INDONESIAS COAL POLICY TOWARD 2020

PROSPECT AND IMPLEMENTATION

Rubianto Indrayuda Deputy Director on Coal Mining Services Directorate General of Geology and Mineral Resources Ministry of Energy and Mineral Resources SUMMARY The role of coal in Indonesia will continue to grow due to in the limitation of current oil resources and overall there is an increase of coal domestic and export demand. On the basis of the significant role of coal in the framework of national energy development in Indonesia, the government then formulated and established a National Coal Policy to define the role of government in playing in the coal industry and that the role of the private sectors as well as stakeholders. The National Coal Policy has been signed by Minister of Energy and Mineral Resources on January 29, 2004 to be used as guidance for promoting coordination and harmonization in management, exploitation, utilization and development of coal within the period of 2005 to 2020. The objective of Indonesian National Coal Policy is principally to secure the availability of coal supply for domestic use and export in the long run. Currently, Indonesia has recorded as the second largest exporter of steam coal in the world. Within the last 10 years production has grown from around 22.9 million tons to 114.2 million tons in 2003. There are four major domestic coal consumers namely power plants, cement industries, manufacturing industries and the small scale and household industries. It is estimated that coal demand in Indonesia, particularly for power, will increase from 47.7 million tons in 2010 and reach 72.0 million tons in 2020. In line with the strong demand of coal both in the international market and domestic, it is predicted that Indonesian coal production will continue to grow in the future Majority of Indonesian coal is low in rank; hence the development of such coal is the key of future coal industry. Incentive in the form of lower royalty rates will also be granted by government for the production of low ranked coal, and coals that are produced by underground mines.

INDONESIAN COAL POLICY

Prospect and Implementation
Presented at APEC Clean Fossil Energy Technical and Policy Seminar Cebu City, Philippines, 26-29 January 2005
Rubianto Indrayuda Directorate of Minerals and Coal Enterprises

Directorate General of Geology and Mineral Resources Ministry of Energy and Mineral Resources of the Republic of Indonesi

Strategic Role of Indonesian Coal

1. Coal is a part of national energy resources which potentially can fulfill energy needs for the present time and future due to: a. Primary energy resources for electricity and industry b. Substitution and complementary of oil and gas/alternative energy c. Long term supply of domestic energy and export d. Convertible to oil and gas form. e. Substitution of firewood 2. Other benefits of coal industry: - Absorption and skill improvement of man power - Agent of development at surrounding mine areas - Source of government revenue from tax and royalty (central/regional) - Source of national revenue

National Coal Policy (NCP)

Signed on January 29, 2004 by Minister of Energy and Mineral Resources NATIONAL COAL POLICY
UUD 45 (Basic Constitution of 1945) Regional Autonomy Policy National Energy Policy

Management Policy Exploitation Policy

Investment Climate Intensification of Exploration & Production Conservation Environment Fiscal Government Portion of Coal Production 13.5%

Utilization Policy
Diversification Price Lignite Coal Briquette Coal Bed Methane National Coal Stock

Development Policy
R&D Training/Indonesiation Organization Data/Information Coal Technology Center

Direction of NCP

1. To manage coal resources and maintain its capacity in order to acquire greatest benefits for people welfare from time to time. 2. To increase the utilization of coal resources and to keep the environment by conservation, rehabilitation, efficiently use, and application of environmental friendly technology.

OBJECTIVES OF THE NCP

The main objective of the NCP: a. To create a conducive investment climate, which in line with the implementation of rule of law in the coal chain, from upstream to downstream. b. To support the implementation strategy on sustainable development of coal mining industry, as part of the development strategy of national energy. c. To secure the continuity supply of coal for long term. d. To support the direction and scope of use and utilization of coal in related with the improvement of its added value. e. To create a good climate in supporting the export of coal. f. To increase multiplying effect of coal mining. g. To optimize de-concentration/de-centralization process of coal management.

ELEMENTS OF NATIONAL COAL POLICY

1. Management Policy To reposition coal as a strategic commodity, national source of energy, export commodity, prime mover of economy, community and regional development. Therefore coal shall be managed in term of its exploitation, utilization, and development. 2. Exploitation Policy To improve investment climate become conducive and competitive, and effective supervision in coal mining practices. 3. Utilization Policy To increase the utilization of coal and its role in fulfilling the national energy need. 4. Development Policy To improve the development of coal in fulfilling and securing domestic need of energy and raw material feedstock for national industries based on techno-economical and environmental aspects.

How to Implement The National Coal Policy (NCP)

1. Short Term Program through 2005 a) Synchronizing the Authority of Central/Regional Government b) Establishing Data/Information of Coal Resources c) Continuation of Exploration and Production d) Developing Low Rank Coal Utilization Centre (UBC, Liquefaction, Gasification) e) Establishing National Coal Board f) Developing of Coal Technology Centre g) Selecting some priority aspects of National Coal Policy to be deliberated as Presidential Decree or Government Regulation h) Preparing the Coal Law/Legislation

2.

Medium Term Program 2005 2010 ;

a) Developing Integrated Infrastructure Master Plan b) Establishing Coal Related Institution and Government Regulation c) Developing Clean Coal Technology d) Improving Net Working of Coal R & D e) Encouraging the Utilization of Coal for Domestic Industry f) Planning & Developing Mine Mouth Power Plant g) Planning & Developing Upgrading Plant for Low Rank Coal h) Detailing Feasibility Study of Coal Liquefaction i) Developing R & D on Coal Utilization for Coke, Synthetic Fuel, and Others Chemical Products j) Improving the Capability of Underground Mine Training Centre in Ombilin (OMTC) k) Developing Mine Mouth Power Plant based lignite in Sumatra and Other Places

3. Long Term Program 2010 2020 ;

a)

Establishing Underground Coal Mining

b) Improving Coal Utilization Technology c) Developing Coal Clean Technology d) Developing Integrated Infrastructure on Coal Transportation e) Increasing Coal Utilization for Domestic f) Developing Liquefaction Plant g) Developing UBC Plant h) Developing Gasification and Coke Plant

Current Situation and Outlook of the Indonesian Coal Industry

Coal Resources, Reserves and Quality

1% 5% 39 % 3% 30 %

13 %

Resources (Mil. Tons)

Measured Indicated Inferred Hypothetic 12,466.42 20,533.56 24,314.96 532.80

Reserves (Mil. Tons)

Very High 1% High 24% Low 49% Medium 26%

Quality

Specification (cal/gr, adb) < 5100 5100 - 6100 6100 - 7100

TOTAL

57,847.74

6,981.62

Low Medium High

INDONESIA COAL ENTERPRISES STATUS

S
Company General Survey Expl.

T
F.S

S
Total Product. Trmd

Constr.

CCoW; 4 4

eneration I

4 29 33

3 19 22

2 8 10

10 6 6 22

1 3 46 50

11

eneration II

18 (9*)

eneration III Total

112(10*

141(19*

Mining Authorized (KP)

tate Companies PT BA) Total

32 32

6 286 292

7 128 135

13 446 459

rivate Companies

Source: DMCE, 2004 (*) Terminated

Estimation of Coal Contribution in the Energy Mix and Electric Generation (2005 2020)

Coal for Electric Generation Year %

Total Energy Total (Million Tons)

Coal for Energy Mix %

Total (Million Tons)

Remarks

2003 ( R ) 2005 2010 2015 2020 40 50 55 60

23 28 44,0 57,0 72,0

13,1 15 16 18 19

25,0 33,0 47,0 70,0 96,0 Data based on Indonesia electric power plan, reprocessed data analyses by FIKTM ITB, Yayasan Lentera/DPMB.

Projected Coal Development

114.3 130,5 Production 171 199 214 85.7 97,9 Export (Scenario 1) 124,3 118,4 30.6

2003 (R) 2005 2010 2015 2020

2003 (R) 2005 2010 2015 2020

128,9

32,6 Domestic use

2003 (R) 2005 46,7 2010

70,1 95,6

2015 2020

25

50

75

100

125

150

175

200

225

250

Million tons

Projected Coal Production, Export and Domestic Use (2005 2020)

Coal Production by Company

150 M illio n T o n e s 100 50 -

2001 10.21 77.02 5.75

2002 9.48 87.08 6.81

Years

2003 10.03 96.30 7.95

State Owned (Bukit Asam, PT) Contractors Mining Authorization Holder & Cooperative

Sources : Directorate of Mineral and Coal Enterprises 2004

Projection of Coal Domestic Consumption (2005-2020)

Average Projection Year 2003 ( R ) 2005 2010 2015 2020 Power 22.9 28.1 47.7 54.0 72,0 Cement 4.7 5.3 6.3 8.5 11,1 Other Industry 3.0 3,4 4.5 7.6 12,5 Total 30.6 36.8 58.5 70.1 95,6 Remarks

Million Tons

Sources: 1.Indonesian Cement Association, 2003 2.State Electric Company, 2003 3. Data on average from studies by IEEJ, JICA, Monenco Canada, DMCE, FIKTM-ITB, based on energy growth rate (6.9%) and electric power growth rate of about 9% and GDP of 5-7%.

Projection of Coal Export (2005-2020)

Export Year
Production - Domestic Need Market Need * Average Production**

Million Tons

Remarks

2003 ( R ) 2005 2010 2015

83.6 97,9 124,3 128,9

85.7 78,1 84,8 91,4

114.2 130,5 171 199

**Average data from various studies carried out by IEEJ, JICA, Monenco Canada, Lentera Foundation, DMCE, FIKTM_ITB based on company production capacity. *17% of international coal trade

Coal Export by Company

100 M illio n T o n e s 80 60 40 20 -

2001 1.89 59.37 4.02

2002 1.85 66.50 5.82

Years

2003 2.24 76.39 7.05

State Owned (Bukit Asam, PT) Contractors Mining Authorization Holder & Cooperative

Sources : Directorate of Mineral and Coal Enterprises 2004

Coal Export by Destination Country

80 M illio n T o n e s 60 40 20 -

2001 47.16 10.23 2.16 5.73

2002 60.24 9.94 2.56 1.42

Years

2003 66.16 12.79 3.12 3.62

Asia Europe Australia-America Others

Sources : Directorate of Mineral and Coal Enterprises 2004

Domestic Coal Consumption

35,000,000.00 30,000,000.00 25,000,000.00 Tons 20,000,000.00 15,000,000.00 10,000,000.00 5,000,000.00 0.00 2001 2002 Year Coal Fire Power Plant Cement Industri Metallurgy Pulp Industry Briquette Others Total 2003

Challenges of
Indonesian Coal Development

hallenges and major problems of Indonesian Coal Industry

hallenges

Most of Indonesian coal is classified as low rank coal which requires specific treatments for its utilization Coal resources are mostly situated at remote areas and lack of infrastructure system Low of intensification of detailed coal exploration program (limited coal reserves data) Coal has been classified as mining commodity rather than strategy commodity by most of Autonomous Regions (overproduction/uncontrolled) Coal is mostly used as raw material (no added value)

Major Problems

Disharmony in decentralization of authority in coal management between the Central Government and the Autonomous Regions (overlapped area and uncontrolled coal production level) Weak of law enforcement (illegal coal mining) Overlapped regulation in land use and interests (Protected Forest and Tax) Environmental regulation classifying mining waste as hazardous material Lack of infrastructure system Decrease of mining investments

INVESTMENT of THE MINING INDUSTRY

3,000 2,500 2,000
Million US$

1,500 1,000 500 0 1997 1998 1999 2000 97.56 2001 114.23 2002 61.28 2003 93.74 83.56

CCoW CoW

665.89 236.51 141.29

1,933.79 1,629.68 1,152.03 422.31 327.98 266.08

2,599.69 1.865.19 1,293.33 519.76 442.21 327.36 177.30

Global Exploration Spend vs Indonesia Exploration Spend

4.00% Global exploration spend in US $ Billion 5

4 3 2 1

% Indonesian exploration spend as of global

3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50%

0 1995 1996 1997 1998 1999 2000 2001 Global exploration spend Indonesian exploration spend as % of global

0.00%

Source : Global Expenditure - Metals Economics Group Pengeluaran Indonesia PWC, Mining Survey 1999, 2001

Government tasks in improving mining investment

1. Three Short Term Targets of Government Policy
Securing operation of existing mining permits (KP) and Contracts (CoW and CCoW) Providing transitional mechanism of application for new mining contract for foreign investors Drafting a new mining law, respecting the States constitution, principle of sustainable development, good governance and good mining practices

2.

Medium and Long Term Targets (Based on the Road Map in Mining Sector)
a.

Re-Evaluation of: Law and Regulation and its implementation Environment Land and Forestry Tax and Other Levies Government Coordination: Province and District/City Inter Departmental Stake Holder Participating Approaches Association: Industry and Services Professionals Non Government Organization (NGO)

b.

c.

CLOSING REMARKS
Coal is truly a great opportunity to Indonesia, therefore it has to be capitalized to assure sustainable economic development and elevation of the welfare of Indonesian people as mandated in Basic Legislation 1945. The NCP is principally needed to; a. secure the availability and supply of coal for domestic and export needed in the long term b. increase the contribution to the State revenue; c. support energy diversification policy; National Coal Legislation and National Coal Board are the most important program to be done in order to implement NCP effectively. In line with the strong demand of coal both in the international market and domestic, it is predicted that coal production will continue to increase. In order to improve the mining condition and investment, the new Indonesian government has taken some strategic actions to make more a social and political stability as currently be a concern of investors.

BIODATA Rubianto Indrayuda Marital Status Date of Birth Address : : : Married May 28, 1953 Directorate of Mineral and Coal Enterprises JL. Prof. Dr. SUPOMD SH. No. 10 JAKARTA 12870 Indonesia E-Mail Tel. Number Fax Education : : : : rubianto@dpmb.esdm.gov.id 62.21.8314585 62.21.828775 BSC in Geology, Academy of Geology and Mining Bandung, Indonesia (1977) M. Sc. in Coal Geology, University of Wollongong, N. S. W. Australia (1999) Work Experience : 1978 1979 Junior Geologist, Directorate of Environmental Geology 1980 1985 Geologist, Mineral Technology Development Center 1985 1997 Senior Geologist, Directorate of Coal 1997 2000 Head of Mining Support Section, Directorate of coal 2001 2003 Head, Logistic and Infrastructure Section Directorate of Mineral and Coal Enterprises 2004 Present Deputy Director, Mining Services, Directorate of Mineral and Coal Enterprises.