Indonesia's Coal Industry

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  • PROGRAM ON ENERGY AND SUSTAINABLE DEVELOPMENT Working Paper #93 July 2010 T HE H ISTORY AND F UTURE OF I NDONESIA S C OAL I NDUSTRY : I MPACT OF P OLITICS AND R EGULATORY F RAMEWORK ON I NDUSTRY S TRUCTURE AND P ERFORMANCE BART LUCARELLI FREEMAN SPOGLI INSTITUTE FOR INTERNATIONAL STUDIESPhoto Credit: Reuters
  • About the Program on Energy and Sustainable DevelopmentThe Program on Energy and Sustainable Development (PESD) is an international,interdisciplinary program that studies how institutions shape patterns of energy productionand use, in turn affecting human welfare and environmental quality. PESD researchexamines issues including effective policies for addressing climate change, the role ofnational oil companies in the world oil market, the emerging global coal market, businessmodels for carbon capture and storage, adaptation of wholesale electricity markets to supporta low-carbon future, and how modern energy services can be supplied sustainably to theworlds poorest regions.The program, established in September 2001, includes a global network of scholarsbased atcenters of excellence on six continentsin law, political science, economics, andengineering. It is part of the Freeman Spogli Institute for International Studies at StanfordUniversity.PESD gratefully acknowledges substantial core funding from BP and EPRI. Program on Energy and Sustainable Development Encina Hall East, Room E415 Stanford University Stanford, CA 94305-6055 http://pesd.stanford.eduRevised 4 Oct 2010 2 PESD WP #93
  • About the AuthorBart Lucarelli is a consulting research associate at the Program on Energy and SustainableDevelopment at Stanford Universitys Freeman Spogli Institute for International Studies andan independent energy consultant with 28 years of energy industry experience. He has spent20 of those years working in Asia with an emphasis on the development of independentpower projects and the procurement of secure and cost-competitive supplies of fossil fuels fornew power plants. He currently operates an energy consulting business in the region withclients ranging from private power developers to government energy planning agencies. Aconsiderable amount of his work over the past four years has involved helping private powercompanies and lending institutions assess Asias coal export markets and assisting privatepower companies with the procurement of reliable and competitively priced supplies of coalfor new coal-fired power plants. He is a frequent speaker at energy conferences throughoutAsia and conducts a very popular region-wide seminar on coal pricing and coal supplycontracting.Over the past two years, with PESD support, Bart has been researching the developmenthistories of the Indonesian and Australian coal industries. He has focused his research on theimpacts that political and regulatory factors have had on the growth, structure, andperformance of those two industries. He is also using his PESD research to speculate onalternative futures that those two industries will face in a carbon-constrained world. Bart hasa PhD from the Department of City and Regional Planning at UC Berkeley with a specialty inenergy planning. He lives in Bangkok, Thailand, with his wife Pornthip and his three sons,Romeo, Leonardo, and Valentino.Revised 4 Oct 2010 3 PESD WP #93
  • Copyright 2010 by Bart Lucarelli PhDAll rights reserved.No part of this paper may be reproduced in any manner whatsoever without writtenpermission except in the case of brief quotations embodied in critical articles and reviews.For permission to quote or use materials contained in this paper, contact Bart Lucarelli atbart1@lppower1.com.Revised 4 Oct 2010 4 PESD WP #93
  • ContentsList of Figures, Tables, and Boxes 6,7List of Acronyms and Abbreviations 8,9Acknowledgments 10Sections1 Introduction 112 History of Indonesias Coal Industry 143 Resources, Reserves, and Levels of Production 374 Political Risk Events Affecting the Indonesian 60 Coal Industry, 1999-20085 Indonesias New Mining Law 716 Conclusions and Alternative Indonesian Coal Futures 80 The Next 20 Years References 86Revised 4 Oct 2010 5 PESD WP #93
  • List of Figures, Tables, and Boxes Figures Page 1 Kalimantan and Sumatra are more favorably located to Asian markets than 24 Australia. 2 Growth in Indonesias Coal Production by Type of Mining Authorization, 28 1982-2009 (million tonnes) 3 Export and Domestic Sales of Indonesia Steam Coal, 1995-2009 (million 31 tonnes) 4 Tug pulling a 12kt barge down the Barito River during high tide (Photo 55 courtesy of Adaro) 5 Floating crane loading a Cape-size vessel directly from barge to ship using 56 pivoting crane and grab-type unloaders (Photo courtesy of Adaro) Tables 1 Eight of 10 original 1st Gen CCOW companies are still producing coal as 22 of July 2010. 2 Eleven of original 17 companies operating under 2nd Generation CCOWs 26 remain valid as of 2009. Eight of these 11 were significant producers. 3 Comparison of Terms of 1st Generation and 3rd Generation CCOWs 29 4 Production Per Mine by Type of Authorization 36 5 Classification of Indonesias Coal Reserves by Coal Rank (as of 2007) 38 6 Classification of Indonesias Coal Resources by Coal Rank (as of 2007) 38 7 Government of Indonesias Estimates of Coal Resources by Province, 40 2007 8 Estimates of Coal Reserves by Province, 2007 40Revised 4 Oct 2010 6 PESD WP #93
  • 9 Coal Production and Sales, 2002-2009 (in million tonnes) 42 10 The Big 6 accounted for most of Indonesias coal production between 43 2002 and 2009 with their share of total production ranging from a low of 67 percent in 2007 to a high of 78 percent in 2002. 11 PLNs 10,000 MW Fast Track Program 45 12 Forecast of Domestic and Export Coal Demand, 2008-2015 (in million 47 tonnes) 13 Summary of Low Rank Coal for Four Indonesian Coal Suppliers for 2008 48 with Forecasts for 2009-2014 (in thousands of tonnes) 14 Indonesias Coal Exports 2007 versus 2009 by Destination Country (in 50 million tonnes) 15 Indonesian Coal Exports by Major Producer, 2003-2009 51 16 Internal Transport Arrangements for Indonesias Six Largest Coal 53 Producers Boxes 19 1 CCOW Explained 2 20 KP ExplainedRevised 4 Oct 2010 7 PESD WP #93
  • List of Acronyms and Abbreviations1st Gen CCOW First Generation CCOW2nd Gen CCOW Second Generation CCOW3rd Gen CCOW Third Generation CCOWCAGR Compound Annual Growth RateCCA Coal Cooperation AgreementCCOW Coal Contract of WorkCEXIM Chinese Export Import AgencyCIF Cost, Insurance, FreightCOD Commercial Operation DateCOW Contract of WorkCSA Coal Sales AgreementCV Calorific ValueDMO Domestic Market ObligationEPC Engineer, Procure, ConstructFOB Free on BoardFOBT Free on Board TrimmedGAD Gross Air DriedGAR Gross As ReceivedgcNEWC Global Coal Newcastle Coal Price IndexGCV Gross Calorific ValueGOI Government of IndonesiaIBT Indonesia Bulk TerminalICI Indonesian Coal IndexICMA Indonesian Coal Mining AssociationICPR Indonesian Coal Price ReferenceIM Inherent MoistureIPR Izin Pertambangan RakyatIUP