Challenges on Sustainable Coal Supply and Proposed Policy Hele Workshop 1
Challenges on Sustainable Coal Supply and Proposed Policy
HELE Coal Technology Workshop
World Coal Association
Jakarta, 6 September 2016
2
Disclaimer
The materials in this presentation have been prepared by APBI-ICMA (“APBI”).
These materials may contain statements that constitute forward-looking statements. These statements
include descriptions regarding the intent, belief or current expectations of either APBI, or those of other
third-party entities whose data sources have been published for public use, hence used in this
presentation. These statements can be recognized by the use of words such as “expects,” “plan,” “will,”
“estimates,” “projects,” “intends,” or words of similar meaning. Such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual results may differ from
those in the forward-looking statements as a result of various factors and assumptions. APBI has no
obligation and does not undertake to revise forward-looking statements to reflect future events or
circumstances.
These materials are for information purposes only and do not constitute or form part of an offer, solicitation
or invitation of any offer, in any jurisdiction, nor should it or any part of it form the basis of, or be relied
upon in any connection with, any contract, commitment or investment decision whatsoever.
Agenda
1
Need for Electricity in Indonesia
2
35 GW Program & Coal’s Important Role
3
Coal Industry Overview & Challenges Faced
4
Proposed Policy Solution
Agenda
1
2
3
4
Need for Electricity in Indonesia
Indonesian Economy & Energy Demand
FORECAST
GDP Growth (%)
Electricity Consumption (TWh)
Electricity Consumption per Capita
(KWh)
0.3
500
3
450
0.25
4005
0.2
702
746
779
784
646
0.15
156
172
186
196
200
6.2%
6.0%
5.6%
5.0%
0.05
4.8%
2505
100
5
50
2012
2013
2014
2015
1,011
1,089
1,162
244
268
1,241
1,322
1,409
457
425
292
315
340
500
450
394
839
350
2
300
0
0
2011
932
366
400
350
300
217
200
1501
0.1
1,604
1,506
250
200
5.5%
7.1%
7.5%
8.0%
6.4%
6.4%
6.4%
6.4%
6.4%
6.4%
150
100
50
0
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Energy plays fundamental part in economic growth process. Economic growth needs to
be supported by sufficient Electrification Ratio (ER)
Power consumption is related to productivity level of its population. As countries switch
to manufacturing-based economies, power consumption per capita increases
Source: PLN Business Plan (RUPTL) 2016 – 2025; Central Bureau of Statistics (BPS); Note: PLN is State Electricity Utility
Current Electricity Condition
Deficit
Alert
Normal
As can be seen in graph above,
only small parts of Indonesia
actually have sufficient supply of
electricity
PLN has traditionally been having
problems in providing electricity to
its customers, as shown by SAIDI
and SAIFI numbers
Sources: PELAYANAN TERPADU SATU PINTU (PTSP)
PUSAT KETENAGALISTRIKAN, Jakarta, 28 January 2015,
PLN 2015 Annual Report
7.26
6.96
6.82
5.76
5.97
5.81
5.58
5.31
4.9
4.71
4.22
3.85
2010
2011 2012 2013 2014 2015
SAIDI = System Average
Interruption Duration Index
2010 2011 2012 2013 2014
SAIFI = System Average
Interruption Frequency Index
2015
Growing Power Demand
As government pushes for infrastructure & industrial development, low electricity consumption
and installed capacity levels create significant upside potentials in electricity demand
ASEAN Electrification Ratio Comparables
Energy Consumption per Capita (KWh)
Target 2019: >95%
9,000
8,023
8,000
7,000
7,765
6,000
5,000
3,724
4,000
528
358
166
109
Myanmar
780
1,000
Cambodia
1,113
Laos
2,000
Phillipines
2,501
3,000
Indonesia
Vietnam
Thailand
Malaysia
Singapore
Brunei
-
Indonesia is behind its ASEAN peers in Electrification Ratio (ER)
Developed countries tend to have larger electricity consumption per capita
Source: PLN Investor Presentation May 2015, RUPTL 2016-2025, MEMR, World Bank, Indexmundi
Indonesian Electricity Development Progress
Installed Capacity excluding Rental Power
as of December 2015
Installed Capacity 2010 - 2015
Installed Capacity* 46 GW
41GW
31GW
34GW
43GW
46GW
15
20
25
23 GW
37GW
Gas-fired
Diesel
2011
10
Coal-fired
Hydro
2010
5
2012
PLN
2013
IPP
2014
14 GW
4 GW
2 GW
2015
Total
Others
2 GW
* Per 2015, excluding rental from 3rd party sources ~4 GW
Installed capacity of power plants increased
slowly at 6% CAGR over 2010-2015. PLN
installed capacity increased at 5% CAGR, while
IPP increased at 11% CAGR
Coal and gas are largest sources of energy for
electricity generation with highest total
installed capacity and at most economical price
Source: RUPTL 2016 – 2025; Note: IPP is Independent Power Producer
Agenda
1
2
3
4
35 GW Program & Coal’s Important Role
35 GW Electricity Plan
35 GW Power Projects
21%
60%
19%
Coal Fired Power
Plant (CFPP)
Gas & Steam
Power
Others
~20 GW
~7.5 GW
~6.5 GW
PLN
IPP
2 GW
18 GW
Project Costs
US$ 27 – 36 bln
DEBT
(Proj. Financing)
US$ 19 – 25 bln
EQUITY
US$ 8 – 11 bln
President Jokowi ‘s Administration committed to adding 35 GW new capacity to current installed capacity
of 46 GW to increase ER from currently ~88% to >95% by after 2019
~60% of total 35 GW power projects will come from CFPP & this 35 GW require significant participation
from private (IPP) at ~53% of project costs vs PLN’s portion of ~47% (inc. transmission)
IPPs (inc. CFPP) secure power purchase agreement (PPA) from PLN with typical tenor of 25-30 years
Source: RUPTL 2016-2025, internal calculations; Note: CFPP is Coal-fired power plant
35 GW Electricity Development Progress
Past Electricity Programs Failed to
Meet Expectations
35 GW
Progress
Government’s
35 GW
Program
RUPTL 2010 – 2019
30 GW additional capacity
planned
PPA
Signed
51 % realized
15 GW realized additional
capacity
31 GW
2010
34 GW 37 GW
2011
2012
Installed Capacity
41 GW
2013
43 GW 46 GW
2014
2015
COD
~0.2 GW
Under
Construction
~8.2 GW
Have Not
Started
Construction
~9.8 GW
Tender Process
~10.8 GW
Planning Process
~7.7 GW
Additional Capacity
Based on RUPTL 2010 – 2019, PLN
planned additional capacity of approx 30
GW for 2010 - 2015 but only realized 15
GW
Source: RUPTL 2016-2025, PLN presentation
Only 0.2 GW operational and 8.2 GW
under construction out of 35 GW planned
18 GW of power plant projects have not
secured PPA
CFPP Will Drive National Electricity
Planned Year-End Capacity
35 GW Electricity Program
2025 Installed Capacity Composition
Future Electricity Programs
140
126 GW
120
13%
113 GW
100
88 GW
80
60
11%
94 GW
104 GW
97 GW 100 GW
67 GW
50 GW
30%
46%
54 GW
40
20
0
27 GW 28 GW 31 GW 48 GW 53 GW 55 GW 55 GW 56 GW 56 GW 58 GW
2016
2017
2018
2019
CFPP
2020
2021
Others
2022
2023
2024
Gas
Coal
Others
2025
Total
Total installed capacity will grow by 10% CAGR in
next 10 years. CFPP installed capacity will grow by
11 % in same period
Source: RUPTL 2016-2025
Renewables
By 2025, CFPP will make up 46%
of all power plants in Indonesia
Forecast
Coal Requirement for CFPP
35 GW Electricity Program
Coal requirements for power (million tons)
55 GW 55 GW 56 GW
53 GW 54 GW
Installed coal-fired power plants (GW)
48 GW
26 GW 27 GW
20 GW
58 GW
31 GW
22 GW 23 GW
166
168
170
171
173
175
177
2019
2020
2021
2022
2023
2024
2025
15 GW 16 GW
11 GW
34
2010
45
53
55
2011
2012
2013
CAGR: 21%
70
2014
88
93
95
2015
2016
2017
109
2018
CAGR: 21%
Coal consumption has increased by 21% CAGR in past five years
It is expected to continue to increase by another 21% CAGR from 2016 until 2019, if 20
GW of new CFPP capacity from 35 GW program is installed according to plan
This assumes each MW requires 3500 - 4000 tons of coal p.a.
Source: PWC Report - Supplying and Financing Coal-Fired Power Plants in the 35 GW Program, RUPTL 2016 - 2025
Agenda
1
2
3
4
Coal Industry Overview & Challenges Faced
Indonesia’s Coal Reserve
MoMER Data
24
19
Coal Type
Low
Reserves
(billion ton)
%
GAR
9.2
28%
6,700
32.4
100%
Medium
Total
Data from MoMER as of 2012
suggests Indonesia has more than
sufficient reserves of 32.4 bn tons
Difficult to validate information, as
MoMER does not publish detailed
methodology and sources of data
PWC Survey
$97
120
100
39%
80
14
$59
60
9
40
29%
4
20
11.7
-1
2012
Mineable Reserves (billion tons)
8.3
2015
NEWC Coal Price
Based on PWC survey, mineable reserves in
2015 were reported at 8.3 bn tons, contrasting
MoMER figure of 32.4 bn tons
This was down by 29% from previously
reported JORC of 11.7 bn tons in 2012
Decrease in NEWC coal price has reduced
economically mineable reserves
Source: MoMER Strategic Plan (Renstra), PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35 GW Program”
Falling Profitability & Investments
EBITDA fell 74% since 2011, from US$ 6.5 bn to US$ 1.6 bn in 2015
Capital expenditure (capex) dropped by 79% since 2012 from US$ 1.9 bn to US$ 0.4
bn by end 2015
Mining industry is expected to decrease capex by further 10-19 % in 2016; this may
be approaching the level where investment is not sustaining reserves each year
$ billion
10
9
8
7
6
5
4
3
2
1
0
140
$121
120
100
$97
$85
80
$71
$59
60
40
20
0
2011
2012
EBITDA
2013
Capex
2014
NEWC Price ($/ton)
Source: PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35 GW Program”; Bloomberg
2015
Sterilization of Reserves
Average strip ratio (SR) has plunged from 9.6x in 2011 to around 6.6x in 2015. SR have
likely continued to fall in 2016
Mine plans are being modified, setting lower strip ratios and reducing reserves to be able
to return to profitability
This is likely to make future reserves more costly to extract, or even uneconomical to
extract, which can result in ‘sterilization’ of remaining reserves from mine plan
Industry Strip Ratio
14.0
12.0
2011 avg. =
10.0
9.6x
8.0
2015 avg. =
6.0
6.6x
4.0
2.0
Adaro
ITM
Bukit Asam
Harum
2011 SR
Source: PWC Report; Annual Reports
Bayan
2015 SR
Toba Bara
Baramulti
Atlas
Coal Consumption Forecast
Switch to imports
2015
2019
2024
2030
2050
DMO
(Power)
88
166
175
185
226
DMO
(Others)
2
74
78
82
101
Exports
313
160
140
116
36
Total
403
400
393
383
363
Coal Type
By end-2019, coal consumption for DMO (power) is expected to reach 166 mn tons
We should see steady increase in coal consumption for DMO (power) going
forward
Coal consumption for 2016 – 2050 is forecasted to be in range of 350 – 400 million
tons per annum
Source: PWC Report; RJPMN (National Medium-Term Development Plan)
Uncertain Coal Supply
Based on PWC’s March 2016 report, current proven coal reserves are at 8.3 bn tons
Assuming coal reserves of 8.3 billion tons, with annual production forecast of 350400 mn tons at current coal prices, current coal reserves will run out by 2036
This is less than 20 years into lifecycle of new CFPP (typically 25-30 years from
COD)
Source: PWC Report ; RJPMN
Agenda
1
2
3
4
Proposed Policy Solution
Cost Based Pricing Policy
Example of how it works?
Long-term cost-based price
contracts between coal
procurers (PLN and IPP) and
coal miners.
Positive effects of policy to miners
*
*
Price at which coal procurers
purchase coal (approx $36-38/ton)
Fixed margin
(20% - 25%)
Long-term
average
mining
cost
(approx
$30/ton)
*
Provide predictable and stable returns for miners
Recovery in investments, encourage life-of-mine
planning and stabilize economically mineable
reserves
Incentive to invest in IPP
Advantages to Government
*
*
Protects against increase in price of coal
Avoids domestic reserve crisis and need to import
coal and/or switch to more costly alternatives
Cost based pricing should not only be applied to mine-mouth CFPP but
to all forms of CFPP
Updates & Recommendation
On the recent update, the new minister of mines regulation No. 9/2016
sets out 15-25% range of margin that could be used by coal miners in
proposing coal sales price in Mine-Mouth Power Plant
Detail of cost as stipulated in the regulation should be reasonable.
However, PLN has been asking for review of the margin and cost detail,
which they consider too high
Government is working to find the best solution that would ensure the
reasonable margin for miners while benefiting PLN as the user for
sustainable coal supply
Extensive discussions with relevant government institutions on supply
sustainability to meet coal demand in 35 GW program must be
encouraged to create win-win solution for all stakeholders, including on
the viability of adopting cost plus margin method for all CFPP
THANK YOU
HELE Coal Technology Workshop
World Coal Association
Jakarta, 6 September 2016
2
Disclaimer
The materials in this presentation have been prepared by APBI-ICMA (“APBI”).
These materials may contain statements that constitute forward-looking statements. These statements
include descriptions regarding the intent, belief or current expectations of either APBI, or those of other
third-party entities whose data sources have been published for public use, hence used in this
presentation. These statements can be recognized by the use of words such as “expects,” “plan,” “will,”
“estimates,” “projects,” “intends,” or words of similar meaning. Such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual results may differ from
those in the forward-looking statements as a result of various factors and assumptions. APBI has no
obligation and does not undertake to revise forward-looking statements to reflect future events or
circumstances.
These materials are for information purposes only and do not constitute or form part of an offer, solicitation
or invitation of any offer, in any jurisdiction, nor should it or any part of it form the basis of, or be relied
upon in any connection with, any contract, commitment or investment decision whatsoever.
Agenda
1
Need for Electricity in Indonesia
2
35 GW Program & Coal’s Important Role
3
Coal Industry Overview & Challenges Faced
4
Proposed Policy Solution
Agenda
1
2
3
4
Need for Electricity in Indonesia
Indonesian Economy & Energy Demand
FORECAST
GDP Growth (%)
Electricity Consumption (TWh)
Electricity Consumption per Capita
(KWh)
0.3
500
3
450
0.25
4005
0.2
702
746
779
784
646
0.15
156
172
186
196
200
6.2%
6.0%
5.6%
5.0%
0.05
4.8%
2505
100
5
50
2012
2013
2014
2015
1,011
1,089
1,162
244
268
1,241
1,322
1,409
457
425
292
315
340
500
450
394
839
350
2
300
0
0
2011
932
366
400
350
300
217
200
1501
0.1
1,604
1,506
250
200
5.5%
7.1%
7.5%
8.0%
6.4%
6.4%
6.4%
6.4%
6.4%
6.4%
150
100
50
0
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Energy plays fundamental part in economic growth process. Economic growth needs to
be supported by sufficient Electrification Ratio (ER)
Power consumption is related to productivity level of its population. As countries switch
to manufacturing-based economies, power consumption per capita increases
Source: PLN Business Plan (RUPTL) 2016 – 2025; Central Bureau of Statistics (BPS); Note: PLN is State Electricity Utility
Current Electricity Condition
Deficit
Alert
Normal
As can be seen in graph above,
only small parts of Indonesia
actually have sufficient supply of
electricity
PLN has traditionally been having
problems in providing electricity to
its customers, as shown by SAIDI
and SAIFI numbers
Sources: PELAYANAN TERPADU SATU PINTU (PTSP)
PUSAT KETENAGALISTRIKAN, Jakarta, 28 January 2015,
PLN 2015 Annual Report
7.26
6.96
6.82
5.76
5.97
5.81
5.58
5.31
4.9
4.71
4.22
3.85
2010
2011 2012 2013 2014 2015
SAIDI = System Average
Interruption Duration Index
2010 2011 2012 2013 2014
SAIFI = System Average
Interruption Frequency Index
2015
Growing Power Demand
As government pushes for infrastructure & industrial development, low electricity consumption
and installed capacity levels create significant upside potentials in electricity demand
ASEAN Electrification Ratio Comparables
Energy Consumption per Capita (KWh)
Target 2019: >95%
9,000
8,023
8,000
7,000
7,765
6,000
5,000
3,724
4,000
528
358
166
109
Myanmar
780
1,000
Cambodia
1,113
Laos
2,000
Phillipines
2,501
3,000
Indonesia
Vietnam
Thailand
Malaysia
Singapore
Brunei
-
Indonesia is behind its ASEAN peers in Electrification Ratio (ER)
Developed countries tend to have larger electricity consumption per capita
Source: PLN Investor Presentation May 2015, RUPTL 2016-2025, MEMR, World Bank, Indexmundi
Indonesian Electricity Development Progress
Installed Capacity excluding Rental Power
as of December 2015
Installed Capacity 2010 - 2015
Installed Capacity* 46 GW
41GW
31GW
34GW
43GW
46GW
15
20
25
23 GW
37GW
Gas-fired
Diesel
2011
10
Coal-fired
Hydro
2010
5
2012
PLN
2013
IPP
2014
14 GW
4 GW
2 GW
2015
Total
Others
2 GW
* Per 2015, excluding rental from 3rd party sources ~4 GW
Installed capacity of power plants increased
slowly at 6% CAGR over 2010-2015. PLN
installed capacity increased at 5% CAGR, while
IPP increased at 11% CAGR
Coal and gas are largest sources of energy for
electricity generation with highest total
installed capacity and at most economical price
Source: RUPTL 2016 – 2025; Note: IPP is Independent Power Producer
Agenda
1
2
3
4
35 GW Program & Coal’s Important Role
35 GW Electricity Plan
35 GW Power Projects
21%
60%
19%
Coal Fired Power
Plant (CFPP)
Gas & Steam
Power
Others
~20 GW
~7.5 GW
~6.5 GW
PLN
IPP
2 GW
18 GW
Project Costs
US$ 27 – 36 bln
DEBT
(Proj. Financing)
US$ 19 – 25 bln
EQUITY
US$ 8 – 11 bln
President Jokowi ‘s Administration committed to adding 35 GW new capacity to current installed capacity
of 46 GW to increase ER from currently ~88% to >95% by after 2019
~60% of total 35 GW power projects will come from CFPP & this 35 GW require significant participation
from private (IPP) at ~53% of project costs vs PLN’s portion of ~47% (inc. transmission)
IPPs (inc. CFPP) secure power purchase agreement (PPA) from PLN with typical tenor of 25-30 years
Source: RUPTL 2016-2025, internal calculations; Note: CFPP is Coal-fired power plant
35 GW Electricity Development Progress
Past Electricity Programs Failed to
Meet Expectations
35 GW
Progress
Government’s
35 GW
Program
RUPTL 2010 – 2019
30 GW additional capacity
planned
PPA
Signed
51 % realized
15 GW realized additional
capacity
31 GW
2010
34 GW 37 GW
2011
2012
Installed Capacity
41 GW
2013
43 GW 46 GW
2014
2015
COD
~0.2 GW
Under
Construction
~8.2 GW
Have Not
Started
Construction
~9.8 GW
Tender Process
~10.8 GW
Planning Process
~7.7 GW
Additional Capacity
Based on RUPTL 2010 – 2019, PLN
planned additional capacity of approx 30
GW for 2010 - 2015 but only realized 15
GW
Source: RUPTL 2016-2025, PLN presentation
Only 0.2 GW operational and 8.2 GW
under construction out of 35 GW planned
18 GW of power plant projects have not
secured PPA
CFPP Will Drive National Electricity
Planned Year-End Capacity
35 GW Electricity Program
2025 Installed Capacity Composition
Future Electricity Programs
140
126 GW
120
13%
113 GW
100
88 GW
80
60
11%
94 GW
104 GW
97 GW 100 GW
67 GW
50 GW
30%
46%
54 GW
40
20
0
27 GW 28 GW 31 GW 48 GW 53 GW 55 GW 55 GW 56 GW 56 GW 58 GW
2016
2017
2018
2019
CFPP
2020
2021
Others
2022
2023
2024
Gas
Coal
Others
2025
Total
Total installed capacity will grow by 10% CAGR in
next 10 years. CFPP installed capacity will grow by
11 % in same period
Source: RUPTL 2016-2025
Renewables
By 2025, CFPP will make up 46%
of all power plants in Indonesia
Forecast
Coal Requirement for CFPP
35 GW Electricity Program
Coal requirements for power (million tons)
55 GW 55 GW 56 GW
53 GW 54 GW
Installed coal-fired power plants (GW)
48 GW
26 GW 27 GW
20 GW
58 GW
31 GW
22 GW 23 GW
166
168
170
171
173
175
177
2019
2020
2021
2022
2023
2024
2025
15 GW 16 GW
11 GW
34
2010
45
53
55
2011
2012
2013
CAGR: 21%
70
2014
88
93
95
2015
2016
2017
109
2018
CAGR: 21%
Coal consumption has increased by 21% CAGR in past five years
It is expected to continue to increase by another 21% CAGR from 2016 until 2019, if 20
GW of new CFPP capacity from 35 GW program is installed according to plan
This assumes each MW requires 3500 - 4000 tons of coal p.a.
Source: PWC Report - Supplying and Financing Coal-Fired Power Plants in the 35 GW Program, RUPTL 2016 - 2025
Agenda
1
2
3
4
Coal Industry Overview & Challenges Faced
Indonesia’s Coal Reserve
MoMER Data
24
19
Coal Type
Low
Reserves
(billion ton)
%
GAR
9.2
28%
6,700
32.4
100%
Medium
Total
Data from MoMER as of 2012
suggests Indonesia has more than
sufficient reserves of 32.4 bn tons
Difficult to validate information, as
MoMER does not publish detailed
methodology and sources of data
PWC Survey
$97
120
100
39%
80
14
$59
60
9
40
29%
4
20
11.7
-1
2012
Mineable Reserves (billion tons)
8.3
2015
NEWC Coal Price
Based on PWC survey, mineable reserves in
2015 were reported at 8.3 bn tons, contrasting
MoMER figure of 32.4 bn tons
This was down by 29% from previously
reported JORC of 11.7 bn tons in 2012
Decrease in NEWC coal price has reduced
economically mineable reserves
Source: MoMER Strategic Plan (Renstra), PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35 GW Program”
Falling Profitability & Investments
EBITDA fell 74% since 2011, from US$ 6.5 bn to US$ 1.6 bn in 2015
Capital expenditure (capex) dropped by 79% since 2012 from US$ 1.9 bn to US$ 0.4
bn by end 2015
Mining industry is expected to decrease capex by further 10-19 % in 2016; this may
be approaching the level where investment is not sustaining reserves each year
$ billion
10
9
8
7
6
5
4
3
2
1
0
140
$121
120
100
$97
$85
80
$71
$59
60
40
20
0
2011
2012
EBITDA
2013
Capex
2014
NEWC Price ($/ton)
Source: PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35 GW Program”; Bloomberg
2015
Sterilization of Reserves
Average strip ratio (SR) has plunged from 9.6x in 2011 to around 6.6x in 2015. SR have
likely continued to fall in 2016
Mine plans are being modified, setting lower strip ratios and reducing reserves to be able
to return to profitability
This is likely to make future reserves more costly to extract, or even uneconomical to
extract, which can result in ‘sterilization’ of remaining reserves from mine plan
Industry Strip Ratio
14.0
12.0
2011 avg. =
10.0
9.6x
8.0
2015 avg. =
6.0
6.6x
4.0
2.0
Adaro
ITM
Bukit Asam
Harum
2011 SR
Source: PWC Report; Annual Reports
Bayan
2015 SR
Toba Bara
Baramulti
Atlas
Coal Consumption Forecast
Switch to imports
2015
2019
2024
2030
2050
DMO
(Power)
88
166
175
185
226
DMO
(Others)
2
74
78
82
101
Exports
313
160
140
116
36
Total
403
400
393
383
363
Coal Type
By end-2019, coal consumption for DMO (power) is expected to reach 166 mn tons
We should see steady increase in coal consumption for DMO (power) going
forward
Coal consumption for 2016 – 2050 is forecasted to be in range of 350 – 400 million
tons per annum
Source: PWC Report; RJPMN (National Medium-Term Development Plan)
Uncertain Coal Supply
Based on PWC’s March 2016 report, current proven coal reserves are at 8.3 bn tons
Assuming coal reserves of 8.3 billion tons, with annual production forecast of 350400 mn tons at current coal prices, current coal reserves will run out by 2036
This is less than 20 years into lifecycle of new CFPP (typically 25-30 years from
COD)
Source: PWC Report ; RJPMN
Agenda
1
2
3
4
Proposed Policy Solution
Cost Based Pricing Policy
Example of how it works?
Long-term cost-based price
contracts between coal
procurers (PLN and IPP) and
coal miners.
Positive effects of policy to miners
*
*
Price at which coal procurers
purchase coal (approx $36-38/ton)
Fixed margin
(20% - 25%)
Long-term
average
mining
cost
(approx
$30/ton)
*
Provide predictable and stable returns for miners
Recovery in investments, encourage life-of-mine
planning and stabilize economically mineable
reserves
Incentive to invest in IPP
Advantages to Government
*
*
Protects against increase in price of coal
Avoids domestic reserve crisis and need to import
coal and/or switch to more costly alternatives
Cost based pricing should not only be applied to mine-mouth CFPP but
to all forms of CFPP
Updates & Recommendation
On the recent update, the new minister of mines regulation No. 9/2016
sets out 15-25% range of margin that could be used by coal miners in
proposing coal sales price in Mine-Mouth Power Plant
Detail of cost as stipulated in the regulation should be reasonable.
However, PLN has been asking for review of the margin and cost detail,
which they consider too high
Government is working to find the best solution that would ensure the
reasonable margin for miners while benefiting PLN as the user for
sustainable coal supply
Extensive discussions with relevant government institutions on supply
sustainability to meet coal demand in 35 GW program must be
encouraged to create win-win solution for all stakeholders, including on
the viability of adopting cost plus margin method for all CFPP
THANK YOU