program to make coal as the main source of energy in the country requires supports in the form of policies that will encourage investment in the coal mining sector by removing all bottlenecks such as inconsistent taxation policy, and overlapping in mining concessions and conflicting regulations and by taking firm measure to stop illegal mining. 

** The government has to be more serious in securing coal supply in the country and at the same time protecting the interest of coal mining companies already have contract buyers abroad by formulating a fair domestic market obligation. 

** Coal is non renewable natural resource, and coal mining is a long term venture causing potential damage to the environment. The government, therefore, must have long term vision in exploiting the natural wealth and must not look for short term profit. 

** Construction of adequate and better infrastructure will also contribute to increasing coal production such as transport facilities, including coal terminals, roads and railways linking mines and terminals. 

** Coal depots to serve as stockpiling facility are also needed in places near consumers to better guarantee supply without consumers having to keep large stocks. 

** Coal mining ventures need large investment, therefore banks have to be involved in drafting a policy. Until now most coal mining ventures have been financed by foreign banks