Indonesia Coal Industry Update 2016

JOGMEC Coal Investment Seminar

Tokyo, 27 January 2016
CONTENTS

1 Indonesia Coal Industry

2 Coal as Key to Increase Electrification Ratio

3 Future Energy Mix

CONTENTS

1 Indonesia Coal Industry

2 Coal as Key to Increase Electrification Ratio

3 Future Energy Mix

 Coal Contribution to Indonesia Economy
GDP from Non Oil & Gas Mining Coal Export
Billion US$
Trillion Rp.
500 6.0% 30 16.0%
5.6%
13.8%
450 5.4% 13.4% 13.4%
5.3% 5.5% 14.0%
5.2% 25
400 4.9% 11.9% 11.8%
11.7% 12.0%
4.8% 5.0%
350
4.5% 20
4.4% 4.4%
4.3% 4.5% 10.0%
300
7.6%
250 4.0% 15 8.0%
483 480
462 27.2 26.2
6.0%5.8% 24.5
200 398
3.5% 5.1% 6.0%
3.1% 333 10 20.8
150 18.5
3.8%
254 3.0% 4.0%
13.8
100 195
160 5 10.5
131 2.5% 6.7 2.0%
50 105 6.1
65 4.3
2.7
0 2.0% 0 0.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PDB Tambang Non-Migas % dari Total PDB Export batubara (US$ Billion) % dari Total Ekspor

Other then being the most economical source of energy for electricity, coal mining
industry plays an important role in supporting Indonesia’s economy
Sources: Badan Pusat Statistik
Historical Indonesian Coal Production 2009 – Oct 2015

500 140.00
474 458
450
412 402 120.00
400 382
353 345
350 100.00
322.5
300 287
254 275 80.00
250 215
210 60.00
200 198

150 40.00
100 65 66 67 72 76 62
56 20.00
50
0 0.00
2009 2010 2011 2012 2013 2014 2015
Production (Million Tons) as Per October 2015

Export (Million Tons) as Per October 2015

Domestic Sales (Million Tons) as Per October 2015

Average of Coal Price based on HBA USD/MT as Per December 2015

Sources: Directorate General Mineral & Coal, MEMR

 Estimated Domestic Coal Consumption - 2016

2016 DMO Composition (%) Domestic Consumption

2% 1% 0% (MT)
Coal fired power plant 82
2% 12%
2% Metallurgy 2

Fertilizer 2

Cement 12
81%
Textile 2

Paper 1
Coal fired power plant Metallurgy
Fertilizer Cement Briquette 0
Textile Paper
Briquette TOTAL 101

Currently, Indonesia is still dependent on coal exports as domestic consumption can

only absorb a small portion of total coal production.

Sources: Directorate General Mineral & Coal, MEMR

Depressed Coal Price has affected CAPEX Coal Mining
Company
NEWC Evolution 2011 – Jan 2016 CAPEX Coal Mining Listed Co –
(6,322 GAR) in billion Last 5 Years
USD
140 2.5
1.93 Total
120 1.83
2 CAPEX:
Jan 2016 US$5.6 bln
100
US$49/ton
Jan 2011 1.5
80 US$130/ton
0.93
1
60
0.52
0.40
40 0.5

20
0
01 Jan 2011

01 Jan 2012

01 Jan 2014

01 Jan 2015
01 Jan 2013
01 Jul 2011

01 Jul 2012

01 Jul 2013

01 Jul 2014

01 Jul 2015
01 Apr 2011

01 Oct 2011

01 Apr 2012

01 Oct 2012

01 Apr 2013

01 Oct 2013

01 Apr 2014

01 Oct 2014

01 Apr 2015

01 Oct 2015 2011 2012 2013 2014 Ann. 2015

• CAPEX of publicly listed coal mining company

has been down significantly by 80% since 2012 as
a result of significant lower coal price
• Global Coal Index NEWC declined by 62% from • Most of the Companies cutting back on expansion
the highest level US$130/ton in January 2011 to and exploration. Low investment made will
US$49/ton di January 2016 result no new reserves identified over last three
years
• Total accumulated CAPEX for the last 5 years
reach US$5.6 bn
*source: Bloomberg, internal analysis
Companies included: ABMM, ADRO, ARII, BORN, BRAU, BSSR, BUMI, BYAN, GEMS, GTBO, HRUM, INDY, ITMG, KKGI, MBAP, PTBA, TKGA, TOBA
APBI-ICMA INTERNAL SURVEY
Coal Price Forecast CapEx Policy

10%
39% 21%
43%
Decrease Increase
Increase Decrease
18%
Flat Flat

69%

Employee Production Volume Policy

Rationalization

29%
45%
24% Increase
Not rationalizing
Decrease
51% <10% 26%
Flat
>10%
24%

*Survey result as of May 6th, 2015

CHALLENGES: GOVERNMENT POLICIES
1.
Non-tax state revenue from
land use of forest areas 2.
Significant rate increase
Upfront payment upon permit approval instead of upon
usage

1. Additional costs during distressed coal market condition

Letter of Credit requirement
2. Potential cash flow management disruption
for export activities
3. Creating confusion due to lack of technical guidelines

Plan of limiting coal shipment 1. Additional costs related to logistics and infrastructure use
from 14 designated ports 2. Ports designation may not be transparent

1. Increasing unemployment because of mine closures

Royalty increase plan 2. Not necessarily increasing government revenue
3. Potential disruption in government’s 35 GW plan

Requirement of Rupiah as the 1. Supplies and contractor rates are already in US$
only currency for domestic
transactions 2. Potential hedging costs
CONTENTS

1 Indonesia Coal Industry

Coal as Key to Increase Indonesia Electrification

2 Ratio

3 Future Energy Mix

 Current Economic and Electricity Condition

Indonesia Economic & Electricity Growth Installed Capacity vs Electricity Needs

7.0% 250 GW TWh

TWh
300 1,200
6.0% 197.3
187.5
174.0 200 250 1,000
5.0% 158.0
147.3
4.0% 129.0 134.2 CAGR 150 200 800
7.3% 150 600
3.0% 100
2.0% 100 400
50
1.0% 50 200
6.0% 4.6% 6.2% 6.5% 6.3% 5.7% 5.1%
0.0% 0 0 0
2008 2009 2010 2011 2012 2013* 2014**

2014
2012
2013

2015
2016
2017
2018
2019

2026

2029
2020

2030
2031
2022

2024

2028
2021

2023

2025

2027
GDP Growth (%) Electricity Sales (TWh)
Existing Capacity (GW) Additional Power Needs (GW)
Peak Load (GW) Electricity Needs (TWh)

 Economic growth needs to be supported by sufficient Electrification

Ratio (ER)
 Installed Capacity in Indonesia is always below the energy demand

Sources: PLN, IEA World Energy Outlook 2014 (for ER), Badan Pusat Statistik, RUPTL 2015, MEMR Presentation Sept 2014
**Estimated by PLN & BPS
 Indonesia Electricity Overview
Power plant investments must be focused towards developing Coal-fired and Gas-fired
Power Plants
Installed Capacity* 43 GW Energy Source Costs (per KWh)
- 5 10 15 20 25

3,500 0.3
Coal-fired 22 GW
3,000 0.25
2,500
Gas-fired 13 GW 0.2
2,000
0.15
1,500
Hydro 4 GW 0.1
1,000
500 0.05
Diesel 3 GW
0 0

Others 1 GW

* Per December 2014, excluding rental from 3rd party sources ~4 GW

Cost (Rp/KWh) Cost (US$/KWh)*
* Exchange rate Rp 13,500/USD

Coal and gas are the largest sources of energy

Coal is still the cheapest and most
for electricity generation with highest total
abundant energy source for power
installed capacity and at the most economical
generation
price

Sources: RUPTL 2015-2024, Buku Statistik PLN 2014

 Growing Power Demand
As government pushes for infrastructure & industrial development, low electricity
consumption and installed capacity levels create significant increase in electricity demand

ASEAN Electrification Ratio Comparable Projected Growth in Peak Load

Target 2019: >95%

Peak Load (in GW)

70 64

in GW
60
60 55
51
48
50 45
41
38
40
30
20
10
0
2015 2016 2017 2018 2019 2020 2021 2022

Government aims to achieve >95% electrification rate by 2019, hence PLN Programs such as Fast
Track and IPP are enforced to attract Private Sector to enter into Electricity Sector

Sources: PLN Investor Presentation May 2015, RUPTL 2015-2024, MEMR, World Bank
 Power Generation Overview
Indonesia projected additional 50-60 GW until 2024 to achieve electrification ratio of >95%

To accelerate the needs of Electricity,

Projected Installed Capacity Government of Indonesia initiated 35 GW
Program from 2015-2019 and to follow up on
several delayed projects from FTP 1 & 2 to
increase Electrification Ratio to >95%
PLN IPP
104 GW
90 GW
44
33

47 GW PLN IPP
8
32 GW
6 57 60 Size: 18 GW
39 Transmission: 50k Size: 25 GW
26 kms Transmission: 360 kms
Substation: 743 loc.
2010 2014 2019 2024

Sources: PLN Investor Presentation 2015, RUPTL 2015-2024

GOVERNMENT 35 GW PROGRAM
35 GW Power Project

57% 34% 9%
Coal Fired Gas & Steam
Power Others
Power Plant
~20 GW ~12GW ~3GW

PLN IPP Project Costs

2 GW US$28 – 35 bln
18 GW

DEBT
EQUITY
(Proj. Financing)
US$8 – 11 bln
US$20 – 25 bln

Sources: RUPTL 2015-2024, APBI CEO Gathering

 Administration under President Jokowi has committed to add 35 GW power to existing
installed capacity of 47 GW (until Dec 2014)
 55-60% of total 35 GW power projects will come from coal-fired power plants and
require significant participation from private (IPP)
Total
*source: project
Internal cost to RUPTL
calculations; be borne by private sector / IPP : US$ 28 – 35 bln
2015-2024
 35 GW Program Open Participation of Private
Sector Max
Max EBITDA
Capacity Project Cost Potential
p.a.**
Revenue p.a.
Total IPP
Projects 35.59 GW US$ 68.5 Bn US$ 18.3 Bn US$ 8.2-9.2 Bn

Soon to be
Tendered
IPP Projects 11.04 GW US$ 19.3 Bn US$ 5.5 Bn US$ 2.5-2.7 Bn

Tendered
IPP Projects
16.92 GW US$ 31.1 Bn US$ 8.1 bn US$ 3.6-4.1 Bn

Existing
IPP Projects* 7.63 GW US$ 18.1 Bn US$ 4.7 Bn US$ 2.1-2.4 Bn

*Per Dec 2014, using the same assumptions as new IPP Projects
** EBITDA = 45-50% of Revenues

 IPP market of 36 GW is projected to be approximately US$ 70 billion market opportunity

 Out of 70 GW, ~60% will come from coal-based
 Wide-open opportunities to becoming main player in non-coal energy segment
Sources: RUPTL 2015-2024, PLN Market Sounding 2015, US EIA Report 2013, internal data analysis, APLSI
35 GW Electricity Program and Industrial Development
Will Increase Electricity Demand dan Domestic Coal
Consumption

• As the government pushes infrastructure and industrial development, the demand for
electricity will increase and subsequently domestic coal consumption for electricity generation
will increase.
• Assuming 5%-6% economic growth in 2015-2017, and 7% onward, coal consumption for
electricity will increase by 10% CAGR in 2015-2024.
Forecast Indonesia Coal Production
500 474
458
450 412 APBI’s Forecasts
382
400 353 349
332 332 332
350
280
300 254
402 382
250 154
345 295 199
248 214
200 287
215
150 198
100 178
118 133
50 76 87 101
56 65 66 67 72
0
2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E

Export (MT) Domestic (MT) Production (MT)

Forecasts Comparison
2015A 2016E 2017E 2018E 2019E
NEWC Price (US$/ton) 59 46 41 41 41
Production (MT)
APBI 382 349 332 332 332
IDN Govt RPJMN 382 419 413 406 400
Analyst I (Nov 2015) 382 350 340 335 330
Analyst II (Jun 2015) 382 402 394 389 393
Sources: Various analyst reports 2015, Global Coal, Dir. Gen of Mineral & Coal MEMR Presentation Nov. 2015, Bloomberg, internal analysis
Coal Requirements post Realization of 35 GW
Coal Requirement – Next 5 years Coal Reserves

As of 1 January 2013
Coal Reserves
Capacity Coal Type
Cons p.a (billion ton)
Low 9.5
Existing Coal Fired Medium 20.1
22 MW 76 mln
PP (30 Sept 2014)
Domestic High 1.8
Estimated Under 35 Total 31.4
20 MW ~75 mln
GW

1 Jan 2013 Now

Total 42 MW ~150 mln
NEWC
US$ 94/MT US$ 52/MT
Price

Reserve 31 bln MT
-25 ~ 30
Export 300 – 350 mln ton
%

Total 456 – 506 mln ton

WITH COAL PRICE KEEP GOING DOWN, THE AMOUNT OF RESERVE WE HAVE IS GETTING SMALLER.

Sources: Bloomberg, APBI internal calculation, Handbook of Energy and statistics of Indonesia 2014
CONTENTS

1 Indonesia Coal Industry

2 Coal as Key to Increase Electrification Ratio

3 Future Energy Mix

 ENERGY MIX LANDSCAPE
Government Initial Energy Mix Target
2050
New and 2025 New and
Renewable
2014 Energy
Renewable
Energy
Geothe Oil 22%
rmal 12% 16%
3%
Hydro Gas
8% 18%
Coal Gas
50% 16% Coal Coal
Gas 61% 66%
27%

• By 2025, Indonesia plans to no longer use oil as power generation source and convert
to other renewable energy sources
• Renewable energy such as solar and hydro power technology is rapidly developing,
resulting in falling cost curves and more competitive investment costs
• Renewables as energy source were initially planned to rise from ~11% in 2014 to ~ 22%
in 2025

Sources: PLN Investor Presentation, May 2015; Indonesia’s National Energy Council’s Energy Outlook 2014; RUPTL 2015-2024
CONCLUSION
 Continued decreasing coal demand from China still causes market
oversupply and therefore, further weakens coal prices, which affects
production outputs of Indonesian miners

 From 2014 to 2015, domestic coal demands increased 14% y-o-y from 76 MT
to 87 MT and is expected to continue to increase. Though currently,
Indonesia still needs to rely on exports as domestic usage of coal only
absorbs a small portion of total Indonesia production

 The 35 GW Program provides investment opportunities and is expected to

revive the coal industry through their high installed capacity projections of
coal fired power plants. In 2019, Indonesian domestic consumption of coal is
expected to more than double 2015 consumption and overpass exports

 In addition to utilizing the country’s cheapest energy source (coal), the

government also increases opportunities towards growing renewable energy
portion for power generation sources