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Highlights

Indonesia's ambitious plan to build 14 dedicated coal terminals will be hindered by investment issues, while the restriction of using only these new and existing accredited ports to curb illegal coal outflows may hurt exports, analysts said this week.

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The country sees the need for building these terminals, as most of the coal exports currently flow via various channels other than the existing coal and multi-user ports, making it difficult for the government to record the movements or receive royalty payments. In addition, the exports have increased substantially.

The energy ministry's coal director Edi Prasodjo has said it is difficult to control illegal exports because coal can be exported from any point from the country, while an energy ministry official estimated the resulting potential losses for the government at Rupiah 5.5 trillion ($418 million) a year. Around 50 million-60 million mt/year of coal is exported illegally from Indonesia, Minerals and Coal Director General of Indonesia's Ministry of Energy, R. Sukhyar said.


"I guess the key question is whether Indonesia has the capital to build the ... ports. Whose responsibility would that be? Private or public sector investment?" said Singapore-based Standard Chartered Bank analyst Serene Lim.

A second Singapore-based analyst also said funding will be the biggest stumbling block, as it will be difficult to obtain private funding in the current environment of depressed coal prices.

He said Colombia has already moved down this path, with miners eventually funding the required capital expenditure. As an example, he pointed out that a 30 million mt/year coal port project in Wiggins Island, Australia, required a capital spending of about $2.7 billion.

A Sydney-based coal mining consultant, who shared similar concerns said: "The government of Indonesia now wants to build ports. It also wants to improve roads. It wants to build railways. But so many projects have been delayed or are not moving at all because private investors are not interested or have lost interest."

The Indonesian government has so far been unable to muster partnerships with private investors for coal railway projects in Central Kalimantan and East Kalimantan, which have been in the drawing board for about a decade now.

CURRENT CHANNELS FOR INDONESIA'S COAL EXPORTS

Coal for export is currently shipped out in four ways from Indonesia: through existing ports -- most of which are unable to accept large vessels; via towed barges which sail directly to international destinations; trans-shipment whereby coals are transferred from barges onto large bulk carriers by floating cranes; and through floating vessels which stockpile coal brought in via barges, which is then loaded onto large vessels.

Trans-shipments and floating vessels are currently Indonesia's solution to the draft limitations of most Indonesian coal ports that are not able to accommodate Handymax, Panamax and Capesize vessels.

THE PLAN FOR THE 14 COAL DEDICATED TERMINALS

Indonesia plans to build 14 dedicated coal terminals on the islands of Kalimantan and Sumatra in a bid to curb illegal coal exports, Sukhyar said last month.

Seven terminals were planned for Kalimantan and seven for Sumatra in a bid to ensure all coal produced on both islands was recorded and subject to royalty payments, he added.

Sukhyar has identified the 14 proposed locations for the ports. In East Kalimantan, the proposed locations for the government-supervised ports are Balikpapan, Adang, Berau and Maloy. In South Kalimantan, the proposed locations are Taboneo, Sungai Danau and Batulicin. In Sumatra, the proposed sites are Lampung, Sumsel, Bengkulu, Jambi bay, Riau, Padang and Aceh Selatan. The energy ministry's coal director Prasodjo last month told Platts that a conceptual plan to build the terminals has been drawn up, and the country's transport ministry would be in charge of implementing it. However, the target dates for achieving certain milestones of the plan have not been set. Both the government and the private sector would be involved in construction, he added, without elaborating.

Analyst Lim pointed out that "if Indonesia will restrict exports to land ports, it has to make sure that handling capacities are sufficient or else the growth of the coal industry, which contributes billions of dollars annually to the Indonesian treasury, will be affected."

Sukhyar last month said trans-shipments will not be totally eliminated in future, but such activities must be directly seen from a maximum of 2 km from the ports.

LACK OF SUITABLE INFRASTRUCTURE

Indonesia is in this situation due to a lack of coal railways and deepwater ports. Even large Indonesian producers that have dedicated deepwater terminals are finding the logistics of offshore loading more cost-effective and more efficient if coal is moved out from mines by barges. Some have chosen to rent out their terminal facilities to third parties, an executive at one of Indonesia's largest coal mines has said.

The second Singapore-based analyst estimated that existing coal terminals in Indonesia handle only about 10% of the country's entire coal throughput. A survey of 32 dedicated coal and multi-user ports in Kalimantan and Sumatra indicate that these ports have a coal handling capacity of 120-150 million mt/year. Indonesia has only a handful of deepwater ports, most of which are owned by the country's largest coal producers.

Indonesia produced 431 million mt and exported 343 million mt last year, according to the energy ministry. In Q1 2014, the country produced 147 million mt and exported 108 million mt, the ministry said.

The second Singapore-based analyst pointed out that Indonesia's thermal coal production and exports have been on the rise. It has risen from production of 55 million mt and exports of 42 million in 1997, according to the ministry of energy.

--Cecilia Quiambao, cecilia.quiambao@platts.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com