99.99 Adaro Energy 2008 Annual Report English

Adaro Energy Annual Report 2008 www.adaro.com 61 Corporate Strategy and Growth Targets Our business model is one of integration of the coal supply chain to improve control and reliability, lower costs and become more eficient. In implementing this model we focus on increasing our reserves, improving cost eficiency, developing our infrastructure, fostering strong community relations and developing and retaining our long term loyal blue chip customers. For 2009, Adaro Energy continues to target 42-45 million tonnes of production although the actual number may end up in the lower part of that range. In the beginning of 2009, production was continuing as planned, despite the wet weather conditions. In the next ive years Adaro Energy plans to increase production capacity to 80 million tonnes per year. However, given the changing conditions in the global economy, Adaro Energy is making adjustments regarding how to best achieve this growth, with a view to maximizing shareholder value and minimizing risk. The different options to achieve 80 million tonnes a year include building an overland conveyor over half the original distance, upgrading the existing road, andor building in-pit conveyors. The planned overland conveyor would signiicantly reduce transportation costs, but is not essential to ramp up annual production to 80 million tonnes. Further Integration from Pit to Port An important part of Adaro Energy’s business model is to further increase the vertical and horizontal integration of the operations, so as to further improve control and eficiency. In 2009, Adaro Energy will likely not make large growth investments. However, as well as making investments to improve the infrastructure and routine investments such as procuring mining equipment and purchasing land, Adaro Energy will be making investments to further integrate the operations. Government Regulations and Requirements Price Renegotiations On December 11, 2008, Adaro Energy announced that Adaro Indonesia had temporarily suspended deliveries and declared force majeure to three customers after negotiations with them failed to achieve a required new price by December 3, 2008. The repricing negotiations and the deadline were required by the Government of Indonesia. By the end of 2008, Adaro had made progress in price renegotiations having reached an agreement with two buyers, and the proposed settlement was pending Government’s approval. Adaro is hopeful of achieving a satisfactory outcome. The outcome of the price renegotiations is not expected to impact on Adaro’s 2009 volume or price guidance. Impact of the New Mining Law On December 16, 2008, Indonesia passed Law Number 4 of 2009, which is known as the new Mining Law. The new Mining Law, which came into effect on January 12, 2009 and which supersedes the previous Mining Law, known as Law No. 11 of 1967, contains many provisions, such as those concerning maximum concession size, royalties and taxes, using afiliated parties and subsidiaries, using foreign contractors, etc. The impact of the new mining law cannot be determined until the government issues its regulations on how the new mining law will be implemented. Adaro Energy’s legal department, together with external counsel, is reviewing the new Mining Law in regards to Adaro Energy’s operations and expansion plans. Customer Service Management Progam Adaro provides global support to customers through two marketing ofices and an extensive network of representatives. These ofices and representatives provide administrative assistance on deliveries and a clear communications link between Adaro and its customers.Adaro’s technical support team is available for expert advice on the handling and combustion of Envirocoal. Team members include a consulting combustion engineer with more than 30 years experience in the utilization of sub-bituminous coals and lignites in power stations and other specialist consultants on power plant operations. The team makes regular visits to all the plants world wide using envirocoal and provides expert advice on its utilization in power plant and industrial boiler operations. Advice is also available on an as-required basis to all customers. Adaro sells on either an FOB or CIF basis as required by the customer. Adaro’s shipping department in its Jakarta ofice is available to provide expert and independent advice on the optimal logistics solution for each customer as freight markets change. Adaro’s operational staff are expert in the handling and storage of “Envirocoal”. This advice, including on-site visits before and during coal deliveries, is available to all customers. Legal staff Bima Sinung and Sylvia Trianasari assess the potential impact of the new mining law. Contact Us Governing Adaro Corporate Social Responsibility Financial Report 62 Adaro Energy Annual Report 2008 www.adaro.com Understanding Coal – The Where, What, Who and How Where it Came From Coal is a fossil fuel. It is a combustible, sedimentary, organic rock, which is composed mainly of carbon, hydrogen and oxygen. It is formed from vegetation, which has been consolidated between other rock strata and altered by the combined effects of pressure andor heat over millions of years to form coal seams. Coal was formed from the altered remains of prehistoric vegetation that originally accumulated in swamps and peat bogs. The build-up of silt and other sediments, together with movements in the earth’s crust known as tectonic movements buried these swamps and peat bogs, often to great depths. With burial, the plant material was subjected to high temperatures and pressures. This caused physical and chemical changes in the vegetation, transforming it into peat and then into coal. Coal formation began during the Carboniferous Period – known as the irst coal age – which spanned 360 million to 290 million years ago. The quality of each coal deposit is determined by temperature and pressure and by the length of time in formation, which is referred to as its ‘organic maturity’. Initially the peat is converted into lignite or ‘brown coal’ – these are coaltypes with low organic maturity. Lignite in its colour can range from dark black to various shades of brown. Over many more millions of years, the continuing effects of temperature and pressure produces further change in the lignite, progressively increasing its organic maturity and transforming it into the range known as ‘sub-bituminous’ coals. Further chemical and physical changes occur until these coals became harder and blacker, forming the ‘bituminous’ or ‘hard coals’. Under the right conditions, the progressive increase in the organic maturity can continue, inally forming anthracite. What are the Types The degree of change undergone by a coal as it matures from peat to anthracite – known as coaliication – has an important bearing on its physical and chemical properties and is referred to as the ‘rank’ of the coal. Low rank coals, such as lignite and subbituminous coals are typically friable materials with a dull, earthy appearance. They are characterised by high moisture levels and low carbon content, and therefore a low energy content. Higher rank coals are generally harder and stronger and often have a black, vitreous lustre. They contain more carbon, have lower moisture content, and produce more energy. Anthracite is at the top of the rank scale and has a correspondingly higher carbon and energy content and a lower level of moisture Owning Adaro Adaro in Summary From Us to You Management Report Running Adaro Understanding Coal – The Where, What, Who and How Adaro Energy Annual Report 2008 www.adaro.com 63 How Much is There Coal reserves are available in almost every country worldwide, with recoverable reserves in around 70 countries. At current production levels, proven coal reserves are estimated to last 133 years. In contrast, proven oil and gas reserves are equivalent to around 42 to 60 years. Over 67 of oil and 66 of gas reserves are concentrated in the Middle East and Russia. Coal: Proved Reserves at End 2007 Million tonnes Anthracite and bituminous Sub-Bituminous and lignite Total Share of Total RP ratio Total North America 116,592 133,918 250,510 29.6 224 Total S. Cent. America 7,229 9,047 16,276 1.9 118 Total Europe Eurasia 102,042 170,204 272,246 32.1 224 Total Middle East Africa 50,817 174 50,991 6.0 186 Total Asia Paciic 154,216 103,249 257,465 30.4 70 Total World 430,896 416,592 847,488 100.0 133 Where is it Sold and Who Sells it The world currently consumes over 5,500 Mt of coal. Coal provides 26 of global primary energy needs and generates 41 of the world’s electricity. Coal is used in a variety of sectors including power generation, iron and steel production, cement manufacturing and as a liquid fuel however the majority of coal is either utilized in power generation, either thermal coal or lignite or in iron and steel production with coking coal. Global Energy Consumption by Fuel Million tonnes oil equivalent 2006 2007 Oil Coal Others Total Oil Coal Others Total North America 1,130.2 605.7 1,058.1 2,794.0 1,134.7 613.3 1,090.6 2,838.6 S. Cent. America 239.9 20.9 272.3 533.0 252.0 22.4 278.5 552.9 Europe Eurasia 969.0 532.6 1,508.1 3,009.7 949.4 533.7 1,504.4 2,987.5 Middle East 281.2 8.9 267.2 557.3 293.5 6.1 274.6 574.1 Africa 132.1 101.9 94.2 328.3 138.2 105.9 100.4 344.4 Asia Paciic 1,158.5 1,771.7 690.5 3,620.7 1,185.1 1,896.2 720.4 3,801.8 Total World 3,910.9 3,041.7 3,890.4 10,843.0 3,952.8 3,117.5 3,969.0 11,099.3 Of Total 36.1

28.1 35.9

35.6 28.6

35.8 Types Of Coal

Low Rank Coals 47 Lignite 17 O F W O R L D R ESEVES U SES Largely power generation Power generation Cement Manufacture Industrial uses Power generation Cement Manufacture Industrial uses Manufacture of iron and steel Domestic industrial including smokeless fuels Bituminous 52 Sub-Bituminous 30 Anthracite -1 Metallurgical Coking Coal Thermal Steam Coal Hard Coal 53 Contact Us Governing Adaro Corporate Social Responsibility Financial Report 64 Adaro Energy Annual Report 2008 www.adaro.com Over 5,543 Mt of coal was produced in 2007, a 38 increase over the past 20 years. Coal production has grown fastest in Asia, while Europe has actually seen a decline in production. The largest coal producing countries are not conined to one region, the top ive producers are China, the USA, India, Australia and South Africa. Much of global coal production is used in the country in which it is produced with only around 18 of hard coal production being destined for the international coal market. Top Ten Hard Coal Producers 2007 Million Tonnes China 2,549 Russia 241 USA 981 Indonesia 231 India 452 Poland 90 Australia 323 Kazakhstan 83 South Africa 244 Columbia 72 Global coal production is expected to reach 7 billion tonnes in 2030 with China accounting for around half the increase over this period. Steam coal production is projected to have reached 5.2 billion tonnes, coking coal 624 million tonnes and brown coal 1.2 billion tonnes by that time. Coal is traded all over the world with coal shipped long distances by sea to reach markets. Over the last twenty years, seaborne trade in thermal coal has increased by 8 each year with the international trade in thermal coal reaching 718 Mt in 2007 however while this is a signiicant amount of coal it is still only approximately 18 of total coal consumption. Transportation costs account for a large share of the total delivered price of coal, therefore international trade in thermal coal is effectively divided into two regional markets, the Atlantic and the Paciic. The Atlantic market is made up of importing countries in Western Europe, notably the UK, Germany, Holland, Spain and Italy and exporting countries including Colombia, Venezuela, USA, Russia and South Africa. The Paciic market consists of Japan, South Korea, Taiwan, China, Malaysia and India while the exporters comprise Indonesia, Australia, Canada and China. The Paciic market currently accounts for approximately 60 of world thermal coal trade. Top Thermal Coal Importers 2007 Million Tonnes Top Thermal Coal Exporters 2007 Million Tonnes Japan 128 Indonesia 171 Korea 65 Australia 112 Taiwan 61 Russia 85 India 31 Colombia 67 UK 43 South Africa 66 China 42 China 51 Germany 36 USA 24 Inter-regional trade occurs primarily due to inter-regional price variances so South African coal can be found in the Paciic area especially India while Indonesian and Australian coal can be found in the Atlantic region. Owning Adaro Adaro in Summary From Us to You Management Report Running Adaro ‘06 ‘07 ‘08 ‘05 ‘04 ‘03 ‘02 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 International Coal Prices UStonne Understanding Coal – The Where, What, Who and How Europe Spot Price FOB Japanese Benchmark Price FOB Asian Spot Price FOB