3/12/2009

INDONESIAN COAL INDUSTRY OUTLOOK

Presented at Indonesian Japan Coal Policy Dialogue and Coal Seminar Tokyo, March 26th - 27th, 2009
By Jeffrey Mulyono Chairman of Indonesian Coal Mining Association (APBI-ICMA)

PRESENTATION OUTLINE
INTRODUCTION How much Coal Reserves can be found in Indonesian ? What is Indonesian Coal Quality ? What is production, export and domestic sales levels ? What is Government of Indonesian plan for coal ? What is long run prediction for production, export and domestic utilization of coal ? Indonesian new mineral and coal low, is it favorable or unfavorable for investment ? Closing Remarks

INTRODUCTION
Up to mid 2008, the mining industry both in Indonesia and globally experienced significantly high performance. For Indonesia, PricewaterhouseCoopers reported that in the last there year EBITDA Margin, Net Profit Margin, Return on Capital Employed, Return on Shareholders fund, and Net Debt to Equity Ratio were above the sector global average. The mining industry continues to be an important contributor to the Indonesian economic. The industry also continue to make significant contributions to the Indonesian GDP and Export, as well as to Regional and Community Development. Since September 2008, the price of all mining products has been decreasing significantly and reduced the profitability of mining companies for the year 2008. The year of 2009, will be very hard for mining companies.
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HOW MUCH COAL RESERVES CAN BE FOUND IN INDONESIAN ?

DISTRIBUTION OF INDONESIAN COAL MAP RESERVES (IN PERCENTAGES)

8% 39 %

34 % 3% 16 %

Distribution of Coal Reserve Potential The biggest reserves are located in 3 provinces, in South Sumatra (39 %), East Kalimantan (34%), and South Kalimantan (16%).

Source : Center for Geology, Geology Agency 2006

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INDONESIAN COAL MAP RESOURCES AND RESERVES (BILLION TONS)

40.47 b.t 52.53 b.t 11.55 b.t 7.15 b.t 0.23 b.t 0.002 b.t 0.15 b.t

SUMATRA

0.01 b.t

Resources: 93.40 billion tons

b.t : billion tons

Reserves : 18.70 billion tons

Source: Geological Resources Centre (+ Joint Study with NEDO) 2007 March 2009, it was reported become 104.7 Billion ton Resources
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COAL RESOURCES AND RESERVES DISTRIBUTION BY REGION (M.TONS) 2007

NANGROE ACEH DARUSALAM RESOURCES = 450.15 MINEABLE = n.a.

CENTRAL KALIMANTAN RESOURCES = 1,399.21 MINEABLE = 48.59

EAST KALIMANTAN RESOURCES = 19,567.79 MINEABLE = 2,410.33

PAPUA RESOURCES = 138.30 MINEABLE = n.a.

RIAU RESOURCES = 2,057.22 MINEABLE = 15.15

WEST KALIMANTAN RESOURCES = 527.52 MINEABLE = n.a

SOUTH SUMATRA RESOURCES = 22,240.40 MINEABLE = 2,653.98

WEST SUMATRA RESOURCES = 719.09 MINEABLE = 36.07

BENGKULU RESOURCES = 198.37 MINEABLE = 21.12

SOUTH KALIMANTAN RESOURCES = 8,674.56 MINEABLE = 1,787.32

SOUTH SULAWESI RESOURCES = 132.01 MINEABLE = 0.06

WHAT IS INDONESIAN COAL QUALITY ?

INDONESIA COAL QUALITY BASED ON THE SPECIFIC ENERGY (KCAL/KG)

High Quality (6100-7100 kcal/kg)

Very High Quality (>7100 kcal/kg)

13%

1%

Low Quality
(< 5100 kcal/kg)

24%

62% Medium Quality (5100-6100 kcal/kg) 9

How many coal mining iN Indonesian today ? What is production, Export and domestic sales levels ?

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COAL MINING PLAYERS GROUP (2007)

STATED OWNED (PTBA) *)

Contribute 4,0% of National Coal Production

INDONESIAS COAL PLAYER GROUP

COAL CONTRACT OF WORK (CCOW HOLDER) **)

Contribute 80,1% of National Coal Production

MINING AUTHORIZATION (MA HOLDER) ***) *) **) 1 Company in Production 36 Companies in Production 44 Companies in Exploration, Feasibility Study and Construction ***) 129 Companies in Production

Contribute 15,9% of National Coal Production

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PRODUCTION, EXPORT AND DOMESTIC SALES (HISTORICAL DATA ,1996 - 2008) (Million Tons) Government Version
250
215 233.62 193.55 158.6 160.27 153.2 144.94

200 150

132.4

114.3 110.79 102.5 93.76 91.5 100 85.3 72.2 75.6 73.4 63.4 79.14 60.6 48.8 53.946.7 53.9 57.2 62.5 50 35.3 40.9 45.54 35.74 37.1 41.3 27.3 29.2 19 22.1 10.9 13.2 15.4

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Export

Domestic

Production
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Source : - Directorate of Mineral and Coal Enterprise Indonesia Mineral and Coal Statistic 2005 - APBI-ICMA

WHAT IS GOVERNMENT OF INDONESIA PLAN FOR COAL ?

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EXISTING/THE CHANGING FACE OF INDONESIAN ENERGY MIX (2006 2025)

PRESIDENTIAL DECREE NO. 5 TAHUN 2006 CONSERNING NATIONAL ENERGY POLICY
Geothermal 1.4% Coal Liquefaction 2% Renewable Energy 5%

Coal 33%

Geothermal 5% Gas 30% Oil 20%

Renewable 3.4%

2006

2025
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Increased usage of low rank coals for domestic use, coal liquefaction and upgrading brown coal (UBC) will be key factors in increasing domestic coal usage.

WHAT IS LONG RUN PREDICTION FOR PRODUCTION, EXPORT AND DOMESTIC UTILIZATION OF COAL ?

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PRODUCTION, EXPORT AND DOMESTIC SALES (FUTURE ESTIMATION, 2005 2025) (Million Tons)
APBI-ICMA Version

450 400 350 300 250 200

153.4 145 150 110.8 193 158.6 233.62 215 160.27 169 170 184 153 175 79.14 90 180 150 244 260 326 364

421

236

100 50 0

41.4

48

62.5

75

2005

2006

2007

2008

2009

2010

2015

2020

2025

Export
Source: APBI-ICMA 2009.

Domestic

Production
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Have you heard of Indonesian new mineral and coal law ? Is it favorable or Unfavorable for investment ?

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There are still many question marks for the new law ? The answers are still to be waited. The new law will rely heavily on many still to be issued government regulations for its implementations

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The Essence Of The New Law

The law replaces the mineral and coal mining law No. 11/1967. However, the mineral and coal mining law will rely heavily on many still to issued government regulation for its implementations . New Contract of Work (CoW) and Coal Contract of Work (CCoW) systems will no longer be available. But all existing contracts will be respected. All investor (both foreign and local) will be treated equally. Both investors will be able to apply for a form of mining license (IUP or IUPK) . An IUP is requires for exploration, development and production stage. An IUPK is applicable for State Reserves Areas (SRA) Existing Mining Companies should process raw minerals in domestic processing and smelting facilities within five years after the law entry into force.

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The Essence of the new law(continued)

All investment (both foreign and Indonesia) must now be carried out pursuant to an IUP or IUP Khusus/IUPK. An IUP is applicable for general mining. An IUPK is applicable for any mineral or coal in The State Resources Areas (SRA) State Reserves Areas (SRAs) are to be determined by the Central Government with approval from parliament. Stated Owned Companies are to be prioritized for the development of SRAs.

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MINING AREAS
Metallic Mineral Non Metallic Mineral Sand & Stone Aggregates : : : Maximum 100.000 Ha Exploration Stage Maximum 25.000 Ha Production Stage Maximum 25.000 Ha Exploration Stage Maximum 5.000 Ha Production Stage Maximum 5.000 Ha Exploration Stage Maximum 1.000 Ha Production Stage Maximum 50.000 Ha Exploration Stage Maximum 15.000 Ha Production Stage Individuals Group Cooperation 1 Ha 5 Ha 10 Ha
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Coal IPR

MINING TERMS
IUP :
EXPLORATION STAGE : Coal and Gemstone Non Metallic Mineral 7 years 3 years Metallic Mineral 8 years Stone Aggregate 3 years EXPLOITATION STAGE: Coal, Metallic Minerals Non Metallic Minerals 20 years (can be prolonged 2 x @10 years) 10 years (can be prolonged 2 x @ 5 years)

Stone Aggregate 5 years (can be prolonged 2 x @ 5 years)

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MINING TERMS (CONTINUED)

IUPK :
EXPLORATION STAGE : Coal Metallic Minerals PRODUCTION STAGE: Coal, Metallic Minerals 20 years can be prolonged 2 terms @10 years 7 years 8 years

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WILL NEW MINING LAW BE FRIENDLY TO NEW INVESTORS ? The answer will be left to the implementing Derivatives Regulations (Government Regulation). No more of CoW/CCoW in the future will be the main factor in declining of grass root investment. Well regarded Lex specialist concept embedded in some CoWs/CCoWs will be no more used in the IUP Concept, accordingly the new law may provide only low level of certainty. The idea to re-sizing of the mining become another disincentives factor. The obligation to invest in domestic infrastructure of mineral processing and smelting makes mining sector less attractive for low and middle class investors, but give more economic Impact to the country.
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WHAT IS GOOD IN THE NEW MINING LAW COMPARE TO THE OLD ONE ?

The new law treats both foreign and local investors equally (no more discrimination in government treatments). Both foreign and domestic investors will be able to apply for a form of mining license. Exploration Licensing (IUP) must be issued through a tender process, rather than direct appointment, so its means more transparent system compare to old one. Hard Sanction for : Illegal miner Government official whom did misconduct and mismanage in giving licensing.

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GOVERNMENT REGULATIONS Which are still in the kitchen

Domestic market obligation Coal pricing index ( basset indexes ) Mining zone Mineral and coal enterprises activity Supervising and controlling mining activity Mining Reclamation, mine closing and Post Mining Activity Added value of mineral processing obligation
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DOMESTIC MARKET OBLIGATION

By having DMO on place, How Foreign Country can rely on Indonesian Coal for their Full Supply. We are now discussing with Government to treat upgrading entity as Industrial entity, so it means Raw Coal Supply to this entity is calculate as DMO and consequently the output is free to be traded By then it is attractive enough for Investor to invest . This kind of investment to market the product elsewhere

CLOSING REMARKS
Coal production growth in Indonesian will continue through the year 2009. Slowing demand from the international market may be offset by the increasing demand from the domestic market. The natural production level could be much more greater. Only if the bottle neck in the infrastructure (specially in land transportation system) can be eradicated. The government of Indonesian, is committed to encourage private sectors to invest in coal mining industry especially in introducing new clean coal technology such as : coal liquefaction and coal gasification. The government of Indonesian is committed to promote the application upgrading brown coal technology by coal industry in order to utilize abundant low rank coal in Indonesia.

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THANK YOU

Indonesian Coal Mining Association Email: apbi-icma@indo.net.id Menara Kuningan Building, 1th Floor, Suite A Jl H.R. Rasuna Said Block X-7 Kav.5 Jakarta Selatan 12940 - INDONESIA Phone/Fax : (62 21) 3001 5935, 3001 59