Notes on the 10th Annual Business Meeting of Indonesian Coal Producers & Buyers. Vol 134

Introduction

On the 13^th & 14^th December 2021, Petromindo.com and others held “The 10^th Annual business meeting of Indonesian coal producers & buyers” in Bali. This was a live conference with numerous virtual presenters and attendees. Almost all presentations were in English, with numerous slides, and opportunities for discussion. This article provides some short private notes that may provide readers with a broad view of the Indonesian coal industry. Apologies for any errors or omissions.

Short Notes.

Mr. Ridwan Djamaluddin, Director General of Mineral and Coal at the ESDM welcomed delegates and looks forward to the success of this event.  

Mr. Sujatmiko, Director of coal business development at the ESDM briefly outlined the key government regulations and overall strategy for coal value adding. The conclusions include that the nations coal resources are abundant, the technology for coal value adding is widely known, however further research and investment is needed to make value-adding to be economically viable.

Pro. Irwandy Arif, Special staff for Mineral & Coal Governance for the minister of ESDM. The presentation outlined the key priorities for the coal industry, recent production data for export and Domestic Market Obligation (DMO). The energy policy is that of 1) energy security, 2) energy affordability and 3) energy sustainability. The presentation finished with a look into future of value adding.

Zuhdi Rahmanto, Vice Coal Procurement Planning and Evaluation at PT. PLN, provided many excellent slides on long term power plans for installed and new capacity for coal, gas, renewables etc. The PLN monthly coal supply and demand balance for 2020 – 2021 shows inventories low for all of 2021, as attributed to supply & transport issues. PLN’s 6-point strategy to fulfill domestic coal demand included reviewing coal suppliers, optimizing the logistic chain and establishing new long-term contracts. Generous question & answer included concerns over co-firing and pricing of DMO coal.

Mr. Ido Hutabarat, Chairman of Indonesia Mining Association (IMA) spoke on the future of coal in emerging energy transition development. It was noted Indonesia’s coal consumers are changing, with the development of nickel smelters. Indonesia’s coal use for power will continue to increase over the next 10 years, though reduce in overall energy mix with gas, renewables etc. The possibilities of Carbon Capture Underground Storage (CCUS) was mentioned. Conclusions included the need for more investment and fiscal incentives on future coal conversion development and other areas.

Mr. Alexander Ery Wibowo, Director of Gunung Bayan Group spoke without slides on current issues surrounding the DMO requirements. Coal is a strategic industry in providing electric power that has a huge multiplier effect on industry, manpower and growth. Delivery into the DMO requirement is different for each mine, with factors of weather, transport etc. Regulations are constantly changing with an apparent lack of synchronization (Amdal needs time to be changed). It is recommended a road map that includes coal types matched to domestic users’ needs is to be developed.

Haryanto Damanik, General Secretary of APBI-ICAM spoke on “Opportunities and challenges in energy transition for the Indonesian coal industry”. Coal mining is a responsible industry that contributes to the sustainable development goals of Indonesia. Tables of tax contributions, population and power consumption, coal exports and DMO provided a snapshot of the industry. The mining industry has several practical areas to reduce its carbon footprint, including efficiencies in the mining cycle, use of B30 fuel, waste management and reclamation.

Mr. Setiadi Wicaksono, VP Strategy & Corporate Development at PT. Bukit Asam Tbk, spoke on “Coal and energy transition”. A short introduction of PTBA’s history was followed by PTBA’s move into the energy and chemical business, and the talk was ended with PTBA’s carbon management program.

A panel discussion concluded that miners are waiting for government direction on the future carbon policy (carbon tax, carbon trading). Each mine is different, though reclamation continues in all. The risks associated with energy transition within the mining sector are still being determined. Discussions are ongoing on how best to provide cheap coal for PLN. Questions continue on how to balance governments aspirations for energy growth with net zero emissions, given the natural limitations within Indonesia.

Ms. Yessy, Directorate on Industrial and Mining Product Export – Ministry of Trade, spoke on the export of coal and coal products. After outlining the government regulations on exporting coal, the talk focussed on the organization, structure and supervision of the authorized coal cargo surveying companies. This was followed by a number of graphs outlining various coal export & import statistics for 2021 (Jan to Oct) and finished with drawing attention to various government media publications such as [DITJENDAGLU.KEMENDAG.GO.ID].

Gus Rional, Deputy Director for the International Shipping Directorate of Sea Traffic and Transportation – Ministry of Transportation spoke on beyond cabotage. A number of busy slides referred to the 2020 to 2024 plan for marine transport, the regulations supporting the shipping industry, including the most recent requirement on vessels up to 10,000 dwt for domestic shipping. There are about 50 national ships involved with the export of coal.

Ms Aditi Tiwari, senior analyst at Coal Mint India (Mumbai) presented numerous slides of India’s coal industry. India’s total coal consumption is around 846 mill ton/year with most (83%) for the power industry. There are 90 major thermal and 10 coking coal mines. India’s power plants inventory is around 20 days but can drop to 4 days with heavy rain. When international coal prices increase, then inventories drop, and the blend of imported coal to cheaper domestic coal changes, with impacts on power plant efficiency. If 4,200 GAR coal becomes too expensive (wait for $ 50-60/ton) then some coastal power plants that rely on imported coal prefer to shut down, as electricity prices are subject to government control (8c/kw). Coal is considered more reliable than large solar or wind power options.

Masukami, Japan Coal Frontier Organization joined from Japan. This presentation provided an outline of JCOAL, the ongoing evolution of the Japanese coal industry, clean coal technology, and Japan’s coal demand trends and future of coal usage. The talk concluded that coal is an indispensable energy source for the future development of countries. The use of coal and the reduction of CO2 emissions need to be considered at the same time. JCOAL plays an important role in the future development of the regional coal industry. Indonesian coal prices into Japan tend to be linked to gas prices.

Panel Discussion – Mr. Jimmy Deng, GM of Indonesia branch of Century Commodities Solutions, Masafumi Uehara, Japan Frontier Organization, Prashant Goyal, ED of Bhadreshwar Vidyut PL, and Mr. Ghee Peh Energy finance analysist of IEEFA.

• Coal price and demand volatility over the past two years was affected by the Covid 19 decline in some consumption patterns, China coal policy, political push to decarbonize and usual weather factors. Australia has managed to diversify its markets, though it seems Indonesia is too exposed to a single buyer (China).
• Indonesia’s coal market is growing, particularly with the growth of the nickel refineries.
• Miners face difficulties to ramp up production, with rain and slow delivery of new equipment etc.
• Coal from Sumatra is set to increase with development of new rail / haulage ways, though wet weather and limited market for low ranked coal are dampeners, particularly as Sumatra coal needs high prices to cover the high transport costs.
• Asian coal buyers are increasingly concerned about coal producers ESG and carbon profile, though need coal to provide reliable cost-effective power. EU pushing renewables, but they are beginning to realize the practical limitations, and some coal power stations are being turned back on. Indonesian miners appreciate Australia’s public stance to continue to responsibly produce coal.
• The Indonesian coal market is fragmented with 60 large miners and hundreds of smaller producers. Compare to China that has many mines but works as a single market. Suggest Indonesia move towards more long-term contracts. As international coal prices increase, then Russian and other coal producers can enter the market.
• The development of Indonesia’s high CV & coking coal production is to be encouraged.
• China may produce 4 bill ton of coal in 2021, followed by slight decline in consumption in 2022 wherein China may have an oversupply in 2022.
• Coal fired power plants are locked into a further 45 GW coming onstream in 2022, with 1 GW needing 1.2 – 1.4 mill ton/year of coal, so South East Asia needs more coal.
• The retreat of western banks from coal power is being replaced by some private funding sources. Existing coal miners urged to pay down debt and restructure away from banks.

Mr. Sunindyo Suryo Herdadi, Director of Mine & Coal Development Program – Dir Jen Mineral & Coal, presented “The future of Indonesian Mining Industry in Digital Transformation Era”. Global mining industry trends are looking for improvements in of safety, efficiency and increased productivity through digital transformation. Covid 19 has speeded up the adoption of some digital factors. A number of applications in Indonesia were mentioned, including remote monitoring, work from home etc. The Director General of Mining & Coal have implemented a number of digital based systems, including licensing, reporting, supervision etc. These systems will improve the human capital of Indonesia. Examples include big companies use of systems for fleet management, while small companies use drones to augment surveying and monitoring.

Mr. Antonius Sanyojaya, Partner PWC Indonesia spoke on the “Carbon Tax effective from 1 April 2022”. His talking points included the low carbon initiative, global and Indonesian overview of carbon tax & carbon market, and CBMA & the EU green deal [Carbon Boarder Adjustment Mechanism]. The Indonesian carbon market has commenced with Presidential Regulation 98/2021. The schemes include Cap & Trade, Carbon Offsets and Results Based Payments. A national registry system for climate change control (SRN PPI) web-based database has been introduced. There is very little detail at this time on applying the Presidential Regulation.

Mr. Fathurrachman, Minerba Surveyor Association (mineral & coal) presented on “Understanding the role of surveyor on technical verification of coal & mineral”. Surveyors are registered under the ESDM and Ministry of Trade to carry out surveys of the quality and quantity of minerals and coal. There are 11 commercial surveyors (independent) and 10 government surveyors (include verification surveys etc). A surveyor company can be licensed to undertake both independent and government survey roles.

Krishna Kishore Venkata Partner at Oliver Wyman spoke on “Decarbonisation in mining companies and impact on financing”. Global decarbonisation trends have led to regulatory and boardroom pressure on financial institutions to restrict finance to the coal industry. Most international banks now include reputation risk, ESG assessment and climate assessment in their lending criteria assessment. In response, coal companies have changed their branding profile, emphasize ESG credentials and demonstrate sound business with minimal impact on climate, wherein several Indonesian coal miners are able to access international finance on good terms. Many banks have little fully green projects, and accept industries transitioning towards green. Barriers to transformation into low carbon include unfavourable economics, regulatory & market uncertainty, unproven technology, and company internal resistance.

Nyoman Budijaya, association of Indonesian Heavy Equipment Manufacture (HINABI) covers companies manufacturing hydraulic excavators (10-200ton), bulldozers (17-28ton), graders (10 ton), dump trucks (40–70-ton empty) etc, along with some of their industrial components that covers some 26,000 employees (during Covid19 period). This equipment is supplied to the construction, forestry, agriculture and mining (about 380 units/month in 2021for mining) industries. Statics show demand volatility, though ongoing overall growth in manufacturing of heavy equipment. China continues to supply improved heavy equipment at cheap prices, making local manufacture less competitive.

Mr. Haryanto Damanik, Pres Dir of coal miner PT. Manambang Muara Enim (MME) gave a number of broad statistics on Indonesia’s coal resources & reserves, production, exports and domestic markets. Coal logistics in Sumatra still constrained with high transport costs, the need to use public roads to reach the rail head, or the Servo dedicated coal haul road.

Mr. Arius Dimara, Dir of PT. Tanjung Alam Jaya (TAAJ) spoke briefly on “Indonesian Coal Mining Industry Facing Net Zero Emission”. The concept is that the coal industry is key to optimizing national development capital. Indonesia’s indicated resources include 80% tonnage potential to be converted into reserves. Similar upgrading to reserves could be undertaken from inferred resources (13%), measured resources (5%), while reserves only occupy 1% of Indonesia coal potential. Therein reserves are to be optimized (including underground), and proven reserves to be enlarged. Government stimulus is encouraged.

Mr. Faud I.Z. Fachroeddin, Dir of Business Development PT. Bukit Asam Tbk presented PTBA’s business development program. Anticipate overall coal production to start to decrease in 2035, while domestic demand for power to increase to 156.5 million tpa by 2030, and non-power sectors to continue to grow. PTBA is expanding its railway and port systems to be able to produce 72 mill tpa in 2025. Coal trading is gradually shifting to the Singapore group’s trading office, and towards more long-term contracts.

Mr. Rori Surya Perdana, Head of marketing research & coal development PT. Berau Coal. The export price of coal is volatile with bullish factors (weather & oil / gas price) and bearish factors (China production, covid impact on demand, decarbonisation trends).

Mr. Widodo Santoso, Chief of Indonesian Cement Association provided many detailed figures. The association has 16 companies as members with installed capacity 116 mill ton cement and 81.4 mill ton clinker (2020), with overall utilization at 62.9%, with product bag to bulk ratio of 75:25. Most of the heat energy is sourced from coal, with 17.1 mill ton of coal consumed in 2021 that is planned to grow to 19.5 mill ton in 2025. Coal quality typically is more than 4,200 GAR with TM max at 35%, though high price has reduced the use of >5,000 GAR coal. The present high coal prices may translate to a 20% increase in production costs, and is compounded with a domestic supply shortage. Inventory use to be 3 weeks, but now down to 5-7 days because of price. Various measures being undertaken to reduce CO2 emissions, including installing waste heat recovery systems.  Urge government to match DMO coal quality providers with cement industry consumers.

Mr. Arthur Simatupang, chairman of Independent Power Producers Association (APLSI) talked on-line with no slides. Indonesia’s planned power growth has been reduced from 6.4% to 4.9% for the 2021 – 2030 period, that will be met with an expanded production capacity from 32 GW to 44 GW. PLN and industry are reviewing co-firing, though costs, reliability of supply and boiler design / efficiency issues to be resolved. Coal power looks good for the next 10 years. The implementation of the proposed carbon tax, and its impact on the power production industry ($2/ton CO2e) is yet to be determined. Industry is discussing with government on options for early retirement of some coal fired power plants. One of the key points is determining correct valuation to compensate early closing of power plant.

Ms. Liana Bratasida, Executive director of Indonesian Pulp and Paper Association. There were technical issues with the slide presentation. The association has 65 members. Indonesia produces about 13 million ton of pulp & paper and in 2024 may need 10 mill ton of coal with CV greater than 4,200 with limits on ash and Total Moisture. There are some plans to supplement power with solar farms (1 ha for 1 Mw power) on used land. Capture of methane is to be considered. Present regulations on CO2 tax now focus on the power industry, but expect cement and paper industries to follow. Urge any new policy is developed with a smooth transition period.

Mr. Nofelriri Zalni, Pres. Dir PT. Trans Energy Indonesia presented on “Coal sea logistics challenges & opportunities”. This was the story of how a small barging operation (truck on barge) in Sumatra grew rapidly into a large complete coal transportation company (3 mill tpa). The key points started with basic river survey, selecting contractors and floating crane, developing the transportation cycle models and finding key human resources along with use of innovation and technology. The Sumatra rivers are also used to transport sand, feldspar and other bulk commodities.

Bambang Tjahjono, Exec. Dir. of ASPINDO spoke on concerns if coal is to become a sunset industry. concern that the anti-coal lobby is emphasized from countries that do not have significant coal industries. Only hydro and nuclear options can replace large coal power plants, though each of these have spatial & environmental impacts. Green (solar / wind) are showing they are small and not reliable. Bankers and government are urged to extend the life of coal power plants. Coal upgrade plants need more work and have viability issues. The proposed carbon tax is seen as a form of double taxing, wherein the coal industry already plays a significant role in subsidizing power costs, supporting the palm oil industry (B30) and more.

Conclusion.

This event demonstrated the strong commitment between coal companies, government and business associations to work together in a transparent manner for the well-being of the coal industry.

There was a uniform outlook that the government is called upon to provide a wide range of incentives to advance the coal industry in a positive direction. This event indicated that there is a very large part of the community working in, and relying on, the coal industry for their livelihood, and the future of their families. The government also gains much financial benefit, social stability, and the careers of those in government service.

The chaotic events of total coal export ban that was to follow a few weeks after this event were not obvious at this time. Though the presentations outlined the consistent low coal inventories at PLN over the past year, along with repeated industry calls for reviewing the DMO system.