Indonesia Coal Industry Update 2016

JOGMEC Coal Investment Seminar

Tokyo, 27 January 2016

CONTENTS
1

Indonesia Coal Industry

Coal as Key to Increase Electrification Ratio

Future Energy Mix

CONTENTS
1

Indonesia Coal Industry

Coal as Key to Increase Electrification Ratio

Future Energy Mix

Coal Contribution to Indonesia Economy

GDP from Non Oil & Gas Mining
500

Coal Export

Billion US$

Trillion Rp.

6.0%

30

16.0%

5.6%
450

5.4%
5.2%

400

4.9%

350
4.3%

300

4.4%

4.5%

5.5%

4.4%

4.5%

483 480
462

200

398

254
100
50

65

105

131

160

4.0%

3.5%

333

3.1%

13.8%
13.4%
13.4%

25

11.9%
11.7%

4.8% 5.0%

250

150

5.3%

2.5%

2.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
PDB Tambang Non-Migas

20

% dari Total PDB

7.6%

8.0%
27.2 26.2

6.0%5.8%
5.1%

10

24.5
20.8

18.5

3.8%
10.5

5
2.7

4.3

6.1

2.0%

6.7

0.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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 Indonesias economy
Sources: Badan Pusat Statistik

6.0%
4.0%

13.8

12.0%
10.0%

15

3.0%

195

11.8%

14.0%

Historical Indonesian Coal Production 2009 Oct 2015

500
450
400
350
300
250
200
150
100
50
0

140.00

474

412

402
345

353

120.00
382

80.00
215

210

198

100.00
322.5

287

275

254

458

60.00

40.00
56

65

66

67

72

76

62

20.00
0.00

2009

2010

2011

2012

2013

2014

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

2015

Estimated Domestic Coal Consumption - 2016

2016 DMO Composition (%)
2% 1%

2%

0%

Coal fired power plant

12%

2%

81%

Coal fired power plant

Fertilizer
Textile
Briquette

Domestic Consumption
(MT)

Metallurgy
Cement
Paper

82

Metallurgy

Fertilizer

Cement

12

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
CAPEX Coal Mining Listed Co
in billion
Last 5 Years

NEWC Evolution 2011 Jan 2016

(6,322 GAR)

USD
2.5

140

1.83

120

Total
CAPEX:
US$5.6 bln

1.93

Jan 2016
US$49/ton

100

Jan 2011
US$130/ton

80

1.5

0.93
1

60

0.52

40

0.40

0.5

01 Oct 2015

01 Jul 2015

01 Apr 2015

01 Jan 2015

01 Oct 2014

01 Jul 2014

01 Apr 2014

01 Oct 2013

01 Jan 2014

01 Jul 2013

01 Apr 2013

01 Jan 2013

01 Oct 2012

01 Jul 2012

01 Apr 2012

01 Jan 2012

01 Oct 2011

01 Jul 2011

01 Apr 2011

01 Jan 2011

20

Global Coal Index NEWC declined by 62% from

the highest level US$130/ton in January 2011 to
US$49/ton di January 2016

0
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
Most of the Companies cutting back on expansion
and exploration. Low investment made will
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

CapEx Policy

Coal Price Forecast

39%

21%

43%
18%

10%

Decrease

Increase

Increase

Decrease

Flat

Flat
69%

Employee
Rationalization

Production Volume Policy

29%
45%

24%

Increase

Not rationalizing

51%
24%

*Survey result as of May 6th, 2015

<10%
>10%

26%

Decrease
Flat

CHALLENGES: GOVERNMENT POLICIES

Non-tax state revenue from
land use of forest areas

Letter of Credit requirement

for export activities

Plan of limiting coal shipment

from 14 designated ports

Royalty increase plan

Requirement of Rupiah as the

only currency for domestic
transactions

1.
2.

Significant rate increase

Upfront payment upon permit approval instead of upon
usage

3.

Additional costs during distressed coal market condition

Potential cash flow management disruption
Creating confusion due to lack of technical guidelines

1.

Additional costs related to logistics and infrastructure use

2.

Ports designation may not be transparent

1.
3.

Increasing unemployment because of mine closures

Not necessarily increasing government revenue
Potential disruption in governments 35 GW plan

1.

Supplies and contractor rates are already in US$

2.

Potential hedging costs

1.

2.

2.

CONTENTS
1

Indonesia Coal Industry

Coal as Key to Increase Indonesia Electrification

Ratio

Future Energy Mix

Current Economic and Electricity Condition

250

6.0%
5.0%
4.0%

129.0 134.2

147.3

158.0

174.0

187.5

197.3

150

CAGR
7.3%

3.0%

200

100

2.0%
1.0%
0.0%

50
6.0%

4.6%

6.2%

6.5%

6.3%

5.7%

2008

2009

2010

2011

2012

2013* 2014**

GDP Growth (%)

5.1%

Electricity Sales (TWh)

GW
300

TWh
1,200

250

1,000

200

800

150

600

100

400

50

200

0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031

7.0%

Installed Capacity vs Electricity Needs

TWh

Indonesia Economic & Electricity Growth

Existing Capacity (GW)

Peak Load (GW)

Additional Power Needs (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
-

10

15

20

Coal-fired
13 GW

Hydro

Others

25
22 GW

Gas-fired

Diesel

Energy Source Costs (per KWh)

4 GW

3,500

0.3

3,000

0.25

2,500

0.2

2,000

0.15

1,500
1,000

0.1
0.05

500
3 GW

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

for electricity generation with highest total
installed capacity and at the most economical
price
Sources: RUPTL 2015-2024, Buku Statistik PLN 2014

Coal is still the cheapest and most

abundant energy source for power
generation

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%

in GW

Peak Load (in GW)

70
60

50
40

38

41

45

48

51

55

60

64

30
20

10
0
2015

2016

2017

2018

2019

2020

2021

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

2022

Power Generation Overview

Indonesia projected additional 50-60 GW until 2024 to achieve electrification ratio of >95%

To accelerate the needs of Electricity,

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%

Projected Installed Capacity

PLN

IPP

104 GW
90 GW
44
33

PLN

47 GW

32 GW

26
2010

IPP

57

60

2019

2024

39

2014

Sources: PLN Investor Presentation 2015, RUPTL 2015-2024

Size: 18 GW
Transmission: 50k
kms
Substation: 743 loc.

Size: 25 GW
Transmission: 360 kms

GOVERNMENT 35 GW PROGRAM
35 GW Power Project

34%

57%

9%

Coal Fired
Power Plant

Gas & Steam

Power

Others

~20 GW

~12GW

~3GW

PLN

IPP

2 GW

18 GW

Project Costs
US$28 35 bln

DEBT
(Proj. Financing)
US$20 25 bln

EQUITY
US$8 11 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)
*source:
Total
project
cost to RUPTL
be borne
by private sector / IPP : US$ 28 35 bln
Internal
calculations;
2015-2024

35 GW Program Open Participation of Private

Sector
Max
Max EBITDA
Capacity

Project Cost

Potential
Revenue p.a.

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

16.92 GW

US$ 31.1 Bn

US$ 8.1 bn

US$ 3.6-4.1 Bn

7.63 GW

US$ 18.1 Bn

US$ 4.7 Bn

US$ 2.1-2.4 Bn

Tendered
IPP Projects

Existing
IPP Projects*

*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

474

500

450

458

412

400

APBIs Forecasts
382

353

349

350
300

254

150

402
287

198

332

345

382
295

248

214

199

118

133

2017E

2018E

154

215

100
50

332

280

250
200

332

56

65

66

67

72

76

87

101

2009

2010

2011

2012

2013

2014

2015

2016E

Export (MT)

Domestic (MT)

Production (MT)

Forecasts Comparison

NEWC Price (US$/ton)

2015A

2016E

2017E

2018E

2019E

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

178

2019E

Coal Requirements post Realization of 35 GW

Coal Requirement Next 5 years

Coal Reserves
As of 1 January 2013
Capacity

Coal
Cons p.a

Coal Type

Reserves
(billion ton)

Low
Existing Coal Fired
PP (30 Sept 2014)

22 MW

Estimated Under 35
GW

20 MW

~75 mln

Total

42 MW

~150 mln

76 mln

Domestic

Export

300 350 mln ton

Total

456 506 mln ton

9.5

Medium

20.1

High

1.8

Total

31.4

1 Jan 2013

Now

NEWC
Price

US$ 94/MT

US$ 52/MT

Reserve

31 bln MT

-25 ~ 30
%

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

Coal as Key to Increase Electrification Ratio

Future Energy Mix

ENERGY MIX LANDSCAPE

Government Initial Energy Mix Target

Geothe
rmal
3%
Hydro
8%
Gas
27%

Oil
12%

2014

Coal
50%

New and
Renewable
Energy
22%

2025

2050

New and
Renewable
Energy
16%
Gas
18%

Gas
16%

Coal
61%

Coal
66%

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; Indonesias National Energy Councils 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 countrys cheapest energy source (coal), the
government also increases opportunities towards growing renewable energy
portion for power generation sources