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Jonan, Arcandra Back in the Saddle

“[…] I am sure the two, once again, are figures with competence. Although I know both are stubborn, they like going into the field,” President Joko “Jokowi” Widodo said on Friday, regarding Ignasius Jonan and Arcandra Tahar.

The President was providing the rationale for his decision to reappoint Ignasius and Arcandra as Cabinet members, less than three months after both were removed from their positions.

In a surprise move, Jokowi announced and later inducted Jonan as energy and mineral resources minister and Arcandra as his deputy.

Jonan was sacked from his position as transportation minister in the latest Cabinet shake-up in August, a move that many deemed as punishment for his penchant for putting stumbling blocks in the way of Jokowi’s policies, including the Jakarta-Bandung high-speed railway network construction.

Arcandra was removed from his position as energy and mineral resources minister after only 19 days in office following a controversy surrounding his US citizenship.

Although Jokowi cited Jonan and Arcandra’s professionalism and skills, traits that are essential for carrying out “sweeping reform” at the graft-ridden ministry, many considered the decision ill-advised given that second fiddle Arcandra has far more extensive knowledge on the oil and gas sector than his boss.

Jonan has zero experience in oil and gas as well as the mining sector. He gained his reputation as the no-nonsense director of state-owned railway company KAI and was credited with revamping the country’s railway services, which is believed to be one of the reasons Jokowi picked him to be transportation minister.

Jokowi told reporters after the swearing-in ceremony that his decision to pair Jonan and Arcandra “was for the sake [of bringing better] management” to the Energy and Mineral Resources Ministry, hinting that collaboration between the two figures would be crucial.

In an apparent show of unity, Jonan and Arcandra traveled together in an official chauffeured vehicle from the State Palace to the Energy and Mineral Resources Ministry in Central Jakarta.

Jokowi called on the public to not politicize the reappointment of Jonan and Arcandra.

“Let’s not draw it into personal issues or politics,” Jokowi said. “Although it is not an easy task, I am sure that the two, the minister and the deputy, will be able to solve current problems at the energy ministry and bring good teamwork.”

The appointment of Arcandra was made possible after Jokowi brought back the post of deputy energy and mineral resources minister, which was scrapped when he took office in October 2014.

As deputy minister, Arcandra will have no authority to issue policies, and is expected to help Jonan in drafting his future policies.

Jonan said he would rely on Arcandra in running the ministry.

“Well, I have Arcandra here,” Jonan said when asked about his ability to run the problem-prone ministry.

Arcandra, meanwhile, shrugged off the suggestion that Jokowi had tried to find ways to accommodate him in the Cabinet, saying: “The President has his own considerations when it comes to the energy ministry.”

It was apparent that the decision to reassign Jonan and Arcandra was made in haste.

They were sworn in shortly before Jokowi took off to West Kalimantan for a working visit, and visibly absent at the ceremony was Vice President Jusuf Kalla, who was on a working visit to Makassar.

Coordinating Maritime Affairs Minister Luhut Pandjaitan, who was also the interim energy minister, did not attend the ceremony.

Multiple sources claimed that Jonan and Arcandra were notified about the inauguration only hours before the ceremony took place.

In fact, Jokowi had earlier decided to appoint Jonan as the person in charge of a holding firm for state-owned companies.

Presidential spokesman Johan Budi said Jokowi had consulted a number of key players in his administration, including Kalla and Luhut, and that their absence at the inauguration was simply due to scheduling conflicts.

New Plants to Power Up Sleepless Jakarta

In an effort to cater to Greater Jakarta’s rapid development, state electricity firm PLN plans to build a number of new power plants and transmission networks worth billions of dollars in the country’s economic nexus.

Electricity demand in the area, which has seen a significant increase in the number of office buildings and residential complexes over recent years, currently stands at 10,000 megawatt (MW) per day and will increase by up to 8.5 percent every year. In particular, electricity demand for peak hours, between 5 p.m. and 10 p.m., will increase by around 400 MW each year, meaning the area needs an additional 1,600 MW by 2019, according to PLN data.

To manage this, the firm will build a number of power plants with a combined output of 3,500 MW of electricity, 500 MW in the form of a gas-based facility and coal-based power plants (PLTGU) in Muara Karang, 800 MW PLTGU in Tanjung Priok, 600 MW PLTGU in Muara Tawar, all in Jakarta and 2×800 MW PLTGU Java-1 in an undecided location, all of which are scheduled for completion in 2019.

PLN regional business director for western Java area Murtaqi Syamsuddin said the power plant in Tanjung Priok would be funded by loans from a bank syndication led by Japan Bank for International Cooperation (JBIC). He, however, did not reveal the amount of the loan commitment.

“We’ll let you know later in the loan signing on Oct. 20,” he said during the groundbreaking ceremony of a 2×500 mega-volt ampere (MVA) main station in Lengkong, Banten, on Friday.

PLN has just appointed state oil and gas operator Pertamina recently to lead the mega project PLTGU Java-1 worth Rp 26 trillion (US$2 billion). Pertamina will partner with Japanese Marubeni Corporation and Sojitz Corporation.

All the power plants are part of the government’s ambition to install additional 35,000 MW of electricity supply to the current system by 2019.

The additional power will be transmitted through transmission networks known as “Jakarta Loop”, comprising main stations and transformers looping the capital city with six main powerhouses in Tambun and Cawang in Jakarta, Gandul in West Java, Lengkong in Banten, Kembangan and Duri Kosambi in Jakarta.

“There will be less black outs with a looping system because it works better in supplying electricity,” said Murtaqi.

The frequency of black outs in Greater Jakarta area is reportedly not as common these days. However, the area is still vulnerable to power outages during heavy rain.

All of the six powerhouses have capacity of 6,000 MVA and 500 kilovolts in total. To date, only Gandul and Kembangan have been fully developed.

PLN will add another 500 MVA transformer in Cawang and build the first powerhouses in Tambun and Lengkong and dozens of smaller transmitters, all worth Rp 3.3 trillion and will be funded by PLN money. The project is scheduled to be completed by 2018.

Rp 1.4 Quadrillion Investment Needed for Clean Electricity

Indonesia will need Rp 1.4 quadrillion (US$107 billion) to meet its clean electricity target while developing the country’s large new and renewable energy potential, government estimates show.

The hefty investment would be needed to reach the government’s 23 percent target of national electricity being produced using clean energy, according to the Energy and Mineral Resources Ministry’s Directorate General for New Renewable Energy and Energy Conservation.

Directorate general secretary Dadan Kusdiana said an attractive investment climate must be developed in order to encourage foreign investment, as it was impossible for the government to amass such a large sum of money.

“What we’re trying to do now is create a good investment climate. For example, we are trying to set prices that will encourage investment. Right now, all geothermal permits are processed by the BKPM [Investment Coordinating Board]; it’s all done in one place,” he said on Monday afternoon.

New and renewable energy sources have been neglected throughout the years in favor of fossil fuel despite the potential large reserves in the country.

However, government commitment to cleaner energy has been pledged again amid the depletion of fossil fuel reserves and rising awareness of the need for environmental conservation. At last year’s Paris climate talks ( COP21 ) the government pledged a carbon emission reduction target of 29 percent by 2030.

Investment in new and renewable energy amounted to $870 million in the first half of this year, 63.5 percent of the total target of $1.37 billion. The biggest chunk of that investment at $560 million went into geothermal energy.

Furthermore, non-tax revenue from new and renewable energy sources reached Rp 283.25 billion during the first six months of the year, less than half of the full-year target of Rp 630 billion. Revenue so far has been solely from geothermal energy projects.

A Rp 1.2 trillion subsidy has been approved for the Energy and Mineral Resources Ministry in next year’s budget to plug any gaps between the price of electricity from renewable sources and conventional sources that state-owned electricity company PLN cannot cover.

Despite the government’s efforts, however, the future of clean energy sources in the country looks a little bleak. In its most recent 2016 to 2025 electricity procurement business plan (RUPTL), the 23 percent target of 2025 has been decreased to 19.6 percent as it was deemed unachievable unless 3.6 gigawatts were procured from nuclear power plants.

Moreover, the ministry also announced that it would slash Rp 900 billion from its budget this year, the biggest cut being in the allocation for the Directorate General for New Renewable Energy and Energy Conservation, which will be left with Rp 1.7 trillion.

Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said the government could not rely on investment alone to boost development. The government also needed to increase efficiency efforts, he said.

“In order to save energy, we need better technology. However, we are still highly reliant on new and renewable energy technology from abroad. On top of that, our current regulations have not been implemented well to allow for more use of these new technologies,” Fabby said.

PLN Set to Expedite 35,000 MW Project

State-owned electricity company PLN expects to speed up the signing of development contracts for the remaining half of the projects in the government’s 35,000 megawatt (MW) electricity procurement plan in an effort to push for the on-time completion of the ambitious program.

Experts and government officials alike had previously criticized PLN for slow progress in the project, which is set to be completed by the end of 2019. Most of the criticism has stemmed from the fact that only 195 MW, or 1 percent of the project, had reached its commercial operating date or was already in operation.

However, the latest data from the company shows that it is gearing up to get things done. PLN’s data show that, as of Aug. 4, the company had wrapped up development contracts for power plants with a combined capacity of 16,515 MW.

PLN hopes to complete the signing of the contract for the remaining 18,485 MW power plants by year-end. Up to 11,730 MW comprises power purchase agreements (PPA) while the remainder are PLN’s engineering, procurement and construction (EPC) contracts. Furthermore, the same information shows that PLN is optimistic that financial closure will be reached for projects amounting to 8,705 MW.

PLN director for corporate planning Nicke Widyawati said that although reaching the government’s target was important, maintaining a daily peak demand reserve of 30 percent throughout the process was of equal importance.

Furthermore, PLN was concerned that the growth of electricity demand was not growing as fast as the supply despite the government’s commitment to developing special economic zones.

“We are actually optimistic that we can deliver the 35,000 MW project, but what is more important is how to maintain a 30 percent load balance at the same time,” she said during an event on Thursday evening.

The ambitious project is aimed at increasing the nation’s electricity supply, which remains lower than any of its Southeast Asian peers despite being the largest economy.

The current operating power plants under the 35,000 MW project mostly consist of mobile power plants, including one with a 25 MW capacity in Lombok, West Nusa Tenggara. In June, President Joko “Jokowi” Widodo inaugurated a 100-MW gas-fired power plant in Paguat, Gorontalo, the first realization of the mega electrification project.

Nicke noted that the largest obstacle PLN faced in the 35,000 MW project was still land acquisition despite the company managing to acquire approximately 50 percent of land needed for the program by August.

The mega power plant project in Batang, Central Java, finally reached financial closure in June this year after facing years of land-acquisition problems, and will start operating in 2020. The project is touted to be the largest in Southeast Asia.

Meanwhile, Cirebon Electric Power (CEP) director Heru Dewanto suggested the government solve the land-acquisition problem by renting out any government-owned land to electricity companies wanting to participate in the 35,000 MW project.

“If land acquisition is so crucial, maybe the government can try to create an inventory of land owned by the central government, local administrations, state-owned companies and even the military before lending it out for power plants through a cooperation scheme,” he said.

CEP constructed the country’s first steam powered plant utilizing super-critical technology with a capacity of 660 MW. The company plans to expand the power plant and will start operating in 2020.

Committee Suggests New Coal Price Formula for Power Plants

The Energy and Mineral Resources Ministry should make changes to a ministerial regulation on coal prices for mine-mouth power plants to appease both the government and state-owned electricity company PLN, the National Exploration Committee (KEN) has said.

The ministry and PLN have been at loggerheads over the regulation, issued earlier this year, over the pricing formula for coal delivered to mine-mouth power plants, which included a margin of 15 to 25 percent of the total production cost.

As a compromise, KEN has suggested a number of revisions to the regulation, which include allowing large-scale mine-mouth power plants with 100 megawatt (MW) to 1000 MW capacity to set prices based on a business-to-business system.

“However, the control over conservation should remain in the hands of the Energy and Mineral Resources Ministry so that our reserves will not be depleted due to cheap prices that are advantageous for companies,” KEN chairman Andang Bachtiar said on Tuesday.

Meanwhile, small-scale power plants with a 7 MW to 25 MW capacity should be allowed to buy coal with a 15 to 25 percent margin as they have a small demand of only 35,000 tons to 125,000 tons per annum. However, Andang also suggested that the power plants be given an additional fee set by an independent consultant in order to ensure transparency.

Fear of overselling coal is one of the reasons the government has insisted on the 15 to 25 percent price margin. The Energy and Mineral Resources Ministry’s coal and mineral director general, Bambang Gatot Ariyono, said if the prices were reduced further, then Indonesia’s reserves could be depleted within a short period of time.

“We have to consider our reserves. If we continue to reduce the prices then our reserves will disappear. Is there any guarantee that the change will allow our reserves to be there for the next 50 years? We need a margin,” he said, adding that there were no plans to change the price margin.

PLN has claimed that margins have resulted in prices that are too high considering the low coal price experienced throughout the year. President director Sofyan Basir said the margin could be reduced even further to a maximum of 15 percent.

Coal prices continue to remain sluggish amid overproduction and slow demand from major coal importer China.

Reuters reported that the price of Asian benchmark Newcastle thermal coal went up to US$62.23 per metric ton by mid-July from its 2016 low of $47.37. However, this is still less than half the post-2008 recession peak of around $136 per metric ton in February 2011.

Meanwhile, Indonesia’s coal reference price (HBA) for July also rose to $53 per metric ton from $51.81 per metric ton the previous year.

Settling the conflict while also preserving the country’s reserves is crucial to the government’s energy plans, especially for the ambitious 35,000 MW electricity procurement project, which will rely on coal for 55.6 percent of its energy source.

Government data suggests that Indonesia had around 32.2 billion tons of coal reserves in 2014.

However, another study by the Indonesian Mining Association and PricewaterhouseCoopers shows that declining prices have made only 7.3 to 8.3 billion tons of coal economically viable to mine. The preliminary projection indicates that these reserves will be depleted within the next two decades, forcing the country to start importing coal by 2030.

KEN also emphasized the importance of hiring an independent consultant to fix the prices as this would ensure transparency between all parties.

“There must always be transparency surrounding price-fixing between the ministry, PLN and coal suppliers,” Andang said.

RI May Have to Import Coal for Future Power Plants: Study

With coal prices continuing to decline, Indonesia will struggle to provide the coal needed to fire up its power stations in the near future, a study predicts.

The government is struggling to expedite a number of power plant projects under its ambitious 35,000 megawatt (MW) generation program, aimed at supporting the country’s economic growth. 

The program expects that coal can fulfill 66 percent of the primary energy sources for power plants by 2024, which is equivalent to 361 gigawatt hours (GWh) output by coal-fired power plants. 

The study, which was conducted by the Indonesian Coal Mining Association (APBI) in cooperation with PricewaterhouseCoopers (PwC) Indonesia, however, suggests that the country’s coal-fired power plants will not be able to provide the expected 20,000 MW for the next 25 to 30 years, based on current commodity prices.

“This is due to the current commodity prices as a result of which the coal sector’s profitability has reached its lowest point and there has been a decrease in production by coal companies,” PwC’s president director advisory, Mirza Diran, said Monday in a press conference.

The government has so far been optimistic about the feasibility of the program as according to data from the Energy and Mineral Resources Ministry, Indonesia had around 32.3 billion tons of coal reserves in 2014. 

APBI and PwC’s study, however, shows that with declining coal prices throughout last year only between 7.3 and 8.3 billion tons of these reserves are economically viable to mine. This preliminary projection indicates that these reserves will be depleted by 2033-2036.

“Mining requires funds. If the price of coal is US$50, while it costs $60 to mine, then the coal will automatically not be mined. It is as if we have a decrease in reserves,” APBI chairman Pandu P. Sjahrir said. 

Coal prices have steadily declined in the past few years, amid oversupply and declining demand from major coal importer China. 

Australia’s Newcastle coal price, an Asian benchmark, dropped to $51.29 per ton, as estimated by Reuters in late February. Meanwhile, Indonesia’s coal reference price (HBA) dropped to $50.92 in February from $53.2 in January. 

The study, which surveyed 25 coal-mining companies, showed coal-producer earnings before interest, tax, depreciation and amortization had dropped by 60 percent to $2.6 billion in 2014 from $6.5 billion in 2011. It is expected to decrease by 16 percent in 2015. 

This has also caused capital expenditure to drop by around 79 percent to $400 million in 2015 from $1.9 billion in 2012, and it is expected to continue to decrease this year by 10-20 percent. Consequently, mining exploration to find new coal reserves has largely stopped. 

Pandu explained that the findings showed that there was a possibility Indonesia would have to start importing coal by 2030. “This means that we’ll have to start importing starting from around 2030, even though we have always been exporters,” he said.

PLN Pushing to Build 10,000MW Power Plants

State power firm PLN will be running on all cylinders this year to achieve the government’s ambitious electricity procurement program, aiming to break ground for a number of power plants with a combined capacity of 10,000 megawatts (MW).

PLN’s director for procurement, Supangkat Iwan Santoso, said a number of big coal-fired power plants were included in the target.

“If we talk about the capacity, the biggest will be coal-fired power plants. We are expecting the groundbreaking of the Jawa 4 power plant, the Cirebon expansion plant, the Cilacap expansion plant, the Jawa 7 and the Jawa 3 this year,” Iwan said on Thursday.

The power plant developments are part of the government’s program to supply an additional 35,000 MW of electricity within five years. 

As of December last year, PLN had agreed to purchase a total of 17,000 MW from independent power producers. Those agreements guarantee the producers that PLN would purchase the power and deliver it to customers. 

In the last two months, new power purchase agreements for around 2,000 MW have brought the total contracted electricity sales up to 19,827 MW. 

PLN aims to finalize power purchase agreements for 15,500 MW by the end of the year and the remaining capacity of almost 2,000 MW in 2017.

Following the power purchase agreement stage, 24 power producers with 5,329 MW of capacity are now closing financing before starting construction. Meanwhile, some other producers with 2,920 MW of capacity have entered the engineering, procurement and construction (EPC) stage.

Energy and Mineral Resources Minister Sudirman Said praised the progress of the government’s flagship program. 

“There are problems everywhere. However, PLN, the independent producers and local administration can solve them. We will also ensure that the power producers have funding in place,” Sudirman said.

To date, the country has a total installed power plant capacity of about 55,000 MW. The electrification ratio was at 88 percent as of the end of last year. However, there are numerous areas, particularly outside Java, with lower ratios and frequent blackouts as the demand is higher than the available capacity.

The 35,000 MW program is said to be necessary to support economic growth. In past years, similar programs failed, partly because of financing and problems in land acquisition for the would-be power plants. 

Earlier this week, the construction of the Batang power plant in Central Java gained new momentum after the Supreme Court ruled in favor of land acquisition for the project, which has been long delayed amid opposition from local people. 

Jarman, the Energy and Mineral Resources Ministry’s director general for electricity, said that the Supreme Court’s decision allowed for the land acquisition to be quickly concluded.

“As soon as the land [acquisition] is completed, financial closure can be reached,” he has said. 

The Batang project is being developed by PT Bhimasena Power Indonesia, a consortium consisting of Jakarta-listed PT Adaro Energy, J-Power Electric Power Development Co. Ltd. and Itochu Corp., which won the tender in 2011. The power plant is the first to be developed under a public-private-partnership scheme.

Bukit Asam Profits Up Despite Decline in Coal Prices

State-controlled mining company PT Bukit Asam has reported increased profits despite a year of falling coal prices.

The publicly listed miner announced that the company’s net profits had increased by 9 percent to Rp 2.04 trillion (US$153.9 million) during the January-December period in 2015, from Rp 1.86 trillion in the previous year. 

Meanwhile, total revenues rose by 5 percent to Rp 13.72 trillion by the end of the year.

The company’s coal production was up 18 percent to 19.28 million tons from 16.36 million tons last year, while its sales were up 6 percent to 19.1 million tons, the company’s recently published statement revealed. 

Domestic sales increased by 8 percent to 10.05 million tons while its exports were up 5 percent to 9.05 million tons, making up 47 percent of the company’s total sales volume. 

Meanwhile, Bukit Asam’s average selling price (ASP) during the year, according to the company’s press statement, decreased by 3 percent to Rp 707,052 per ton to Rp 723,635 in 2014. 

Coal prices have steadily declined in the past few years, amid oversupply and declining demand from major coal importer China. The situation has led to steep declines in the profits of Indonesian coal producers. 

Bukit Asam corporate secretary Joko Pramono said that the company was optimistic that it would reach its target at the end of the year to increase sales by 52 percent to 29 million tons. 

“If you see from our performance — in terms of operation and sales — it all increased. In 2016, we will continue to work together with PT KAI [state-train operator PT Kereta Api Indonesia] to support the synergy between state-owned enterprises,” he said. 

Bukit Asam revealed that the volume of coal transported by rail increased by 6 percent to 15.8 million tons last year thanks to the opening of the Tanjung Enim-Prabumulih double-track line operation. 

PT KAI is expected to increase this cargo volume by 50 percent this year to 23.7 million tons with additional locomotives and train cars. 

Meanwhile, the company is seeking to maintain its cost efficiency programs as it predicts that commodity prices will continue to decrease this year. 

Bukit Asam managed to cut its production costs by 10 percent to Rp 356,866 per ton from Rp 394,784 per ton. The company’s stripping ratio — the ratio of the volume of waste material that must be removed to retrieve coal — stood at 4.48, meaning that it had decreased from the previous year’s 4.69.

The stripping ratio is one of the determining factors in miners’ production costs. 

“We will continue the success of 2015 by involving strategies that will strengthen us. We hope that we will go through 2016 in a better condition, that we will continue to evaluate every quarter,” Joko said. 

Australia’s Newcastle coal price, an Asian benchmark, has dropped to $51.29 per metric ton, as estimated by Reuters in late February. While Indonesia’s coal reference price (HBA) had dropped to $50.92 in February from $53.20 in January.

Government Pushes for Renewable Energy Despite Cheaper Oil

The government has stepped up its efforts to reach the 23 percent targeted renewable energy utilization over the next nine years, by boosting regional partnership, research and clean energy investment despite cheaper fossil-based fuels.

“There are always factors concerning capital efficiency as most clean energy technology is more expensive than coal-fired, but we can decrease the gap with technology and cooperation,” Vice President Jusuf Kalla said in his speech at the Bali Clean Energy Forum on Thursday.

As a tropical and archipelagic country, Indonesia has abundant resources, from hydropower to solar energy. In the long-term, the increased use of the new and renewable energy will benefit the country as the costs incurred from the environmental damage caused by the exploitation of the fossil-based fuel will be also high.

The country is estimated to have around 28 gigawatt (GW) in geothermal potentials and 75 GW in hydropower potentials that can generate electricity. The total potential renewable energy is estimated to reach more than 300,000 megawatt (MW).

“In 10 years, Indonesia will build two times 35,000 MW, and the proportion of coal-fired power plants should fall to 50 percent from the current 60 percent, while the proportion of the renewable energy will increase to 25 percent from 11 percent,” he said.

According to data from state-owned electricity firm PLN, around 55.7 percent of electricity generation in 2015 was fueled by coal, 25.3 percent by gas, 8.2 percent by diesel fuel, 5.9 percent by hydropower plants and around 4 percent by geothermal energy.

The government has also aimed to add 35,000 MW of electricity over the next five years, with 25 percent slated to be sourced from renewable energy.

Kalla also said that the slumping oil price might not last long and the price could exceed the renewable energy cost in time.

Oil benchmark Brent crude was at US$30.54 per barrel on Thursday, according to Bloomberg figures, compared to $64.64 per barrel on April 28 last year.

Kalla cited that the diesel fuel electricity price once hit 30 US cent per kilowatt hour (kWh) compared to 10-12 US cents per KwH for clean energy, such as hydropower and geothermal.

Energy and Mineral Resources Minister Sudirman Said voiced the same concern, stating that the country should avoid the pitfall of overdependency on fossil fuels, which could lead to a so-called “corrosive energy policy”.

Sudirman also said that he aimed to capitalize on the country’s recent move to become an associate member of the International Energy Agency (IEA) and rejoin OPEC to boost the partnership in renewable energy development.

“We will form a Center of Excellence in Bali to aid the research, education, pilot project and investment facilitation of clean energy,” he said, adding that Bali would be a good exemplary project with its size as the government aimed to supply 90 percent of the island’s electricity through renewable energy sources over the next five years.

The government will also work with governors from six provinces, including East Nusa Tenggara and West Papua, on the clean energy program to provide electricity for 12,600 villages, in a program called Indonesia Terang (Bright Indonesia).

He also cited the government’s recent plan to establish an entity similar to PLN to handle renewable energy to buffer the purchasing of electricity from independent power producers and sell the power to PLN under a certain price, as well as a cooperation with Financial Services Authority (OJK) to boost the funding for renewable energy projects.

Big Coal Miners Plan Higher Production This Year

The country’s major coal miners plan to further boost production in 2016 although analysts estimate that an oversupply in the world’s coal market will continue.

The production levels proposed by large coal miners are quite different from those filed by small and medium coal miners, who mostly plan to reduce production on account of low demand in the world’s coal market.

According to data from the Energy and Mineral Resources Ministry’s mineral and coal directorate general, by mid-December, as many as 71 companies, consisting of 64 coal contract of work holders and 7 permit holders, proposed a total of 303.33 million tons of production in 2016. The 2016 production plan will be far lower compared to the proposed 419 million tons in 2015.

The ministry’s director for coal, Adhi Wibowo, said that a large number of small coal producers had yet to file their production plans for this year. However, their contribution to the country’s total production is quite small.

Figures from the mineral and coal directorate general showed that most big firms actually planned to increase their output.

Among 11 firms producing more than 5 million tons, only two firms proposed lower output in 2016, namely PT Adaro Indonesia with a slight 0.8 percent cut and PT Kideco Jaya Agung with almost 18 percent.

President director of Adaro Energy, the owner of Adaro Indonesia, Garibaldi Thohir said earlier that his company would set output at a range of 52 to 54 million tons in 2016, around 7 percent lower compared to targeted output in 2015 of 54 to 56 million tons.

“We sell most of our coal under long-term contracts and only a little we offer on the spot market. We will reduce the amount [of coal offered] on the spot market,” he said.

Meanwhile, Kideco is unlikely to raise its production because its sales remain sluggish. Figures from Jakarta-listed Indika Energy, which is Kideco’s parent firm, showed that the subsidiary company had suffered from a 15.6 percent drop in selling price from January to September 2015. The company also became less aggressive as its realization of capital expenditure, particularly for maintenance and heavy equipment spending, stood at only US$4.3 million during the first nine months of 2015, only around 25 percent of the budgeted $17.8 million. 

On the other hand, state-owned PT Bukit Asam will boost its output this year, partly because a new train transport facility and long-term contract have been sealed. 

Adhi said that small miners with less than 3 million tons in production tended to cut output because they were the most affected by plunging prices. Meanwhile, big firms continue to increase their production.

“There are fixed costs companies have to pay. To pay the costs, increasing the production volume is the only way. However, we will evaluate further if higher production is meaningless and firms continue seeing losses, we will reject the proposals,” Adhi said.

He revealed that the company that proposed the highest drop in output for 2016 was PT Kaltim Jaya Mineral, which slashed its plan to only 150,000 tons in 2016 compared to 1.2 million tons in 2015.

Global coal companies have been suffering from declining prices, particularly on slowing growth of demand while stockpiles continue to rise as producers pump up output. The benchmark thermal coal price at Newcastle Port in Australia fell to US$50.63 per ton in the last two weeks of December, according to figures from Bloomberg. The price was the lowest level since December 2006.

Indonesia’s coal reference price (HBA) for December was set at $53.51 per ton, around 16 percent lower compared to a reference price of $63.84 per ton set in January. The December price is around 57 percent lower compared to the all-time high HBA price of $127.05 per ton set in February 2011.