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.
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.
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 and anthracite.
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…
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