Presentation for CEO Gathering 24 Nov 2016 FINAL

APBI 2017 Outlook and Goals

Pandu Sjahrir, Chairman of APBI-ICMA

CEO Gathering

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

APBI’s Forecasts

198 215 287 345 402 382 295 248 214 199 154

56 65 66 67 72 76 87

101 118 133

178 254 280

353

412

474 ₄₅₈

382

349 _{332 332 332}

0 50 100 150 200 250 300 350 400 450 500

2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E Export (MT) Domestic (MT) Production (MT)

Forecasts Comparison

2015A 2016E 2017E 2018E 2019E

NEWC Price (US$/ton) 59 70 73 68 67

Production (MT)

APBI 382 349 332 332 332

IDN Govt RPJMN 382 419 413 406 400

Indonesia’s Coal Production Forecasts

Source: Various analyst reports 2015, GlobalCoal, Dir. Gen of Mineral & Coal MEMR Presentation Nov.2015, Bloomberg, internal analysis

Indonesia Coal Export Destinations (2011-2015)

Source: Central Bureau of Statistics Indonesia, 2016

130

99

73

118 136 124

36 ₂₈ 36 ₂₇ 34 ₂₄

424

408

367

330 340 350 360 370 380 390 400 410 420 430

0 40 80 120 160 200 240

2013 2014 2015

China India South korea Taiwan Total Coal Export

Million Metric Tons

• With economic slowdown in China, in 2014 India replaced China as largest coal importer

• Along with the economic slowdown in China, Indonesia’s total exports also decreased

161 199

231 248 257

199 2.3% 2.7% 3.0% 3.0% 2.4% 1.7% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0 100 200 300 400 500 600

2010 2011 2012 2013 2014 2015 GDP from Coal Mining % of Total GDP

• Other than being the most economical source of energy for electricity, coal plays an important role in supporting Indonesia’s economy

• Government regulations are mainly aimed at increasing revenues (tax and non-tax) from the mining industry (non-oil & gas) and prevent illegal mining

Coal Contribution to Indonesia Economy

14 18

24

52

41

16 19 19

32 10 20 30 40 50 60

2012 2013 2014 2015 2016 Budget (APBN) Realized

Source: Central Bureau of Statistics Indonesia, 2016

IDR Trillion _{IDR Trillion}

Contribution to Indonesia’s GDP Non-Tax Revenue from Mining (Non-Oil

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

5.5% 7.1%

7.5% 8.0%

6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 217 244 268 292 315 340 366 394 425 457 0 50 100 150 200 250 300 350 400 450 500

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 839 932 1,011 1,089 1,162 1,241 1,322 1,409 1,506 1,604

6.2% 6.0% _5.6%

5.0% 4.8% 156 172

186 196 200

0 50 100 150 200 250 300 350 400 450 500 0 0.05 0.1 0.15 0.2 0.25 0.3

2011 2012 2013 2014 2015 646

702 746

779 784

Indonesian Economy & Energy Demand

Source: PLN Business Plan (RUPTL) 2016 – 2025; Central Bureau of Statistics (BPS); Note: PLN is State Electricity Utility

 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

GDP Growth (%)

Electricity Consumption (TWh) Electricity Consumption per Capita (KWh)

Growing Power Demand

As government pushes for infrastructure & industrial development, low electricity consumption and installed capacity levels create significant upside potentials in electricity demand

 Indonesia is behind its ASEAN peers in Electrification Ratio (ER)

 Developed countries tend to have larger electricity consumption per capita

ASEAN Electrification Ratio Comparables

Target 2019: >95%

Energy Consumption per Capita (KWh)

Source: PLN Investor Presentation May 2015, RUPTL 2016-2025, MEMR, World Bank, Indexmundi

8,023 7,765 3,724 2,501 1,113 780 ₅₂₈

358 _{166 109} -1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 B ru n e i S in g a p o re M a la y s ia T h a il a n d V ie tn a m In d o n e s ia P h il li p in e s L a o s C a m b o d ia M y a n m a r

35GW Electricity Plan

Source: Internal calculations; RUPTL 2015-2024

35 GW Power Program

Coal Fired Power Plant (CFPP)

Gas & Steam

Power Others

~20 GW ~12GW ~3GW

PLN

2 GW

IPP

18 GW

Project Costs US$ 27 – 36 bln

57% 34% _9%

DEBT (Proj. Financing)

US$ 19 – 25 bln

EQUITY US$ 8- 11 bln

• As a means to increase ER from currently 88% to >95% in 2019, President Jokowi Administration committed to add 35GW to existing installed capacity of 46 GW

• 57% of the total 35 GW power projects will come from CFPP and require significant participation from private (IPP). Total project cost to be borne by private sector / IPP : US$ 27 – 36 bln

27 GW 28 GW 31 GW 48 GW 53 GW 55 GW 55 GW 56 GW 56 GW 58 GW

50 GW 54 GW

67 GW

88 GW 94 GW 97 GW

100 GW104 GW

113 GW

126 GW

0 20 40 60 80 100 120 140

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 CFPP Others Total

CFPP Will Drive National Electricity

Planned Year-End Capacity 2025 Installed Capacity Composition

Total installed capacity will grow by 10% CAGR in the next 10 years. CFPP installed capacity will grow by 11 % in the same period

By 2025, coal-fired power plants will make up 46% of all power plants in Indonesia

Source: RUPTL 2016-2025

13%

30%

46%

11%

Renewables Gas Coal Others

34 45

53 55

70

88

2010 2011 2012 2013 2014 2015

93 95 109

166 168 170 171 173 175 177

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

11 GW

15 GW 16 GW

20 GW 22 GW 23 GW

26 GW 27 GW

31 GW

48 GW

53 GW 54 GW 55 GW 55 GW 56 GW

58 GW

Coal Requirement for CFPP

Coal requirements for power (million tons) Installed coal-fired power plants (GW)

CAGR: 21% 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.

35 GW Electricity Program

Source: PWC Report - Supplying and Financing Coal-Fired Power Plants in the 35GW Program, RUPTL 2016 - 2025

Coal 47% Gas 11% Nuclear 12% Hydro 15% Other Renewables 15% Coal 60% Gas 6% Nuclear 2% Hydro 21% Other Renewables 11%

Energy Mix – China

Energy Mix – India

Coal 61%

Diesel & Oil 8% Nuclear 2% Hydro 14% Other Renewables 15% Coal 44%

Diesel & Oil 2% Gas 10% Nuclear 3% Hydro 15% Other Renewables 26%

2015

Source: International Energy Agency

Coal’s Dominance in Energy Mix of World’s Largest Importers

2035

Country Announced Pre Permit

Development Permitted

Announced + Pre Permit

Development + Permitted

Construc-tion

China 232.0 147.5 26.3 405.8 205.1

India 56.1 78.4 43.7 178.2 64.7

Turkey 34.3 27.8 8.1 70.2 3.6

Indonesia 25.0 12.7 1.9 39.6 8.2

Vietnam 13.9 14.2 2.5 30.6 15.8

Japan 3.2 13.5 2.3 19.0 3.1

Total 364.5 294.1 84.8 743.4 300.5

More CFPP are still under construction. Demand for coal is

here to stay..

Despite continued issues surrounding climate change, as well as rise in renewable energy, the world is still building more coal-fired power plants due to

better accessibility and low price

Source: Coal Swarm, Greenpeace (data as of July 2016)

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

Past Coal Price Fluctuation Provides Producers

with Future Caution

0 50 100 150 200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Significant price hike in last two months How long will it sustain?

Will there be significant production ramp up? US subprime

mortgage crisis Fed fund rate_hike

uncertainty Collapse of commodities

Although only a handful of coal companies in Indonesia experienced coal price boom in 2006-2008, many went through the cycle of coal price volatility in

2009-2015. This should influence them to have more prudent and cautious stance in the event of future price recovery as seen of late

Falling Profitability & Investments

Source: PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35GW Program” ; Bloomberg

 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

$121

$97

$85

$71

$59

0 20 40 60 80 100 120 140

0 1 2 3 4 5 6 7 8 9 10

2011 2012 2013 2014 2015

$

b

il

li

o

n

Sterilization of Reserves

-2.0 4.0 6.0 8.0 10.0 12.0 14.0

Adaro ITM BukitAsam Harum Bayan Toba Bara Baramulti Atlas 2011 SR 2015 SR

2011 avg. = 9.6x

2015 avg. = 6.6x

Industry Strip Ratio

 Average strip ratio has plunged from 9.6x in 2011 to around 6.6x in 2015. Strip ratios 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 the mine plan

11.7 8.3 $97 $59 -20 40 60 80 100 120 -1 4 9 14 19 24 2012 2015

Mineable Reserves (billion tons) NEWC Coal Price

Source: MoMER Strategic Plan (Renstra), PWC Report “Supplying and Financing Coal-Fired Power Plants in the 35 GW Program”

Coal Type Reserves

(billion ton) % GAR

Low 9.2 28% <4,700 Medium 20.7 64% 4,700 – 5,700 High 1.6 5% 5,700 – 6,700 Very High 0.9 3% >6,700

Total 32.4 100%

MoMER Data

 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

29% PWC Survey

 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

39%

Coal Consumption Forecast

 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)

Switch to imports

Coal Type 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

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 350-400 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)

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

KEY ISSUES

2016

1

3

2

Replanting Obligations in the Reclamation of

Watershed Areas

4

Calculation on National Coal Price

Benchmark Cost Based Pricing

for Mine Mouth Power Producers

Increase in Non-Tax State Revenue for the

Cost Based Pricing for Mine-Mouth Power Producers

1

• 25% margin is not cost competitive enough to be borne by PLN and prevents producer from flexibility in

setting its coal pricing • Coal procurement

process may take longer time to obtain PLN approval

Governing

Regulation

Key Issues

Outcome

MoEMR Ministerial Regulation 10/2014

• Coal purchase price

by mine mouth CFPP at cost plus 25%

margin

• Coal purchase price

by mine mouth CFPP determined by PLN

MoEMR Ministerial Regulation 24/2016

• Revised coal

purchase price at cost plus 15%-25% margin provides win-win solution to PLN and

producers

• Price determined

between mine mouth CFPP and coal supplier expected to

simplify coal tender process

Higher Non-Tax State Revenues (PNBP) For Use of Forests

2

• New formula for L-1 Area creates additional burden and can cause double levy for IPPKH holder, previously only for L-3 area (damage area)

• New multiplier for L-3 calculation becomes too onerous for IPPKH holder, previously 2 times

“Significant increase in PNBP by 100%-250% borne by IPPKH holder”

Governing

Regulation

Key Issues

Action

Government Regulation (PP 33/2014)

• New PNBP formula

includes L-1 Area (buffer area)

• With new multiplier

for L-3 calculation at 7 times

APBI is pushing for revision in PP

33/2014 and currently submitting to supreme court for judicial

review to restore:

• PNBP formula only

for L-3 Area (damage area)

• Multiplier for L-3

calculation at 2 times

Replanting Obligation for the Rehabilitation of

Watershed Areas

3

• Previously, the ratio applied was only 1:1 to total L-3 area (damage area) only

• Previously it was part of government

responsibility to

determine location for rehabilitation area

“Higher rehabilitation cost and additional

effort to search rehabilitation area”

Governing

Regulation

Key Issues

Action

Ministry of Forestry Ministerial Regulation P87/2014

• New ratio for

replanting obligation for rehabilitation of watersheds (DAS) area is 1:1 to total IPPKH area.

• IPPKH holder to

determine their own rehabilitation area.

APBI is pushing for revision in Ministry of Forestry Ministerial Regulation P87/2014 and currently

submitting to supreme court for judicial

review to restore:

• Ratio for

rehabilitation of watershed (DAS) area is 1:1 to total L-3 Area only

• Government

responsibility to determine location for rehabilitation area

Revision to Formula of National Coal Price

Benchmark (HBA)

4

• Low calorie price

criterion may drag down the overall HBA price

• Unclear of what

impact the adjustment will have on HBA price

Governing

Regulation

Key Issues

Action

Potential revision to Directorate General of Coal and Minerals Regulation 515/2011 proposed by MoEMR:

• Two price criterion for

the HBA, a mid to high calorie coal price criterion and a low calorie price criterion

• Index formula

adjustment in the calculation of HBA (prev. 25% ICI-1, 25% Platts, 25% NEX, 25% GC)

APBI is actively involved with PT Coalindo Energy in ensuring that revision

to such formula will provide the most beneficial outcome to

the Gov’t and domestic producers

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

Long-term average

mining cost (approx $30/ton)

Fixed margin (15% - 25%)

Price at which coal procurers

purchase coal (approx. $36-38/ton) Long-term cost-based price contracts between coal

procurers (PLN and IPP) and coal miners.

Cost Based Pricing Policy

Provide predictable and stable returns for miners

Example of how it works? _{Positive effects of policy to miners}

Recovery in investments, encourage life-of-mine planning and stabilize economically mineable reserves

Incentive to invest in IPP

*

*

*

Protects against increase in price of coal

Advantages to Government

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 CFPP’s

APBI’s 2017 Goals

No Issues Relevant

Regulation

APBI’s Proposal Action Plan

POLICY 1. Cost Based

Pricing Policy

MoEMR Ministerial Regulation 24/2016

• Cost based pricing to be

applied across the board to all IPP tenders

• Long term coal supply contract (i.e. Min 5 years, more than 1 supplier)

• Extensive discussions with relevant Gov’t institutions and all stakeholders on coal supply sustainability • Actively involved in

workshops, seminars and small group discussion to deliver APBI’s proposal • Media campaign

2. Higher PNBP for Use of Forest

GR 33/2014 • PNBP formula only for L-3 Area (damage area)

• Multiplier for L-3 area calculation at 2 times

• Submit judicial review to supreme court

• Cooperate with RHLBT Forum to secure Gov’t support 3. Replanting obligation for rehabilitation of watersheds (DAS) area Ministry of Forestry Ministerial Regulation P87/2014

• Ratio for rehabilitation of

watershed (DAS) area is 1:1 to total L-3 area only

• Government responsibility to determine location for

rehabilitation area

• Submit judicial review to supreme court

• Cooperate with RHLBT Forum to secure Gov’t support

APBI’s 2017 Goals

No Issues Relevant

Regulation

APBI’s Proposal Action Plan

4. Revision plan to Formula of National Coal Price

Benchmark (HBA)

Directorate General of Coal and Minerals Regulation 515/2011

• Assess prospects that

revision to such formula will provide the most beneficial outcome to the Gov’t and domestic producers

• Conduct study with PT Coalindo Energy to come up with alternative

recommendations to Gov’t.

EVENT

5. 2017 Coaltrans Event

- • Achieve better economic benefit for APBI

• Enhance stakeholder engagement

• Focus on high quality topics

• Renewal cooperation contract

• Ensure better quality of participants (focus on high level positions)

• Actively give inputs on major issues at hand

Revision to Formula of National Coal Price

Benchmark (HBA)

4

•

Low calorie price

criterion may drag

down the overall HBA

price

•

Unclear of what

impact the adjustment

will have on HBA price

Governing

Regulation

Key Issues

Action

Potential revision to

Directorate General of

Coal and Minerals

Regulation 515/2011

proposed by MoEMR:

•

Two price criterion for

the HBA, a mid to

high calorie coal price

criterion and a low

calorie price criterion

•

Index formula

adjustment in the

calculation of HBA

(prev. 25% ICI-1,

25% Platts, 25%

NEX, 25% GC)

APBI is actively

involved with PT

Coalindo Energy in

ensuring that revision

to such formula will

provide the most

beneficial outcome to

the Gov’t and

domestic producers

Agenda

1

Indonesia Coal Industry Overview

2

35 GW Program & Coal’s Role in Energy Security

3

Challenges Faced

4

Agenda Addressed in 2016

Long-term average

mining cost (approx $30/ton)

Fixed margin (15% - 25%)

Price at which coal procurers

purchase coal (approx. $36-38/ton) Long-term cost-based price contracts between coal

procurers (PLN and IPP) and coal miners.

Cost Based Pricing Policy

Provide predictable and stable returns for miners

Example of how it works?

_{Positive effects of policy to miners}

Recovery in investments, encourage life-of-mine planning and stabilize economically mineable reserves

Incentive to invest in IPP

*

*

*

Protects against increase in price of coal

Advantages to Government

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 CFPP’s

APBI’s 2017 Goals

No Issues Relevant Regulation

APBI’s Proposal Action Plan

POLICY

1. Cost Based Pricing Policy

MoEMR Ministerial Regulation 24/2016

• Cost based pricing to be

applied across the board to all IPP tenders

• Long term coal supply contract (i.e. Min 5 years, more than 1 supplier)

• Extensive discussions with relevant Gov’t institutions and all stakeholders on coal supply sustainability • Actively involved in

workshops, seminars and small group discussion to deliver APBI’s proposal • Media campaign

2. Higher PNBP for Use of Forest

GR 33/2014 • PNBP formula only for L-3 Area (damage area)

• Multiplier for L-3 area calculation at 2 times

• Submit judicial review to supreme court

• Cooperate with RHLBT Forum to secure Gov’t support 3. Replanting obligation for rehabilitation of watersheds (DAS) area Ministry of Forestry Ministerial Regulation P87/2014

• Ratio for rehabilitation of

watershed (DAS) area is 1:1 to total L-3 area only

• Government responsibility to determine location for

rehabilitation area

• Submit judicial review to supreme court

• Cooperate with RHLBT Forum to secure Gov’t support

APBI’s 2017 Goals

No Issues Relevant Regulation

APBI’s Proposal Action Plan 4. Revision plan to

Formula of National Coal Price

Benchmark (HBA)

Directorate General of Coal and Minerals Regulation 515/2011

• Assess prospects that

revision to such formula will provide the most beneficial outcome to the Gov’t and domestic producers

• Conduct study with PT Coalindo Energy to come up with alternative

recommendations to Gov’t.

EVENT

5. 2017 Coaltrans Event

- • Achieve better economic benefit for APBI

• Enhance stakeholder engagement

• Focus on high quality topics

• Renewal cooperation contract

• Ensure better quality of participants (focus on high level positions)

• Actively give inputs on major issues at hand