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Prospects for coal and clean coal technologies in Indonesia

Technical Report · June 2009

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 Prospects for coal and clean coal
technologies in Indonesia
Paul Baruya
CCC/148

June 2009

Copyright © IEA Clean Coal Centre

ISBN 978-92-9029-468-9

Abstract
Indonesia has become the largest exporter of steam coal in the world, but the long-term future of coal exports is being brought into
question as domestic demand is projected to grow by a significant amount, from 40–50 Mt/y in 2007 to more than 100 Mt/y by
2013, and even higher beyond 2013.

Exports reached 200–210 Mt in 2008, and are set to rise in the future. Import volumes are negligible, while indigenous production
was estimated to be around 240–260 Mt in 2008. Illegal mining is being addressed and in the past could have accounted for at
least 20 Mt/y of production, but obtaining reliable export and production figures as a result is therefore not straightforward.

Indonesia is the fourth most populous country in the world. This fact coupled with robust GDP growth means there is more
pressure on the state-controlled electricity industry to invest in, and build, adequate infrastructure to meet the rising demand for
power. Part of this investment is being driven by government policy to build 10 GWe of coal-fired power by 2010 and a second
tranche by 2013. However, the investment programme, commonly known as the ‘crash programme’ is more likely to be delayed
by 2–3 years. Nevertheless, the likely 20–30 Mt/y or so of additional coal demand from the first tranche alone will put pressure on
domestic coal producers to meet expanding demand both at home and abroad for low rank and exportable bituminous coals. This
report covers four main topics, the Indonesian coal industry, the power generating sector and its use of clean coal technology,
changes in coal demand and its impact on international trade, and finally a brief look at upgrading low rank coals within the
country.
 Acronyms and abbreviations
$ US dollar
ARA Amsterdam/Rotterdam/Antwerp, a major coal hub for European coal imports
BAT best available technology
bbl barrel of crude
bcm billion cubic metres (of natural gas)
bcm bank cubic metres (of overburden removal for opencast mining)
boe barrel of oil equivalent
BFG blast furnace gas
bn billion (109)
Btu/kWh British thermal units per kilowatt hour
BWE bucket wheel excavator
°C degrees Celsius (multiply by 1.8 and add 32 to convert to Fahrenheit)
CBM coalbed methane
CCGT combined cycle gas turbine (also known as GTCC)
CCS carbon capture and storage
CDM clean development mechanism
CHP combined heat and power (also known as cogeneration)
CIF cost, insurance, and freight
CO2 carbon dioxide
CoW Contract of Works, also referred to as Coal Contract of Works (CCoW)
dwt deadweight
EIA Energy Information Administration, US Department of Energy
ESP electrostatic precipitator (for particulate removal)
FGD flue gas desulphurisation (for SO2 removal)
FTS floating transfer station
FY financial year
GDP gross domestic product
GHG greenhouse gas
GJ gigajoule
GT gas turbine
GWe gigawatt of electrical output capacity (1000 MWe)
GWh gigawatt hour (1000 MWh; 106 kWh)
h/d hours per day
ha hectare
IBT Indonesian Bulk Terminal
IC internal combustion (typically a diesel reciprocating engine)
IEA International Energy Agency, Paris
IEA CCC IEA Clean Coal Centre, London
IGCC integrated gasification and combined cycle
IPO initial public offering
JI joint implementation
kcal/kg kilocalorie per kilogramme (multiply by 0.004187 to get MJ/kg)
km kilometre
kt kilotonnes
kWe kilowatt of electrical output capacity
kWh kilowatt hour
LHV lower heating value
LNG liquefied natural gas, a form of natural gas at –163°C temperature and 125 kPa low temperature for the
purposes of long distance bulk transportation using cryogenic ocean vessels
MEMR The Ministry of Energy and Mineral Resources (Indonesia)
MJ/kg megajoule per kilogramme (divide by 0.004187 to get kcal/kg)
Mt million metric tonnes
Mtce million tonnes of coal equivalent (multiply by 0.697 to get Mtoe)
Mtoe million tonnes of oil equivalent
MWe megawatt of electrical output (1000 kWe)
MWh megawatt hour (1000 kWh)
NOx nitrogen oxides
OECD Organisation for Economic Cooperation and Development (see Geographical Coverage for country listing)

2 IEA CLEAN COAL CENTRE

O&M operation and maintenance
OLC overland conveyer
OPEC Organisation of Petroleum Exporting Countries (based in Vienna, Austria)
PF pulverised fuel (hard coal)
PPA power purchase agreement
PPI producer prices index
PPP purchasing power parity
PTBA PT Tambang Batubara Bukit Asam
R/P reserves to production ratio
ROM run-of-mine, typically refers to raw mined material
Rp Indonesian Rupiah
SC supercritical (typical steam pressure <22.1–25 MPa; main steam and reheat temperatures 540–580°C)
t/h tonnes per hour
USC ultra-supercritical (typical steam pressure >25 MPa; main steam and reheat temperatures >580°C)
SCR selective catalytic reduction (for NOx reduction)
SO2 sulphur dioxide
t metric tonne or 1000 kg (x 0.9844 = long ton; x 1.1025 = short ton)
tcf trillion cubic feet (of natural gas or equivalent methane deposit)
TFC total final consumption
TPES total primary energy supply (includes coal, oil, gas, hydro, other renewables, nuclear power)
TWh terrawatt hour (1000 GWh, 106 MWh, 109 kWh)
UNFCCC United Nations Framework Convention on Climate Change
WEC World Energy Council

Prospects for coal and clean coal technologies in Indonesia 3

4 IEA CLEAN COAL CENTRE
 Contents
Acronyms and abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1 Key coal facts for Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.2 Geography of the Indonesian archipelago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.3 A turbulent political and economic history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.4 Population and the economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Energy background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Primary energy supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Energy demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3 Energy resources and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3.1 Oil and gas – peaking?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Coal – more abundant than oil, but less than gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Coalbed methane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Peat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4 Coal reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Geographical concentration of reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Quantity of coal reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3 Summary of coal quality definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.4 Indonesian coal quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.5 Coal geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

5 Structure of the Indonesian coal industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.1 Foreign ownership – a common feature of the coal industry . . . . . . . . . . . . . . . . . . . . . 21

6 PT Adaro Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

7 PT Arutmin Indonesia (BUMI Resources) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

8 PTBA (Tambang Batubara Bukit Asam Tdk). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

9 PT Berau Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

10 PT Kideco Jaya Agung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

11 PT Kaltim Prima Coal (BUMI Resources). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

12 PT Indominco Mandiri (Banpu) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

13 PT Gunung Bayan Pratama Coal (Bayan Resources) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

14 General corporate issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

15 A brief history of Indonesian coal production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

15.1 The history of the Contracts of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.2 The impact of forestry protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.3 Changes to the regulatory regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

16 Coal production – costs and methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Prospects for coal and clean coal technologies in Indonesia 5

Contents

17 Inland transport infrastructure: river barge, road, and rail . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

17.1 Barging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.2 Road and rail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
17.3 Offshore loaders and trans-shipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
17.4 Port facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
17.5 Common disruptions in coal supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

18 Electricity generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
18.1 A brief history of the industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
18.2 Crisis in the power markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
18.3 Power generating capacity in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
18.4 Nuclear power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
18.5 Utilisation and efficiency of the power station fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
18.6 Generating efficiencies of the thermal fleet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

19 Coal-fired technology in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

19.1 The ‘crash programme’ – Phase I (2006-10) and Phase II (2009-13). . . . . . . . . . . . . . . 52
19.2 Clean coal technology and tackling climate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

20 Coal demand boom in the power sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

20.1 The role of low rank coal in the power sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
20.2 Coal demand in industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
20.3 Projections for coal demand beyond 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
20.4 Impact of plant utilisation on future coal demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
20.5 Impacts of power generating efficiency on coal demand . . . . . . . . . . . . . . . . . . . . . . . . 59

21 Can domestic producers respond to rising demand? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

21.1 Export coal versus domestic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
21.2 Coal pricing – international and domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
21.3 Effects on international coal trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
21.4 The effect of exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

22 A brief review of coal upgrading in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

22.1 Coal liquefaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
22.2 White Energy drying and briquetting process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
22.3 The upgraded brown coal (UBC) process to upgrade high moisture coals. . . . . . . . . . . 65
22.4 K-fuel process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

23 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

24 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

6 IEA CLEAN COAL CENTRE

 1 Introduction
1.1 Key coal facts for Indonesia
Total coal production (2008 estimate): 260–270 Mt
Total coal demand (2008 estimate): 40–50 Mt
Exports (2008 estimate): 200–210 Mt
Imports (2005): 0.1 Mt
Recoverable reserves (2006): 7000 Mt
Port capacities (2008 estimate): 220 Mt
This report is an update of a previous IEA Clean Coal Centre
(IEA CCC) publication called Indonesian coal prospects to
2010 published in 1994, which reviewed the coal industry and
its prospects. Since then, Indonesian coal production has
grown at an astonishing rate and its steam coal trade, mainly
with Asian buyers, now surpasses every other steam coal
exporter in the world. Exports grew fivefold in the ten years
between 1995 and 2005 rising from 30 Mt/y to more than
150 Mt/y. By 2007, steam coal exports were estimated to
have reached around 194 Mt (McCloskey Statistics, 2008)
while annualised estimates for 2008 could see exports
reaching 211 Mt (SSY, 2008). There are some discrepancies
arising from the published figures, with some experts
recording much lower levels of around 160–180 Mt/y being
shipped. Illegally mined coal could add 20 Mt/y or so, and it
is not clear whether the officially published export data
includes this coal. Typically, trade data are recorded officially
for taxation purposes by customs and excise for both the
exporting and importing nation, but the source of the coal is
not necessarily clear as coal is blended into products from
more than one mine.
Indonesia consumes around 20% of the country’s coal output
for power generation and industry; the remaining 80% is
exported. The growing demand for electricity means that the
prospects for domestic steam coal demand for power
generation are good. One of the central tenets of the country’s
energy policy over past years has been the move away from
oil-fired power towards renewable, gas, and coal. In addition to
the replacement programme of oil plants, the rapid growth in
power demand is also demanding the need for reliable and
cost-effective power, coal is seen as being able to deliver this
power.
However, if Indonesia intends to retain its position as a major
coal exporter, the country could face resource constraints,
which may conflict with the need for more coal-fired power
within the country.
The country’s coal seams are mineable using opencast
operations, where thick seams of low sulphur and low ash
coals exist. Almost all mining operations use simple truck and
shovel methods, with few exceptions. As a general rule,
Indonesian coals are lower in rank and so when comparing
coal qualities with that of other internationally traded coals,
Indonesian coals have lower calorific values and higher
moisture contents, and are thus more costly to transport over
long distances on an energy basis. However, Indonesian coals
Prospects for coal and clean coal technologies in Indonesia
are regularly shipped to Europe and North America as a blend
fuel. Most of the industry is operated by private companies,
but under tight rules set by the national government, which
allow foreign ownership but with limited concession periods
of up to 30 years or so.
1.2 Geography of the Indonesian
archipelago
The country itself is the world’s largest archipelago
comprising 17,000 islands that stretch 5000 km (3100 miles)
from the Indian Ocean in the west through to the islands of
New Guinea in the east. Java, Kalimantan, Papua, Sulawesi,
and Sumatra are the five key regions (see Figure 1). The first
three regions, Java, Sulawesi, and Sumatra are completely
occupied by Indonesia; the capital, Jakarta, is located on Java,
the economic centre of Indonesia.
Kalimantan and Papua are shared with neighbouring
countries. Kalimantan occupies a majority of the island of
Borneo and is one of two islands that has large reserves of
coal; the other is Sumatra. In the north of Borneo lies the
Malaysian regions of Sarawak and Sabah, while Brunei
occupies a tiny coastal region whose borders are totally
encapsulated by the Malaysian part of Borneo. Papua shares
the island with New Guinea, hence collectively it is called
Papua New Guinea. The island of Timor is split into West and
East Timor, the latter occupied by Indonesia from 1975 until
independence in May 2002.
1.3 A turbulent political and
economic history
Indonesia has had a history of social and political upheaval,
which remains in the minds of many people (Cragg, 1998).
Cragg reports on the turmoil that afflicted the nation,
especially during the rise of Suharto to power in 1965-66,
who replaced Sukarno. This led to the death of countless
Chinese and communist citizens in the so-called ‘year of
living dangerously’. Ten years later, many died in East Timor
following the departure of the Portuguese in 1975. In more
recent years, Indonesia faced the Asian financial crisis, the
end of (the late) President Suharto’s rule after more than 30
years in office (1967-98), the first free elections since the
1960s, demands for independence from restive provinces,
bloody ethnic and religious conflict, and not least a most
devastating tsunami that killed many thousands. Over time,
Indonesia as a country has battled many social and political
obstacles, which have periodically interrupted economic
growth.
1.4 Population and the economy
Estimates for the country’s population range from 222 to 246
million and growth rates are low at around 1.3%/y (EIA,
7
Introduction
Sangkulirang
Samarindia
Pontianal Kalimantan
Sumatra
Balikpapan
Palemaang
Sulawesi
Banjarmasin
Bengkulu
Makassar
Jakarta
Java Surabaya
Bali
Figure 1 Major islands of Indonesia
2007; IMF, 2008). Regardless of the overall level, Indonesia is
the fourth most populous nation in the world behind China
(1300 million), India, (1100 million), and the USA
(299 million).
More than 40–45% of the population live in urban areas,
which still leaves more than half living in rural locations.
More than 60% of the population live on the island of Java.
Java also accounts for more than 70% of the energy demand,
indicating the importance of this island as the centre for
economic activity at the present time.
Parts of Java, and much of Kalimantan, Papua, Sulawesi and
Sumatra are mountainous, volcanic and densely forested.
These conditions make building extensive infrastructure
costly in economic and environmental terms. Illegal logging
and mining activities affect both the economy and the
environment, which has marred the image of these industries.
Foreign companies operating in these regions may face
increasing pressure to satisfy corporate and social
responsibility demands in Indonesia, in order to continue a
long-term sustainable business in locations that are potentially
sensitive to large-scale extractive operations.
The country’s gross domestic product (GDP) for 2007 was
$433 billion, equivalent to the economies of Belgium or
Switzerland in current dollars, making Indonesia the 20th
largest economy in the world (in GDP terms). When adjusted
for purchasing power parity, the economy becomes the 16th
largest. Given the massive population, Indonesia’s per capita
GDP in 2007 was estimated at $1925, just 116th in the world.
In purchasing power parity (PPP) terms per capita GDP rises
to $3724, but its position worsens to 121st in the world.
The global financial crisis of 2008-09, if prolonged, could
affect funding for planned generating capacity, as well as
funding for new production capacity in the mining sector. Few
reports seem to highlight this, but the effects may be felt as
8 IEA CLEAN COAL CENTRE
Manado
Sorong
Kolonodale
Papua
Timika
Labuhanbajo
demand for goods and services across the world could fall,
and so eventually have an impact on Indonesia indirectly if
not directly. Indonesian economic policy moves forward but
at a relatively sluggish pace according to international
analysts (EIA, 2007). However, the government does not
prohibit western style policy. Taxation and labour laws move
slowly through the government before becoming law. Trade
unions across industry remain vehemently opposed to changes
in restrictive labour laws. Parliament has considered changes
to mining laws for several years and, as a result, mining firms
are reluctant to start new projects. Elections in 2009 will
mean reforms are not likely to be passed until after 2009.
Fiscal policy revolves around subsidised energy prices. Oil
products and power prices are kept artificially low.
Recovering costs of production of energy are therefore almost
impossible, and so while low tariffs keep demand high, the
supply of energy is constrained by the lack of funding
available to improve the energy infrastructure, and
government funding for subsidies remain under pressure.
In May 2008, end-consumer fuel prices were raised by an
average of 29%. The government’s original budget for 2008
assumed an oil price of 60 $/barrel ($/bbl), a price at which
fuel subsidies during 2008 would amount to Rp 46 trillion
($5 bn or 5% of total expenditure). The massive escalation in
oil price in 2008 meant that the subsidy cost would rise to
Rp 127 trillion ($13.7 bn), and this was based on an oil price
of 95 $/bbl. This raised the government spend on fuel
subsidies to 13% of the budget.
Price escalations to 135 $/bbl has led the government to revise
subsidies again to account for a 2008 average price of
110 $/bbl. Estimates in the middle of the year stood at
Rp 132 trillion ($14 bn), 286% more than allowed for by any
original budget. As the country is a net importer of oil,
Indonesia does not benefit from the massive rise in oil prices
experienced in recent years. In fact, the rising cost of oil
 Introduction

products has had a major impact on the cost of production in

Indonesia, as it has across the world. However, a subsequent
fall in the world price of crude in 2009 will ease this pressure.

Inflation has been running well above the target of 4-6% for
most of 2008. The consumer price index increased by 10.5%
in 2005 and 13.1% in 2006, although dropped to 6.4% in
2007. Despite criticism of the slowness of government to
tackle subsidies and labour reforms, politically it would have
been difficult to make such decisions during periods of high
inflation where the GDP per capita is so low. High prices and
the burden of subsidies could greatly impair growth within the
country.

The Indonesian economy is still feeling the effects of the East

Asian financial crisis which started in July 1997 in Thailand
when the currency (baht) was decoupled from the US$ and
floated. Thailand was already carrying a heavy burden of
foreign debt and the financial and economic collapse affected
the currencies, stock markets, and other asset values across
the whole of Southeast Asia, raising fears of a global
economic meltdown.

Prior to the crisis, the Southeast Asian economies attracted a

vast amount of short-term financial capital partly through high
interest rates and attracting high returns for foreign investors.
The large inflow of money drove up the price of assets, such
as real estate, and GDP growth across the region was high, in
many cases as high as 8–12%/y. In Indonesia, private current
account deficits were growing and maintaining fixed
exchange rates encouraged further borrowing from external
sources, exposing the financial and corporate sectors to
exchange rate risk more than ever.

While ‘hot money’ flowed into South East Asia attracted by

high interest rates and rising asset values, it was just as quick
to flow out again as the US raised its own interest rates.
Overvalued assets started to devalue, and bankruptcies and
failure to meet debt obligations from a correction of asset
values caused a credit crisis. While Asian currencies were
collapsing, interest rates were raised in a desperate attempt to
attract money back into the region, but confidence by that
time had been lost and high interest rates began to damage the
domestic markets.

The massive outflow of ‘hot money’ from Indonesia led to a

devaluation of the Rupiah in 1998 and a contraction of GDP
by a massive 13% (based on constant Rupiah prices). In US
dollar terms the impact was phenomenal. IMF data show GDP
in US dollar terms (at current prices) contracting by –56% in
1998, although GDP rebounded by +47% the following year.

The economy continues to experience a surprisingly robust

growth, with GDP averaging more than 5%/y since 2004, and
achieving 6.3% in 2007 and an estimated 6.1% in 2008.
Foreign direct investment and imports of capital goods are
growing, despite a rise in prices. Domestic cement sales, a
proxy for construction investment, also seem to remain
robust, and the pressure on the Central Bank from the
reduction in subsidies signals a move away from central
control.

Prospects for coal and clean coal technologies in Indonesia 9

 2 Energy background
This section introduces the trends in total energy supply and
consumption in the major economic sectors, as well as briefly
discussing the interesting trend in biomass use which remains
strong.
2.1 Primary energy supply
Indonesia is the world’s eighth largest producer of coal and
also the eighth largest producer of natural gas. The country’s
ranking of 21st largest producer of oil seems less impressive,
although it still produces 1000 barrels per day, equivalent to a
tenth of that of Saudi Arabia. Indonesia is a significant
exporter of natural gas and steam coal.
In recent years, natural gas exports rapidly became major
earners of foreign exchange and Indonesia became a leading
exporter of liquefied natural gas alongside Malaysia. Indonesia
is a net importer of oil and has spurred the government to
consider other avenues for export revenues. The demise of oil
exports from Indonesia brought into question the eligibility of
Indonesia as a member of OPEC and as of 2008, Indonesia left
OPEC. It is the gas and coal industries which are now major
export businesses. Although domestic gas and coal demand is
rising, production overwhelmingly outstrips consumption.
In 2006, the Indonesian economy consumed around
250–260 Mtce of energy (170–180 Mtoe), while producing
around 440 Mtce (308 Mtoe) of primary energy in the form of
coal, gas, oil (and oil products), and combustible renewable or
waste biomass (see Figure 2). Geothermal power and
hydroelectricity are also produced domestically.
coal 14%
oil and oil products 37%
gas 17%
hydroelectricity 1%
geothermal, solar, wind and tidal 3%
combustible renewables and waste 28%
Figure 2 Total primary energy supply for
Indonesia 2006 (IEA, 2007)
10
Roughly 37% of the primary energy supply was oil. Coal
accounted for around 14% of the supply and natural gas 17%.
Interestingly, the use of traditional fuels such as combustible
renewables and waste is large at 28%, equivalent to 50 Mtce.
Almost 90% of this traditional fuel is consumed in the
residential sector; the accuracy of this figure could be queried
since the metering of wood fuels across the many islands is
problematic. Yet according to statistics, biomass consumption
has changed little over the last twenty years or so.
2.2 Energy demand
The growth in energy consumption has been driven largely by
the rise in economic growth, despite the setbacks experienced
during the 1990s. Before the currency crisis in 1997, GDP
growth of 7–8%/y was not uncommon; but it was only after
2000 that GDP increased steadily, averaging some 5%/y.
Population growth has been more modest at just 1.3%/y, but
with a population of 220 million, population growth remains
an important driver for energy demand.
Since 2000, while GDP growth has steadied at 5%/y, the
growth in the primary energy supply has dropped to 2.8%/y
(see Table 1). The moderating of energy growth in recent
years is seen clearly in the industrial, residential, commercial
(and public), and agricultural sectors which have all
contributed to the drop in overall demand for energy within
the economy. Interestingly, this curtailment of rising demand
has occurred despite the fact that energy prices domestically
are still subsidised to varying degrees.
Figure 3 illustrates a consistent pattern between per capita
GDP and total primary energy consumption. As wealth per
capita increases, the primary energy supply to the economy
increases linearly. Furthermore, Indonesia has an interesting
consumption profile as is shown in Figure 4 with a notable
lack of conventional supplies especially electricity and natural
gas in some sectors.
In the residential sector, electricity usage is limited to lighting
and small appliances and accounts for a very small proportion
of the overall residential consumption. Almost no natural gas
is consumed. The industrial and commercial sectors also have
a limited penetration of electricity and gas. Instead, there is a
considerable amount of combustible renewables and waste
(which could be generally termed as biomass, although there
are stricter definitions).
Residential energy demand is the single largest market for
energy. In 2005, 80 Mtce (56 Mtoe) was consumed by this
sector which itself is dominated by a single energy source,
biomass (see Figure 4). The chief sources of biomass are
wood or wood-based fuels such as charcoal. Different
biomasses will be used in rural and urban locations. Rural
populations may make use of a mix of forest wood and animal
waste, while urban biomass might consist of managed wood
sources and wood fuel products.
IEA CLEAN COAL CENTRE
 Energy background

Table 1 Long-term economic and energy trends

Growth rates of GDP, population, and primary energy, %/y

1971-80 1981-90 1991-2000 2001-06

GDP at 2000 Rp 5.2 3.6 4.9

Population 1.9 1.3 1.3

Primary energy production 6.3 3.1 2.7 4.6

Total primary energy supply 5.3 6.1 3.8 2.8

Industry 17.3 9.8 6.4 2.2

Residential 2.7 1.7 2.3 1.3

Commerce and public services 13.4 9.7 11.3 6.1

Agriculture/forestry 10.9 5.2 8.8 1.3

200 In many developing countries, oil products such as kerosene

Total primary energy supply, Mtoe

are used widely for cooking. However in Indonesia, biomass

160 still appears to be the fuel of choice. This dependence may be
partly due to a reluctance to switch to alternatives. Wood is
120 convenient and the technology for burning the fuel is easily
understood. Alternative technologies and the availability of
80 fuels may by limited in many parts of Indonesia. Whether
residential households take up coal products such as
40
briquettes is questionable due to the health implications of
switching from one smoky (or fuming) fuel to another, a
0
problem already experienced with wood and oil products.
0 500 1000 1500 2000 2500 3000 3500 4000
GDP per capita, (US$ purchasing power)
The industrial sector consumed 49 Mtce (34 Mtoe) in 2005
and offers considerable growth prospects. Industry uses a
Figure 3 Per capita GDP versus total primary balanced mix of fuels, which includes about 14 Mtce
energy supply (10 Mtoe) of coal, and the same quantity again of oil.
Combustible renewables and waste contribute 9 Mtce
(6 Mtoe), more than that from natural gas. Here again, the

90

80
electricity

70 combustible renewables and waste

Energy consumption, Mtce

60 natural gas

50 petroleum products

coal
40

30

20

10

0
Industry Transport Residential Commercial Agriculture / Non- Non-
sector sector and public forestry specified energy use
services

Figure 4 Total final end-user consumption of energy in 2005 (IEA, 2007)

Prospects for coal and clean coal technologies in Indonesia 11

Energy background

contribution of biomass cannot be understated. Village

industries such as charcoal, brick, ceramics and tile making,
and lime burning use woodfuel and could account for a
significant proportion of the biomass consumed in industry.
The impact on deforestation that these industries have due to
biomass consumption probably does not compare with that
arising from paper, pulp and logging industries. These
activities are directly involved with forest wood consumption,
but also supply a large proportion of waste from their
activities to the biomass and wood fuel into the larger
economy.

In part, the biomass fuel feed for domestic and industrial uses
requires a great deal of waste wood. Half the volume of logs
that are cut on an industrial basis for the wood industry are
waste; some reports suggest that 1.2 Gt of waste wood is
produced every year (Budiono, 2005). This volume is aside
from the amount of wood that may be felled specifically for
wood fuel.

Sustainable practice for logging and paper and pulp

production is of course desired in Indonesia and, within this, a
suitable collection of wood waste and its supply to industry
and households. However, attempts to change the logging and
paper industries in terms of deforestation should also be
coupled with efficiency improvements in the utilisation of
wood waste to ensure that the demand for wood fuel is
effectively managed. Indeed, projects to improve efficiency in
cooking stove design have long been implemented. For the
time being, the role of biomass in the domestic economy
allows conventional energy forms such as natural gas and coal
to be exported.

Despite the ethical and environmental aims of operating

extractive industries to reduce pollution and emissions, there
is still a need to provide affordable energy for low income
people and to develop an energy management strategy. Part of
this is through a target to improve energy efficiency and
introduce renewable energy sources. In doing so, the
government aims to ensure that at least 13% of the total
power capacity (including geothermal power) uses renewable
energy by 2020 and 15% by 2025 (Hayes, 2008; MEMR,
2008).

The transport sector is the third largest consuming sector at

37 Mtce (26 Mtoe) for 2005. The transport sector is
unsurprisingly dominated by oil products which consist of
53% motor gasoline and 41% diesel (the remainder being jet
fuel for aviation). However, in the early part of the 20th
century, coal was widely used in the boilers of ships.

Subsequent IEA data revisions show how the total final

end-user consumption of energy in 2006 remained at around
190 Mtce (134 Mtoe), almost no change on 2005.

Despite little change in the overall level, energy prices clearly

had an impact on fuel switching, especially among industrial
customers. In total, some 5 Mtce less oil and gas was used by
Indonesian end-users; almost all of it was replaced with coal.

12 IEA CLEAN COAL CENTRE

 3 Energy resources and reserves
While this report focuses on coal, it is important to note that
the massive export business in both gas and coal resembles
some of the earlier trends in oil production and consumption.
This could provide a useful indicator of the future of coal and
gas production in Indonesia towards the middle of the 21st
century if the rise in consumption continues.
3.1 Oil and gas – peaking?
In the past, Indonesia has been described as rich in energy
resources. However, a massive rise in production of oil and
coal has shortened the lives of the country’s reserves
dramatically, and the country itself is painfully aware of the
looming crisis for the long-term future of the energy business
in Indonesia. In 2006, the BP statistical review gave a state of
proven reserves in 2006 for the major fossil fuels. Crude oil
had a life of just 11 years, while the life of coal was 25 years.
The reserves of natural gas had increased and stood at
35 years. In 2008, the R/P ratio for oil had moved up to
12.4 years, hardly a leap in confidence. Coal remained at
25 years while natural gas improved rather more substantially
to 45 years.
Oil and gas deposits are found mainly on the island of
Sumatra and its continental shelf. The deposits are located on
life of 40–50 years, the R/P ratio remains more positive than
that for coal and crude oil. Oil is a different story, with
reported reserves in 2008 being 15% below those of ten years
ago. The decline in oil production throughout the 1990s has
meant that the R/P ratio is at its highest now than for more
than ten years, albeit at a critical level of just 10–15 years.
According to MEMR (2007), there still exists the possibility
of increasing the reserves base because only 16 out of 60
hydrocarbon basins have been producing oil, while eight
basins have been explored but are not yet in production. Of
the remaining 36 basins, 14 basins have been explored but
evidence of economic reserves has not yet been found. None
of the other 22 basins have been explored. Most of the
unexplored basins are located at depth offshore in the eastern
part of Indonesia. The government enhanced seismic survey
activities and has encouraged private sector companies to
conduct 2D and 3D seismic surveys which are ongoing.
Figure 6, Figure 7, and Figure 8 show the long-term trend in
production, consumption, and reserves of the major fossil
1800 25
oil production
1600
1400 20
Barrels per day, ’000

the eastern side of the island in Aceh province. The Arun gas 1200
oil consumption 15
field was discovered in 1971 in the Province of Aceh. The 1000
field straddles the coastal plain between the Barisan
Mountains and the Strait of Malacca. Condensate-rich gas is 800
10
found in reef and associated carbonate facies of Lower and 600
R/P ratio - years
Middle Miocene Age that exceeds 300 m in thickness in
400
places. These carbonates occur near the base of a Tertiary Age 5
sedimentary section with a thickness of more than 3000 m 200
(JSCE, 2005).
0 0

Reported natural gas reserves have increased by 40% since 1980 1985 1990 1995 2000 2005
1998 (see Figure 5). Natural gas production has been Figure 6 Long-term oil resource trends (BP,
changeable, but remains higher than in the 1990s. Yet, with a various issues)

1.6 80 80

1.4 70 R/P ratio - years 70

Natural gas, billion m3

1.2 60 60
Indices of reserves

gas production
1 50 50

0.8 40 40

0.6 30 30
natural gas
0.4 oil 20 20
coal
0.2 10 gas consumption 10

0 0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1982 1986 1990 1994 1998 2002 2006

Figure 5 Energy reserve trends in Indonesia Figure 7 Long-term natural gas resource trends
(BP, 2008) (BP, various issues)

Prospects for coal and clean coal technologies in Indonesia 13

Energy resources and reserves
180
160
140
Coal resources, Mtce
R/P ratio - years
120
100
80
production
60
40
consumption
20
0 0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Figure 8 Long-term coal resource trends (BP,
various issues)
fuels. In the late 1980s and 1990s, the R/P ratios of natural
gas and oil have been subject to major sudden downward
revisions, a probable result of changes made to the data and/or
definitions of the reserves. For example, between 1991 and
1997, BP reported Indonesia to have 32,063 Mt of coal,
nearly all of which was lignite and subbituminous. Yet in
1998, this figure dropped to 5220 Mt. Clearly, an 84%
reduction in reported reserves is not due to the physical
disappearance of coal, but the change in definition, or
opinion, of what is economically recoverable coal. Since the
late 1990s, reported figures have been more consistent, but
with the exception of natural gas, coal and oil reserves have
been decreasing.
3.2 Coal – more abundant than oil,
but less than gas
This section discusses briefly the life of the country’s coal
reserves, while a more detailed discussion on coal qualities
and reserves distribution is done in Chapter 4.
While coal reserves are healthier than those of oil (the R/P
ratio being 20–30 years), the future trend is questionable. The
meteoric rise in coal production has put pressure on reserves,
which have fallen by 17% since 1998. The R/P ratio
unsurprisingly shows a dramatic fall from more than 80 years
in 1998, to just 25 years as reported in 2008. The coal R/P
ratio does not appear to take an upward trend at any point in
the near future unless further coal resources are made
economically viable, or production takes a steep decline; both
scenarios are possible over the long term. The following
chapter looks at the coal reserves and resources in more detail
and questions the possible lack of accuracy associated with
coal reserves data that could mean Indonesia possesses more
coal than perhaps the headline figures.
Energywatch (2007) published a highly critical study of the
work done by the World Energy Council (2007) which would
also apply to the annual BP Statistical Review. Energywatch
focuses entirely on the lack of firm data for coal reserves, but
interestingly, no organisation applies the same analysis to any
other form of energy, including finite aspects of renewables
14
25 resources (for example, land restrictions for wind and hydro
exploitation). The WEC publication, the Survey of World
Energy Resources, is probably the only globally
20 comprehensive publication to examine the resource limits of
all forms of energy resources, despite criticisms made by
15
bodies which represent renewable energy supplies.
10 3.3 Coalbed methane
While not strictly a coal product, coalbed methane, commonly
5 referred to as CBM, co-exists as a separate energy resource
contained in and around coal seam structures. Indonesia has
potential resources of CBM of some 12,300 billion cubic
metres (bcm) making Indonesia one of the largest CBM
resources in the world. Compared to natural gas reserves of
3000 bcm, the potential for CBM to supplement existing gas
reserves is immense. The reserves to production ratio of
natural gas is 45 years; the addition of CBM could more than
treble the country’s R/P ratio of methane gas. Some 92% of
Indonesia’s CBM gas reserves are classified as highly
prospective and located largely in South Sumatra (5200 bcm),
Barito (2900 bcm), Kutai (2200 bcm), and Central Sumatra
(150 bcm) amongst other areas. The geographical spread of
CBM could make it a potentially valuable resource for
diversifying energy production across the islands of
Indonesia.
Recently, CBM has attracted increasing interest in Indonesia.
The first project was given to a joint venture between PT
Medco E&P Indonesia and PT Ephindo in 2008. Two more
projects were signed in the same year, while five more
underwent joint evaluation or feasibility studies. Forty-five
more applications were also undergoing government review in
2008 (Jakarta Post, 2008c).
The Sendawar CBM Project is located within the Mahakam
River area of the Kalimantan province, some 190 km inland
and 50 km south of Mahakam River. Sendawar was
guaranteed a first-of-kind licence granted directly by the
Indonesian Government. The potential reserve is 140 bcm of
gas (Mazak, 2008).
3.4 Peat
Indonesia has the third largest peat deposits in the world with
270,000 km2 worth of reserves (WEC, 2007). Peatlands are
largely found in the subcoastal lowlands of Kalimantan and
Sumatra, in common with the deposits of coal. A feasibility
study was carried out in the late 1980s regarding using peat
for electricity generation in central Kalimantan, but little
development resulted from this work.
IEA CLEAN COAL CENTRE
 4 Coal reserves
This chapter discusses the distribution and quality of coal
reserves in the major coal bearing regions of Indonesia. Coal
production is discussed in more detail in Chapter 15 and in
Chapter 16.
4.1 Geographical concentration of
reserves
The main coal reserves in Indonesia are found on just two
major islands, Sumatra and Kalimantan (Indonesian Borneo).
The distribution of reserves is shown in Table 2 by province
and in Figure 9 by region. While the figures themselves may
be subject to interpretation, the representation of geographical
spread is accurate. A little under half of the country’s coal
reserves are located in Sumatra, with the balance located
mostly in Kalimantan.
While most Indonesian coals are low or moderate in ash
content, there is wide variability in moisture content. This can
influence the calorific value of coals mined and utilised in the
country. As such, when discussing reserves and resource data,
the true energy value of the reserves or resources could be
considerably less than the mass in terms of million tonnes.
However, it is normal convention to discuss reserves and
resources of coal in mass tonnage terms and so, for the
purposes of this chapter, the convention is maintained.
Kalimantan is the centre for hard coal production from which
nearly all the main export business is located, particularly the
regions of East and South Kalimantan. The largest reserves in
Kalimantan belong to Kaltim Prima and Arutmin, each of
which has some 1.0 Gt of mineable reserves.
Sumatra has large quantities of mainly lower rank coals. This

Table 2 Indonesian coal resources by province (CDIEMR, 2007; MEMR, 2007)

Resources
Province Reserves
Hypothetical Inferred Indicated Measured Total

Banten 5.47 5.75 0.00 2.09 13.31 0.00

West Java 0.00 0.00 0.00 0.00 0.00 0.00

Central Java 0.00 0.82 0.00 0.00 0.82 0.00

East Java 0.00 0.08 0.00 0.00 0.08 0.00

Nanggroe Aceh Darussalam 0.00 346.35 13.40 90.40 450.15 0.00

North Sumatra 0.00 7.00 0.00 19.97 26.97 0.00

Riau 12.79 467.89 6.04 1,262.89 1,749.61 1,926.24

West Sumatra 19.70 475.94 42.72 181.24 719.60 36,07

Bengkulu 15.15 113.09 8.11 62.30 198.65 21,12

Jambi 190.84 1,462.03 36.32 173.20 1,862.39 9.00

South Sumatra 13,298.35 9,222.21 13,700.32 12,495.59 48,716.47 11,910.19

Lampung 0.00 106.95 0.00 0.00 106.95 0.00

West Kalimantan 42.12 482.60 1.32 1.48 527.52 0.00

Central Kalimantan 122.72 956.01 5.08 194.02 1,277.83 48.59

South Kalimantan 0.00 5,517.81 334.48 3,435.79 9,288.08 1,684.56

East Kalimantan 3,224.44 13,696.70 2,540.69 5,669.66 25,131.49 3,075.48

South Sulawesi 0.00 144.93 33.09 53.10 231.12 0.00

Central Sulawesi 0.00 1.98 0.00 0.00 1.98 0.00

North Maluku 0.00 2.13 0.00 0.00 2.13 0.00

West Irian Jaya 89.40 61.86 0.00 0.00 151.26 0.00

Papua 0.00 2.16 0.00 0.00 2.16 0.00

Total 17,020.98 33,074.29 16,721.57 23,641.73 90,458.57 18,654.06

Prospects for coal and clean coal technologies in Indonesia 15

Coal reserves

70

60 reserve

resource (hypothetical, inferred,

indicated, measured)
50
Coal reserves, Gt

40

30

20

10

0
South South East Other
Sumatra Kalimantan Kalimantan

Figure 9 Indonesian coal reserves by region, Gt (MEMR, 2008a,b)

Table 3 Estimated mineable reserves in Indonesia by coal type

Resources Of which are reserves

Heating Total
Total Probable Proven
Coal type value, Hypothetical Inferred Indicated Measured resources
reserves reserves reserves
MJ/kg and reserves

Lignite <21 1685 8711 2382 2317 15095 3452 0 0

Subbituminous 21–25.6 1924 19653 9176 4939 35692 1828 0 0

Bituminous 25.6–29.8 71.3 4998 670 3326 9065 1668 0 0

Anthracite >29.8 0 464 11 188 663 59 0 0

Total as of 2005 3680 33826 12239 10770 60515 7007 0 0

Total as of 2006 17021 33074 16722 23642 90458 18654 13411 5300

places Indonesia in a dilemma as transporting low rank coals,
such as lignite, is costly on a per tonne basis due to the lower
heating value. However, solutions to this problem are well
under way with coal upgrading to improve the coal quality
(see Chapter 22), and generating power closer to the
minemouth. Electricity is transmitted via high voltage links
(up to 3 GWe) to the island of Java. Indonesia still has the
prospect of fuelling its future needs with vast low rank coal
reserves that are difficult to transport to the demand centres,
and so rendering those coal reserves sterile. Practically all of
the reserves in South Sumatra are less than 21.4 MJ/kg
(5100 kcal/kg) although resources of up to 25.5 MJ/kg
(6100 kcal/kg) have been measured, indicated or inferred, so
clearly greater exploration in South Sumatra could give rise to
higher rank and higher quality coals over the long term.
The provinces of note are South Sumatra, East Kalimantan,
and South Kalimantan. However, all other deposits of any
significance are in other provinces of the same islands of
Sumatra and Kalimantan. None of the other islands appear to
have any reserves of significance. When looking at the level
of resources, the picture is much the same, with Kalimantan
and Sumatra being the key regions in which coal resides.
What is of more interest is the amount of coal that exists in
South Sumatra. In fact, most of the coal under the
geographical category of ‘Other’ is mainly in Sumatran
provinces. Although small resources could exist in some of
the other island regions, these are insignificant in comparison
to those in the Sumatra and Kalimantan regions.
4.2 Quantity of coal reserves
In terms of quantity, official figures published by the Center
for Energy and Mineral Resources in the Handbook of Energy
and Economic Statistics of Indonesia show a substantial

16 IEA CLEAN COAL CENTRE


reserves base of 18.7 Gt. A potential of 90.5 Gt of resources is
also estimated, but this consists largely of coal that is not yet
proven to be recoverable (see Table 3). If only coal that is
recoverable is considered (using existing economic and
operating conditions), then the reserves base could be as little
as 4.3 Gt (WEC, 2007; BP, 2008). Coincidentally, this figure
of 4.3 Gt is also equal to the reported mineable reserves
belonging to the top five producers in Indonesia alone. As
such, it is possible that these reserves figures are grossly
underestimated. Given the nature of delay for data acquisition
and publication, it is likely the reserves figures published in
2007 by the WEC refer to data for 2005 at best. New surveys
and further exploration may well give rise to an upward
revision of the country’s economically recoverable reserves.
Official figures published by ICMA (2006) and later by
MEMR (2008) suggest that in 2005 Indonesia had almost
7 Gt of ‘mineable’ reserves, which include proven and
probable reserves. Later publications by MEMR (2008b)
suggest that there are 18.7 Gt of reserves (as of 1 January
2007), of which 5.3 Gt is proven and 13.4 Gt is probable.
Therefore, the latest figures would suggest that both proven
and probable reserves have increased in recent years, contrary
to the trend in reported reserves over the long term.
However, pinning down an accurate set of reserves figures by
coal rank (for example anthracite, bituminous, lignite, and
subbituminous) is less straightforward. MEMR presented a
comprehensive table of coal qualities in the Indonesian Coal
Book 2006/2007 to the IEA in Paris in February 2008 (ICMA,
2006; MEMR, 2008a). Both references refer to reserve levels
in 2005, and while dated, provide a useful indicator of how
much Indonesia has of each coal. Table 3 shows the amount
of coal that Indonesia had in 2005 by each major coal type.
Whether the same coal-split is applied to the recently
published resource and reserve figures for 2006, and are
significantly higher than those in 2005, is not certain, since
total reserves have risen from 7 Gt to 18.7 Gt (both proven
and probable). This rise is substantial, and while there has
been criticism of the lack of exploration in the coal business
for new reserves in the past, clearly there are efforts to exploit
the high prices seen in 2005-08, as well as interest from
companies like Reliant Energy of India, to develop new
facilities and develop concessions.
4.3 Summary of coal quality
definitions
Indonesia has reserves of coals that range from bituminous,
subbituminous, and lignites. Although anthracite is mined, the
quantities are relatively small. This wide range in coal rank
across the country’s coal deposits gives rise to a cautionary
note when looking at coal reserves figures in Indonesia. The
data published by the Ministry of Energy and Mineral
Resources (MEMR) comes in several aggregated and
disaggregated forms. Provincial reserves (for 21 provinces) of
coal are published in the Handbook of Energy & Economic
Statistics, as well as the Key Indicators of Indonesia Energy
and Mineral Resources (CDIEMR, 2007; MEMR, 2007).
Aggregated data tables for both six major regions and national
Prospects for coal and clean coal technologies in Indonesia
Coal reserves
reserves are also available which split the reserves by coal
heating value (ICMA, 2006; MEMR, 2008a). The discrete
ranges of (assumed net) calorific value used by these
publications are associated with the most appropriate lignite
category as follows:
MEMR Approx Likely rank
classification, MJ/kg
kcal/kg equivalent*
<5100 <21 lignite/subbituminous
5100–6100 21–26 subbituminous/bituminous
6100–7100 26–30 bituminous
>7100 >30 anthracite
* for a more exact MJ/kg, multiply kcal/kg by 0.004187
These ranges are broadly consistent with definitions for the
major coal rank types, but are not exact and do not include
other quality parameters such as ash, sulphur and moisture.
Where there might be some limited data on peat, it probably
belongs to the lignite category of being less than 21 MJ/kg,
but is not likely to be significant.
The International Coal Classification system devised by the
ECE and approved by the ISO uses a series of classes ranging
0 to 15 (anthracite to lignite). Soft coals have a gross calorific
value of less than 23.8 MJ/kg (5684 kcal/kg; moist ash free),
and therefore hard coals are above this threshold. They are
defined by their calorific value at equilibrium moisture
content together with tar yield on a dry ash free basis.
Australian classification adopts a similar approach.
The classification of different rank coals is based on a
combination age, but moisture content is a useful indicator of
rank for low rank coals (see Figure 10). The most difficult
classification is probably subbituminous which overlaps with
both lignite and bituminous coals, and is the most abundant
coal in Indonesia. Consequently, it is no surprise that
pinpointing exact reserves figures by rank is not
straightforward, and may be why the MEMR uses the method
of coal heating value.
From this summary, some subbituminous coals have moisture
contents in the range of 10–35%, and heating values can be as
high as some bituminous coals. Lignite coals seem to have a
moisture content of 35–75% by volume (as mined). Heating
values are typically less than 15 MJ/kg (3600 kcal/kg), while
the coals also possess higher content of volatile matter
making them potentially hazardous for storage and
transportation. They must be handled with some caution to
avoid uncontrolled combustion. High volatile content
products can be modified by blending with lower volatile
bituminous coals.
Coal classification acts as a mere guide to assessing the
potential market and use of a particular coal. Ultimately, coal
sampling analysis throughout the supply chain acts as a
verification when performed by certified third parties. More
detailed knowledge of ash properties, trace elements and the
physical nature of the coal are important aspects, aside from
the headline figures of heating values, sulphur content, and
moisture content. Prior to formal supply agreements it is
17
Coal reserves

calorific value due to high moisture content. Heating values

average approximately 19–23 MJ/kg as received
anthracite (4600–5500 kcal/kg), although some anthracites are mined
30 which have heating values in excess of 29 MJ/kg
(7000 kcal/kg air-dried basis). However, these are not typical
of the bulk of the output. Indonesian coals are therefore
low notably lower in heat content than most seaborne traded coals,
volatile but nevertheless, are attractive to buyers looking to reduce the
sulphur content in their blends. The blending also
LHV, MJ/kg as mined

20
bituminous compensates for the lower heating value of the Indonesian
high volatile coals. At the lower end of the heating value range, coals that
are less marketable as export products are sold to domestic
industrial consumers and power stations.

Indonesian coals are low in sulphur, but have high volatile

10
matter and moisture contents compared with, say, Australian
sub-
bituminous coals. Impediments to the coal’s use in power plants are its
high grinding hardness of 40–50 HGI (Hardgrove
lignite Grindability Index) and a propensity for spontaneous ignition.

0 Higher rank such as bituminous and subbituminous coals do

not generally require preparation, and simple crushing and
screening will suffice to make a marketable product. In
general, Indonesian coals have no, or only minimal, coking
100
Moisture, % as mined

properties, so – with few exceptions – can only be used as

50
0 sulphur content is below 1% and, in extreme cases, as low as
Rank
Figure 10 LHV and moisture content of coal of
various ranks (IEA CCC, 1983)
common for coal to be tested in boilers to understand all these
aspects of a coal’s behaviour and to ensure compatibility with
the end-user’s equipment. The difference between low rank
coal (which has undergone less coalification than higher rank
coals) and a low grade coal (which may have a high ash
content and consequently a lower heating value) is important.
Low grade coals may indeed be of bituminous rank such as
those found all over the world such as countries like India.
Indonesian coals, being low ash and low sulphur, are probably
not considered low grade, but lower in rank compared with
perhaps the average bituminous coal that is traded
internationally today.
4.4 Indonesian coal quality
Indonesia is unique in that coal exports often border on the
low-mid rank qualities of subbituminous coals. According to
official reports, half of the Indonesian coal reserves are
considered to be of lignite quality, with bituminous and
subbituminous each accounting for a quarter of the reserves.
The remainder consists of subbituminous coals, which still
have a value on the export market due to the ultra-low sulphur
content of many of these coals.
Indonesian export coals are low in ash, but also low in
steam coals. Only some higher rank coals are suitable as
pulverised coal injection (PCI) feedstock.
Indonesian export coals generally have a 31–47% volatile
content, with 1–12% ash and typically 10–23% moisture. The
0.1 %. South Sumatran coals have heating values as low as
15 MJ/kg (3640 kcal/kg) mined by Adimas Batujara
Cemerlang, while PTBA produces a range of coals in Sumatra
some of which are anthracite with heating values of
33.5 MJ/kg (8000 kcal/kg). On average however, South
Sumatran coals lie within a 21–27 MJ/kg (5000–6500
kcal/kg) range and generally have very low sulphur contents,
so are generally not lignites in quality. Characteristically, ash
contents also are low ranging from 1% to 15%. However,
moisture contents can exceed 60% in some coal blocks, while
for the anthracites and bituminous coals it is 2–17%.
In Kalimantan, the bulk of reserves and production are located
in the East and South Provinces. The development of mines in
Central Kalimantan is ongoing along with the exploration of
deposits. East Kalimantan has a higher proportion of higher
rank coals with heating values of 25.5–29.7 MJ/kg
(6100–7100 kcal/kg). Over the long term, the resource that is
yet to be proven (as a reserve) is of lower rank
21.4–25.5 MJ/kg (5100–6100 kcal/kg), and so the long-term
future of East Kalimantan is likely to be based on medium
quality coals.
The coal quality is universally better than that found in South
Sumatra, with good common traits such as low sulphur
content and low ash, while the higher rank nature of the coals
means moisture contents are little more than 20% for the
larger producers. Interestingly, the larger producers have
rights to coals that average less than 25 MJ/kg (6000 kcal/kg)
such as Berau, KPC, and Kideco. Indominco Mandiri, and
Kartika Selabumi Mining and a number of smaller operators

18 IEA CLEAN COAL CENTRE

 Coal reserves

have reserves of coals of more than 25 MJ/kg making them
favourable prospects.
South Kalimantan is where PT Adaro operate and the
Envirocoal brand is mined. Here the coals are mainly medium
quality with heating values of 21.4–25.5 MJ/kg
(5100–6100 kcal/kg). The resource base is of similar quality
and so the longer-term future production will probably consist
of the same quality coals as are mined today. The extremely
low sulphur and ash contents make the coal very attractive to
international buyers looking to improve emissions and waste.
mineable (economically recoverable) reserves. Efforts to
explore further reserves are needed to firm the published
reserves figures. Those coals that are exploited are invariably
low in sulphur and ash content by world standards, but can
also be low in heating value due to high moisture contents,
especially amongst the lignites and subbituminous coals
found in Sumatra. Low sulphur coals that are exported from
Kalimantan are regularly shipped to blend with higher sulphur
coals around the world.

Arutmin has reserves of coal with heating values of less than

4400 kcal/kg while being branded as ultra low sulphur. The
products which are mined at Asam Asam and Mulia (Ecocoal
brand), remain acceptable for transportation due to these low
sulphur contents. Moisture contents are low across almost all
coals in South Kalimantan, as is the average ash content.

4.5 Coal geology

Indonesian coals are present in relatively shallow formations,
and so identifying coal resources should be reasonably
straightforward compared with identifying resources located
deep underground. However, this does not mean that shallow
reserves are necessarily easier to mine, since faulting,
fragmentation, and steeply dipping seams of shallow reserves
might be more difficult and more costly to mine than an
undisturbed underground seam.

One of the main features of Indonesian coal reserves is that

seam dip angles are generally low, but can increase to as
much as 85° in seams at the Kideco Roto South Mine.
Faulting has brought some deeper seams closer to the surface
making mining easier. Mining coal in Indonesia is therefore
extremely attractive, and geologically more favourable than
mining in many other parts of the world where deep mining is
more commonplace. Indonesian coal deposits are perfect for
opencast extraction since the coal deposits are characterised
by thick shallow seams.

Coalfields in Kalimantan are accessible to tidewater, which

facilitates transport to deep water loading jetties. According to
Walker (2000) only a small proportion of Kalimantan coal
resources has been explored in any detail, hence the wide
range in quoted resource/reserve figures. Future developments
will be in less accessible areas, but could still benefit from
existing installed infrastructure. These future resources must
be exploited to preserve the long-term future of coal supply in
Indonesia.

4.6 Summary
In summary, Indonesian coal is found on the islands or
Kalimantan and Sumatra. Kalimantan is the main hub of
production which contains coals of internationally tradeable
quality. Sumatra is the key resource for low rank and high
moisture coals, which will best serve domestic markets. The
reserves of coal in the whole country are difficult to quantify
with any certainty, with figures ranging from 4.3 Gt to 7 Gt of

Prospects for coal and clean coal technologies in Indonesia 19

 5 Structure of the Indonesian coal industry
The coal mining industry in Indonesia developed in the 1980s
and has since flourished into a leading export industry. The
market was opened up to foreign investment and expertise,
which spearheaded the massive drive to exploit the nation’s
rich reserves in Kalimantan.
Private sector investment has taken place within a framework
of government licences covering coal production.
Within this framework, licences permit exploration,
development and production for a set period of up to 30 years.
The influx of foreign firms into the Indonesian coal sector has
increased domestic expertise in mining to some extent,
although mining consultants and contractors are invariably
foreign companies themselves. This is discussed later in the
chapter.
Until changes that occurred in 2008/09 (see Section 15.3),
production licences were issued under Law No 11/1967 on
the Basic Provision of Mining, which regulates enterprises
when conducting mineral exploration, development, and
production in Indonesia. Coal production is split into four
distinct groups, they are discussed as follows:
1. The holders of coal contracts of work (CCoW) or
contracts of work (CoW) and mining licences – comprise
companies formerly owned by foreign multinationals
and/or Indonesian private companies that produce the
bulk of the country’s coal through a series of three
generations of contracts that were licensed in 1984, 1994,
and 1997. These have subsequently been named First,
Second and Third Generation contracts respectively The
history of these contracts is discussed in Section 15.1.
The licence is granted once for all stages of survey,
feasibility, construction and operation. The maximum
area permitted for these activities is 100,000 ha and must
be clearly delineated in the application. Up to 25% must
be relinquished at the end of the exploration period.
First Generation producers are of great significance as they
constitute the bulk of the country’s current production, and
will do so until around 2014-15 when most licences will
either expire or be extended (under the current rules). The
remainder of the production is from Second and Third
Generation contracts, which are Indonesian companies – in
strong contrast to the foreign domination of the earlier
years of the First Generation producers.
2. PTBA – PT Tambang Batubara Bukit Asam, the one
state-owned company operating two mines in Sumatra.
PTBA is discussed in more detail in Chapter 8.
3. Kuasa Pertambangan (KP) mining authorisation
holders – Before 2009 KP licences were reserved only
for national private companies: these provide licences to
survey a maximum 5000 ha, explore a maximum
2000 ha, and exploit a maximum 1000 ha. Regional
autonomy now permits local governors, regents, or
20
mayors to award KP licences and will replace the CoW,
permitting foreign companies to hold KPs
(see Section 15.3).
4. Cooperative units (KUDs) – consisting of local village
cooperatives that do not mine for export.
In 2006, First Generation producers still accounted for an
estimated 80% of planned production making these early
contracts the dominant players in the market. Originally, there
were ten First Generation contractors; they are listed in
alphabetical order:
I. Adaro Indonesia
II. Allied Indocoal
III. Arutmin Indonesia
IV. Berau Coal
V. Indominco Mandiri
VI. Kaltim Prima Coal
VII. Kendilo (now ceased operation)
VIII. Kideco Jaya Agung
IX. Multi Harapan Utama
X. Tanto Harum
The ‘contractors’ undertake to prospect for and explore the coal
deposits located in their concession area, and possibly to
engage in mining development. In return, they are granted
exclusive rights for a term of 30 years subject to a royalty (free
mine) of 13.5% of proceeds. The contractors are also obliged to
offer Indonesian investors at least 51% of the mining stock after
a ten-year operating period. In 2001, this provision affected two
foreign investors (Rio Tinto/BP and BHP-Billiton). Most of the
companies are based on First Generation CCoWs, representing
over 140 Mt, Second Generation CCoWs with about 50 Mt,
and Third Generation CCoWs with a mere 10 Mt.
Holders of any licence have a number of rights and
obligations that set out the conditions for each stage from
survey to production, particularly those operators holding
CCoWs. Either the licencee or the issuing authority can
withdraw at any stage if the conditions are breached. Some of
the conditions on the part of the contractor also include the
provision of expenditure. In Kalimantan, contractors must
commit to spending 3 $/ha at the survey stage, and 10 $/ha
during exploration. This must be done within a set period of
12–24 months. Feasibility and construction stages require
more detail and set out the intention to exploit specific
commercially viable deposits and environmental impact
assessments. Operation is typically fixed at 30 years, although
it is possible to apply for extensions.
The CCoW licences also oblige the holder of the licence to
make a number of payments to the state:
● minimum of 13.5% of annual production to the
government which includes the royalty;
● US$100,000 lump sum regional tax; and
● 35% corporate tax on income for the first ten years, and
then 45% thereafter.
IEA CLEAN COAL CENTRE
Structure of the Indonesian coal industry
KP licence holders have a different regime, but nonetheless
include payments of land lease, royalties, and state levies.
Typically, the royalty structure is more lenient, with KP
producers being levied just 7%, instead of the 13.5% for
CCoW licence holders. However, this may change under the
new Mining Law announced in 2008.
Interestingly, the CCoW holders of First Generation contracts
are nearing the end of the 30 year licence, or are within ten
years of expiration. Perhaps it is a combination of rising
market prices to record levels, plus the finality of the licence
that drove the industry to ramp up production between 2000
and 2008.
Moves to either consolidate or nationalise the industry cannot
be ruled out over the long term although there is no indication
that this is being contemplated. Sovereignty of mineral
reserves may be seen as strategically more important to serve
local demand rather than the export business. However, with
steam coal trading at record prices, coal exportation is clearly
not a strategic decision the government wants to abandon
immediately.
The uncertainty about changes in the regulations for mineral
production might be encouraging contractors to exploit
reserves as quickly as possible, especially as the reserves are
some of the lowest cost in the world market, and relatively
easy to extract. However extraction is becoming harder for
many operations. The current status of industry is in flux and
is discussed at the end of this chapter.
5.1 Foreign ownership – a common
feature of the coal industry
While the state is pondering whether to maintain or modify
the regulations that govern the coal industry, there is no
shortage of interest from foreign-owned corporations.
Interestingly, the involvement of the global mining giants
such as Rio Tinto and is not as high profile as elsewhere
around the world, except in perhaps the trading of Indonesian
coals. Japanese and South Korean firms are well established
within the Indonesian coal industry, but it is the Chinese,
Indian and now Middle Eastern firms which seem to be
emerging.
One notable example is the Indian power generator Reliance
purchased three coal concessions in South Sumatra to supply
power plants in India, including the 4000 MWe
Krishnapatnam plant which is expected to consume
12–15 Mt/y (MCIS, 2008c). Some 25 Mt/y could feed this
and a number of other power projects in India. The additional
production arising from these new concessions represents a
significant increase on today’s output. The concessions are
located at greenfield sites with little or no infrastructure and
are surrounded by hilly terrain. Reliance is planning to spend
$1 bn on shipping and logistics infrastructure including four
Capesize and four Panamax vessels. Shipping between
Sumatra and the port of Krishnapatnam (due for completion
in 2009) takes two days less than vessels sailing from
Kalimantan. The shorter distance therefore means two fewer
days of charter rates and a delivered price of 10–15% less
Prospects for coal and clean coal technologies in Indonesia
than the price that Tata pays to buy coal from its mines at
Kaltim Prima and Arutmin – where Tata has a 30% stake in
the mines’ parent company BUMI Resources. The
Krishnapatnam power plant will be commissioned in 2013, so
while production at the mine may start by 2009, it is not
scheduled to reach design capacity until the power station
starts operating. In the interim, production might be low,
perhaps supplying the export market, or smaller tonnages to
other units operated by Reliance.
The East Kutai mining project in East Kalimantan could
supply coal to Indian and Chinese power stations. The
potential to secure contracts from such coal dependent
economies and the high returns earned during a period of
high coal prices led UK firm Churchill Mining plc to acquire
a majority 75% stake in the project (Mazak, 2008). What
makes this significant is that the Pakar coal discovery,
located 55 km southwest of East Kutai, has a reserve base of
270 Mt, and could potentially be one of the largest producing
mines in Indonesia. However, production could be increased
to anywhere between 5 and 20 Mt/y within a few years of
operation (which started in 2008). While the coal qualities
are suitable for customers in China and India, the company
also signed an agreement with the Indonesian power utility
PT Ridlama Bangun Mandiri (PT RBM) to supply coal for
30 years to feed two power plants that are being built in
Kalimantan. The agreement will secure 840,000 t/y at a 5%
discount to the prevailing market price. Based on these
figures the power plants are unlikely to be much greater than
250 MWe each, but the 30-year contract is seen by financial
analysts as promising because it demonstrates the quality of
the coal (Emery, 2008). PT RBM is investigating the
potential of building other, larger power plants within
Kalimantan.
Another company seeking to expand its presence in Indonesia
is the Singapore-based business Straits Asia Resources. The
company has already acquired the Sebuku mine which
produces 2–3 Mt/y in South Kalimantan. Sebuku coal sells for
a price of 70 $/t (26 MJ/kg or 6300kcal/kg air-dried basis),
though unusually 1.5 Mt was contracted for 2008 at prices of
around 45 $/t. This means that Straits Asia Resources will
have committed to 2008 tonnage at prices perhaps 60% below
the world market price. By the end of 2007, Straits agreed a
deal to acquire a 100% interest in the Jembayan coal mine in
East Kalimantan for $350 million (MCIS, 2007b).
Production at Jembayan was 4 Mt/y in 2007 with the potential
to produce 7.5 Mt/y with some additional capital expenditure.
Straits Asia Resources acquired the shares which previously
belonged to Anugerah Bara Kaltim (82%) and Mitsui
Matsushima (18%). The operation is just 70 km from the
coast and produces low sulphur, low ash subbituminous coal,
similar to that produced by Adaro, Kideco, and Kaltim Prima.
The following chapters are brief descriptions of the larger
coal producers in Indonesia and the information was the best
available at the time of writing. However, ownership and
production can change frequently.
Chapters 6 to 13 describe the major corporations that make up
much of today’s coal industry in Indonesia that (mostly)
operate under the CCoW licence regime, with the exception
21
 Structure of the Indonesian coal industry

of the state controlled PTBA (Chapter 8) . This chapter also

accompanies the infrastructure maps for major export
operations illustrated by Figure 12 for Kalimantan and
Figure 13 for South Sumatra found in Chapter 17.

22 IEA CLEAN COAL CENTRE

 6 PT Adaro Indonesia
Key Facts
Main mine location: South Kalimantan, Borneo
Status: First Generation CoW
Production in 2007 (rank): 36 Mt (2nd)
Approximate production to date
(1992-2008): 289 Mt
Estimated mineable reserves
in 2008 (R/P): 336 Mt (9–10 years)
Coal resources, Mt: 2069 Mt
As of 2007, PT Adaro was the second largest producer of coal
in Indonesia, although this could change in the future. Adaro
produced 36 Mt in 2007, up from 34 Mt in 2006 but down
from a previous forecast of 37 Mt (MCIS, 2008a). In 2006,
Adaro’s production was almost fully contracted under term or
annual agreements. The rest was sold on the spot market.
Long-term contracts secure 25% of sales and supply.
The supplier is targeting production of at least 38 Mt in 2008,
rising to 42–43 Mt in 2009. Given the company’s mineable
reserves, more exploration and development will be needed. It
is likely that the coal reserve figures have not been revised
and given the company’s expansion plans for production, a
great deal more coal must exist in economically recoverable
reserves than these numbers suggest.
PT Adaro Indonesia is part of the Adaro Energy group of
companies. The parent company underwent a corporate
change with an initial public offering (IPO) of shares in 2008,
the proceeds of which were used to buy a number of
companies along the supply chain. This gave Adaro greater
control over its entire export operation.
As of 2008, the ownership structure of PT Adaro Indonesia
was not clear, due to the share issue of the parent company
Adaro Energy. Some 34.8% of Adaro Energy was sold under
the IPO, but while the IPO helped in infrastructure
development funding, it also provided funding for a buyback
of foreign-owned interests in Adaro Energy such as those
held by Farallon Capital and the Government of Singapore
Investment Corp. Prior to the IPO, the investment arm of
Adaro Energy called Alam Tri-Abadi owned 60% of PT
Adaro Indonesia, the coal production wing. Now, Alam
Tri-Abadi has been partially sold, it is not clear how the
structure currently stands. However, PT Adaro Indonesia has
a concession, which is in operation until October 2022.
There is the potential for an extension of the contract for
another term under a mutual agreement with the
government.
The main reserves are located on the north-eastern margin of
the Barito Basin which is up to 250 km wide. The coal
deposits were laid down in the Eocene to Pliocene age. There
are eight separate deposits which are all surface mineable.
Coal deposits are found in three areas, Paringin, Tutupan, and
Wara, but production is concentrated in the Tutupan mine, the
Prospects for coal and clean coal technologies in Indonesia
largest single coal mine in the country. Wara is under
development while Paringin has ceased producing.
Overburden and interburden removal is done using hydraulic
shovel and truck. Coal is also extracted by shovel and trucks.
The stripping ratio is very low (4:1). Stripping ratios refer to
the volume of overburden (topsoil, earth and overlying rock)
that needs to be removed to yield a single tonne of coal
(ROM). Stripping ratios are examined in detail by Baruya
(2007). Adaro uses four contractors to carry out mining
activities at the Tutupan area. ROM coal is stockpiled
adjacent to the pit before being taken by truck 80 km to the
Kalanis barge loading facility where the coal is also
processed. The road is all weather and, like the mining, the
haulage is contracted to third party companies.
At the Kalanis barge loading facility, coal is screened to a size
of 50 mm; any oversized coal is crushed to 50 mm. The coal
is then transferred by a conveyor to one of two stockpiles each
holding 200,000 t, or is loaded directly to barge. Conveyors
transfer the coal to the barge at a rate of 2000 t/h. Barge
loading takes on average five hours for barges of between
6000 dwt and 14,000 dwt. The barge is then towed by tug for
200 km down the Barito River to the river mouth where coal
is transferred in any of the following ways:
● 14 km offshore to a trans-shipment facility at Taboneo;
● 250 km south east to Pulau Laut where the PT Indonesia
Bulk Terminal (IBT) is sited; or
● direct to Indonesian customers.
The trans-shipment facility is a floating crane barge or self
geared vessels. Three loading cranes are each capable of
10,000 and 15,000 t/d. Capesize vessels of 100–200,000 dwt
can be loaded. The PT Indonesian Bulk Terminal (IBT) is a
common user port facility located off the south east coast of
Kalimantan on the island of Pulua Laut. It has a sheltered
deep water location for bulk carriers where coal is stockpiled
for transfer to ships. Pulau Laut also provides the opportunity
to blend coals for the final consumer.
Adaro’s expansion plans include a massive 32 km conveyor
system that will link the Wara mine within 36 km of the
Kalanis Barge Terminal. Adaro plans to increase production
from 36 Mt to 80 Mt/y by 2011 making Adaro the biggest
coal producer in the country.
23
 7 PT Arutmin Indonesia (BUMI Resources)
Key Facts
Main mine location: South Kalimantan, Borneo
Status: First Generation CoW
Production in 2007 (rank): 15 Mt (4th)
Approximate production to date
(1990-2007): 163 Mt
Estimated mineable reserves
in 2005 (R/P): 1300 Mt (60 years)
Coal resources, Mt: 3726 Mt
Arutmin is one of the major mining companies owned by
BUMI Resources, the single largest coal mining group in
Indonesia. BUMI is part-owned by the powerful Bakrie
family conglomerate whose industrial empire spreads across a
range of industries including telecommunications. According
to the corporate website (www.bumiresources.com), as of
July 2008 more than 81% of BUMI was publicly owned, with
some 7% owned by the PT Bakrie & Brothers, and the
remaining 12% owned by various US banking interests.
BUMI plans to boost output from all of its operations from
60 Mt to 100 Mt by 2011 (MCIS, 2008b).
The coal products from the two major production companies,
Arutmin and Kaltim Prima, are treated as distinctly different
brands by the trade press and publications, and so these two
companies are treated separately.
In 2006, Arutmin exported 12.5 Mt. By 2007, the company
produced 15.3 Mt making it the fourth largest behind its sister
company PT Kaltim Prima, PT Adaro, and PT Kideco Jaya
Agung. Australia’s BHPB plays an important role marketing
Arutmin’s products worldwide while Indonesia’s Enercorp
Limited markets the coal domestically.
government in December 1990. Senakin (Arutmincoal) coals
lie in gently dipping deposits (5–15°), and mining in the past
has taken place in three locations along the coal seam. Coal is
crushed and washed to lower the sulphur content. Satui
(Arutmincoal) coals are crushed but remain unwashed due to
the low ash content. The Ecocoal mined in Asam-Asam and
Mulia is extremely low ash and low sulphur and needs only
crushing. The seams lie in shallow ground and so have the
advantage of having low strip ratios. The seams are also thick
which makes production straightforward using the usual truck
and shovel methods. Overburden and coal extraction require
minimal drilling and blasting which reduces costs.
Coal is not transported directly to port, but rather goes
through several steps before finally ending up at Arutmin’s
main port on the island of Pulau Laut. From the mines, coal is
hauled by truck to the barge ports at Sembilang, Muara Satui,
and Air Tawar 2. The distances to these ports are short,
typically 27 km; the longest is 50 km which is still not
excessive. Coal is stockpiled at the barge ports and crushed
where necessary.
At the barge ports, Arutmin operates a fleet of eight
custom-built, self-discharging barges of 7000 and 3500 dwt
capacity. These barges either take the coal to domestic and
regional customers directly, or transfer it to the North Pulau
Laut Coal Terminal (NPLCT) or trans-shipment point.
NPLCT is a deep water port capable of accommodating
160 vessels of Capesize capacity up to 180,000 dwt every
year. Arutmin is the operator of the port. While the vessels
remain stationary in port, loading can continue using
conveyor systems that run along the length of the ship.

Most of the business is contracted for a year or longer,

although stocks are capable of supplying short-term spot
trades. Arutmin produces two major brands of coal,
Arutmincoal (bituminous) and Ecocoal (subbituminous). The
former has low sulphur, low ash and high heating values, but
the Ecocoal is the increasingly popular brand with what is
considered ultra low sulphur, averaging just 0.13% (compared
with Arutmincoal at 0.51–0.85%). The volatile content and
calorific content of the Ecocoal is lower than the Arutmincoal
product.

PT Arutmin operates a concession area known as Kalimantan

Block 6 located across several narrow strips in the south east
of Kalimantan and north west of Pulau Laut Island. The
company’s lease covers an extensive reserves base of
bituminous and subbituminous coals which shall maintain
production levels for up to 30 years. However, at the current
rate of production the reserves could feasibly extend to more
than 50 years.

The current reserves base is located in just 6% of the original

concession area, 94% of which was relinquished to the

24 IEA CLEAN COAL CENTRE

 8 PTBA (Tambang Batubara Bukit Asam Tdk)

Key Facts

Main mine location: South Sumatra, West Sumatra

Status: First Generation CoW
Production in 2007 (rank): 11 Mt (7th)
Approximate production to date
(1992-2007): 150 Mt
Estimated mineable reserves
in 2005 (R/P): 1500 Mt (120 years)
Coal resources, Mt: 3726 Mt

PTBA is a state-owned company established in 1981 with an

overarching mission to support and implement government
programmes for the coal mining sector. The company’s
reserves consist largely of lignite (60%), subbituminous coal
(37.1%), and bituminous coal (40%), and so PTBA’s interests
are largely in lignite and subbituminous production.

The company’s activities include general survey, exploration,

exploitation, production, refining, transportation and trading,
maintenance of special coal port facilities for internal and
external needs, operation of steam power plants and providing
consulting services related to the coal mining industry.

PTBA has two subsidiaries, PT Batubara Bukit Kendi and PT

Bukit Asam Prima, which are engaged in coal mining and
coal trading respectively, and three inactive subsidiaries, PT
Bukit Asam Metana Ombilin, PT Bukit Asam Metana Enim
and PT Bukit Asam Metana Peranap. The company runs two
mining units, the Tanjung Enim in South Sumatra, and the
Ombilin Mining Unit in West Sumatra. Coal is also purchased
from its subsidiary PT Batubara Bukit Kendi which operates
in Kalimantan. Coal from Bukit Kendi is blended with coal
from Tanjung Enim due to the low calorific value of the
Kalimantan coal.

Coal produced in Sumatra may be subject to supply

disruption on the rail link between the Tanjung Enim mine
and the Tarahan Terminal, and so contracts exist to purchase
coal from other Kalimantan producers to supplement
production from Sumatra. By 2012, a railroad upgrade is
expected to be completed in Sumatra that should allow PTBA
to increase exports of steam coal from Tanjung Enim by an
estimated 0.5 Mt/y. Among PTBA’s domestic customers are
the Suralaya coal-fired power plant and the Bukit Asam
minemouth power plant PT Semen Baturaja.

Coal exports are shipped through the Tarahan Port with a

throughput capacity of 6.8 Mt (figures for 2005), and also the
Kertapati pier. However, it is apparent that transportation
problems are a regular occurrence and whether PTBA has a
growth future will be questionable. Since production started
in 1992, PTBA successfully increased output from 7.1 Mt to
almost 12 Mt in 2000. However, output has since dropped and
barely recovered to just 11 Mt.

Prospects for coal and clean coal technologies in Indonesia 25

 9 PT Berau Coal

Key Facts

Main mine location: East Kalimantan, Borneo

Status: First Generation CoW
Production in 2007 (rank): 12 Mt (5th)
Approximate production to date
(1994-2007): 77 Mt
Estimated mineable reserves
in 2005 (R/P): 1235 Mt (102 years)
Coal resources, Mt: 2927 Mt

PT Berau Coal is almost half owned by foreign corporations,

the Dutch Company Rognar Holding BV (39%) and Sojitz
Corp (10%). Berau is in the fortunate position of having some
of the country’s largest reserves of economically recoverable
(mineable) coal. It has some 1235 Mt. Berau Coal produces a
range of subbituminous coals, which benefit from low ash and
sulphur contents, and moderate heating values which make
the coals suitable for most thermal applications, but also
capable of export when blended.

The coal is mined in opencast mines using truck, shovel, and

bulldozers for overburden removal and coal extraction. The
mining is done by contractors under long-term agreements.
Three mines (Lati, Binungan, and Sambarata) use hydraulic
excavators. Coal from each mine is then hauled a short
distance (4.5–13 km) to a coal processing plants. Each
processing plant has crushing facilities which reduce the size
of the coal to 50 mm.

Coal blending is carried out at the port areas. The three ports
serving the mines are Lati, Sambarata, and Saran. The ports
have a stockpile capacity of 140,000 t, 75,000 t, and 200,000 t
respectively, and are equipped with conveyor facilities to load
coal onto barges.

26 IEA CLEAN COAL CENTRE

 10 PT Kideco Jaya Agung
distances between mine, crushing plant and coal export
Key Facts
terminal are short. Around 60 trucks haul the coal 39 km
between crushing plant and the export terminal.
Main mine location: East Kalimantan, Borneo
Status: First Generation CoW
As of 2005, TMCT was capable of stockpiling 700,000 t with
Production in 2007 (rank): 21 Mt (3rd)
throughput capacity of 14 Mt/y. Three coal loaders load
Approximate production to date
8000–12000 dwt barges which transport coal 58 km to the
(1993-2007): 144 Mt
Adang Bay trans-shipment point off the coast of East
Estimated mineable reserves
Kalimantan. Loading can be done by two floating cranes with
in 2005 (R/P): 979 Mt (37 years)
an annual loading capacity of 3.5 Mt and Capesize
Coal resources, Mt: 3772 Mt
(80–180,000 dwt) vessels are readily berthed, as the
trans-shipment point is located in deeper water.
Kideco supplies both international and domestic markets. The
domestic power market accounts for roughly a third of the
company’s tonnage produced (around 5–6 Mt out of 19 Mt).
A major domestic customer is the Paiton power plant units 5
and 6 of Phase II, and units 7 and 8 of Phase I. Other power
plants include Suralaya, Newmont Nusa Tenggara. Most of
Kideco’s international business is with Asian and European
utilities as a blend fuel to lower sulphur in other bituminous
coals.

PT Kideco is similar to PT Berau in that it is 49% owned by

foreign companies. Samtan Co Ltd of South Korea owns the
entire 49%. Korea-Indonesia Resources Development Co Ltd
(Kideco) was set up in 1982 and included other industrial and
transportation interests. Kideco employs 5000 contractors,
while the permanent staff include 38 Korean nationals, and
468 Indonesian workers.

Mining started in 1993 after several years of exploration and

feasibility studies. One of the original minority shareholders,
Samhock Consolidated Coal Mining, took overall control
through its parent company, Samtan Co Ltd. As with all
foreign interests, after ten years more than 50% of shares
must be held by the government or Indonesian companies (PT
companies).

Over the same time, Kideco’s concession area has reduced to

around 50,400 ha. Within this area, Kideco has four
producing areas at Roto, Samu, Susubang, and Pinang Jatus.
At the company’s Pasir coal mine, seam thicknesses measure
5–60 m. Pits are being developed in Roto North and the South
and Samarangu areas. In common with the rest of Indonesia,
the coals have generally modest calorific values averaging
22–25 MJ/kg (5250–5980 kcal/kg) for Kideco’s products, but
also low sulphur (0.24%), very low ash (3.1%), and moisture
(19.8%).

Coal is produced using opencast methods of truck and

hydraulic shovel for overburden removal. Kideco employs the
contractor PT Thiess. Initially, Thiess provided plant
equipment, but the contract has since progressed to a full coal
hauling agreement. Coal is crushed in a nearby plant capable
of processing 48,000 t/d. Coal is not washed as the ash
content is low, but crushed and sized, and stockpiled before
transportation by truck to the Tanah Merah Coal Terminal
(TMCT). Truck is the most suitable form of transport as the

Prospects for coal and clean coal technologies in Indonesia 27

 11 PT Kaltim Prima Coal (BUMI Resources)
Provided the weather conditions are good, loading can occur
Key Facts
all year. The ships are capable of moving 4700 t/h. Also at
Tanjung Bara is a barge loading facility with barge capacities
Main mine location: East Kalimantan, Borneo
of up to 7500 t, which take roughly 7–8 hours to load.
Status: First Generation CoW
Production in 2007 (rank): 39 Mt (1st)
Trans-shipping loading systems are carried out 1km offshore
Approximate production to date
by two systems. The first trans-shipper is a geared vessel
(1991-2007): 268 Mt
located at Tanjung Bara or Lubuk Tutung anchorage. This is
Estimated mineable reserves
capable of trans-shipping 10,000 t/d. The second trans-shipper
in 2005 (R/P): 1300 Mt (36 years)
is a gearless vessel capable of transferring enough coal to load
Coal resources, Mt: 3726 Mt
Capesize vessels. This is done by a floating transfer station
(FTS) that can load at 1000 t/h, transferring coal from barges
KPC is a First Generation CoW producer operating in East to ships using twin grabs that transfer the coal to conveyors
Kalimantan. Production started in 1991, with 2 Mt produced which feed directly into the vessels.
in the first year. Within 24 months the operation was
producing 7 Mt/y. In 2003, PT BUMI Resources Tbk acquired
KPC and has subsequently spearheaded a massive rise in
production. In 2007, KPC was the largest producer of coal in
Indonesia with production of 38.9 Mt.

More than 95% of the coal from KPC operations is exported,

mostly to Japan and Taiwan, but some goes to China, South
Korea and Europe.

Production occurs in two major areas, Bengalon and Sengatta,

which lie within a total concession area of some 91,000 ha.
Some of the seams that exist within the company’s agreement
area have thicknesses ranging 1–15 m, although most are
2.4–6.5 m. The seam dip is fairly low, in the range 3–20°. The
coal is typically low in ash at approximately 5% as received,
with sulphur contents of no more than 0.6%. The calorific
value (as received) is measured at 22–28 MJ/kg (5350–6700
kcal/kg).

The opencast mining operations are all truck and hydraulic

shovel capable of shifting 335 bcm/y. Some 1 Mt of material
is moved every day, although this may well rise where
deposits of the coal dip deeper below the surface level. Coal
preparation is primarily based on sizing using crushers to
reduce the size to 50 mm for transportation.

From Sengatta, the raw coal is moved to KPC’s Tanjung Bara

coal port. The coal is transported 13 km to the port’s
stockpiles by a single staged, covered overland conveyor
(OLC) which has a capacity of 4200 t/h. Bengalon coal is
hauled on a raw basis by truck for 27 km to the crushing
station located at a dedicated barge loading facility at the
Lubuk Tutung Barge Terminal (LTBT). Most of the ROM
production requires little extra preparation. Some 1.4 Mt of
coal that is ‘dirty’ is processed through a dense medium
cyclone plant.

The Tanjung Bara Coal Terminal is the key exit point for KPC
coal, 96% of which is sold for export. Here the coal is
stockpiled before reclaimers load the coal onto conveyors.
Coal is also loaded directly from the OLC from the mine. The
conveyor then runs offshore along a causeway for 2 km into
deep water where vessels of up to 210,000 dwt can berth.

28 IEA CLEAN COAL CENTRE

 12 PT Indominco Mandiri (Banpu)

Key Facts

Main mine location: East Kalimantan, Borneo

Status: First Generation CoW
Production in 2007 (rank): 12 Mt (6th)
Approximate production to date
(1997-2007): 70 Mt
Estimated mineable reserves 62 Mt (limited at 2005
in 2005 (R/P): reserve level)
Coal resources, Mt: 284 Mt

Indominco is a government run company previously

privately-owned by the Sallim Group. In 1998, ownership was
transferred to the government to repay debts. A small
percentage was transferred to PT Kitadin Corp, PT Trubaindo
Coal Mining, and PT Bharinto Ekatama. These four
companies were then sold to PT Centralink Wisesa
International in March 2001 via the IBRA (bank restructuring
agency). Centralink is an Indonesian registered company
controlled by Banpu plc (Thailand).

Mining is by opencast methods using excavators and trucks.

Within the mineyard, the coal is stockpiled and crushed. Coal
is transported to port stockpiles by truck. Road haulage is
only possible as the distances between mine and port is a
mere 56 km, little more than an hour’s drive. Indominco
operates a deep water terminal, the Bontang Coal Terminal.

The coal terminal is linked to barge and Panamax loaders with

a 6 km conveyor link.

Indominco started production in 1997 at just 1 Mt and within

ten years production reached an estimated 11.7 Mt.

Prospects for coal and clean coal technologies in Indonesia 29

 13 PT Gunung Bayan Pratama Coal (Bayan Resources)
excavation and truck machinery, as well as increasing the
Key Facts
haulage capacity of opencast operations. However in 2006,
Gunung Bayan started a trial of underground mining to
Main mine location: East Kalimantan, Borneo
determine ground support needs. It appears that high stripping
Status: First Generation CoW
ratios are rendering opencast mining less economically
Production in 2007 (rank): 8 Mt (8th)
attractive due to the massive volumes of overburden removal
Approximate production to date
required for every tonne of coal extracted (typically ROM).
(1998-2005): 33 Mt
Long-term plans will therefore include the commercial
Estimated mineable reserves 450 Mt (limited at 2005
exploitation of what are considered underground seams.
in 2005 (R/P): reserve level)
Coal resources, Mt: n/a

Gunung Bayan is the chief coal mine operation of Bayan

Resources and is expected to produce 4.5 Mt in 2008, up from
4.1 Mt in 2007. Bayan Resources includes four other mines
each producing 0.5 Mt/y, although the potential for each mine
is closer to 2.5 Mt. The company buys an additional 0.5 Mt –
primarily Kideco material – for blending.

The most recent mines at Bahama and Tegu Sinar Acadia

became operational in December 2007. Bahama, which mines
a 28.5 MJ/kg (6800 kcal/kg GAD) and 0.5% sulphur material,
is targeted to hit 2.5 Mt in 2008. Teguh Sinar Abadi is
expected to produce 0.5 Mt of product with a heating value of
26–27 MJ/kg gross air dried. The original target was close to
1.4 Mt, but the mine started up later than planned.

Bayan is currently owned by Indonesian based companies;

however, divestment to foreign ownership is under way. The
Bayan group has been involved in seeking bids for an 80%
stake in the company; an Indian conglomerate (possibly Tata)
has shown interest with a US$1.8 bn (Castano, 2008).
However, other reports suggest that Bayan intends to float
only 10–25% of the company out of a total estimated value of
US$3 bn (Aglionby, 2008; MCIS, 2008d). Total production
by Bayan Resources reached 8 Mt/y in 2007. Production may
well increase to 10.5 Mt in 2008 (MCIS, 2008b).

Block I consists of 14 seams in a concession area of 8856 ha.

The coal quality is good, with high heating values in excess of
7000 kcal/kg. In Block II, there are also 14 seams with similar
quality coal. The stripping ratio in both blocks is quite high at
roughly 12:1 (12 bcm of overburden to 1 t of coal). All the
coal is extracted using opencast means. The company uses its
own personnel and equipment. Almost all the coal is mined
clean in a ROM state and little requires washing (just 5% of
output is washed). Coal is then hauled from the mine to one of
two barge loading facilities – Manau, some 20–25 km away or
Tepian Ulak, 37–42 km away.

Ahead of the planned IPO, Bayan Resources upgraded its

reserve estimate to 450 Mt from the current 350 Mt. New
reserves are derived in part by moving to very high stripping
ratios of up to 18:1 at the flagship Gunung Bayan mine.
Those ratios are believed to be economically viable given the
current high market prices.

Production has increased in recent years by deploying extra

30 IEA CLEAN COAL CENTRE

 14 General corporate issues
One of the major developments in recent years has been the
corporate changes occurring among major coal producers or
the parent companies. There is no end to the interest in new
mining concessions as evidenced by the spate of initial public
offerings (IPO) of some of the majors, with others expressing
interest to follow. However, the banking and financial markets
downturn since 2008 could impair future interest in IPO until
economic confidence returns to the financial markets.
Nevertheless, in recent years there has been a flurry of activity
and interest in the private sector involving share ownership of
coal companies.

Indonesian coal assets are traded widely across the private

sector, which indicates that private industry both within and
outside the country has confidence in the regulatory regime of
the mining sector in Indonesia over the short-to-medium term.
A question being asked by some in government is whether a
high proportion of private sector foreign ownership in the coal
industry operates with Indonesia’s long-term interests in
mind, or whether it will deplete the reserves at a pace that is
not sustainable over the long term.

The Mineral and Coal Act combines with the Investment Law
to formalise the investment climate, and provide support for
the coal industry to increase production to 300 Mt within five
years (Coaltrans, 2008). The key question is whether retaining
sovereignty over the exploitation of coal reserves will be
beneficial to the energy security of Indonesia. The
government has an extremely sensitive dilemma. While the
industry has some degree of protection through the limits on
foreign ownership, increasingly the foreign ownership is by
countries with an increasing appetite for internationally traded
coals, especially the high quality products sourced from the
low sulphur and low ash deposits in Kalimantan.

Prospects for coal and clean coal technologies in Indonesia 31

 15 A brief history of Indonesian coal production
One of the first major projects to get under way in Indonesia
was also an extremely steep learning curve for the industry
although less successful in commercial terms. In the early
1980s, the World Bank supported the Indonesian
Government in a move to diversify the country’s energy
sources. A loan of $185 million in 1982 supported the
development of the Air Laya mine at Bukit Asam in South
Sumatra. The lignite coal mined at Air Laya was destined to
supply the Suralaya power station with a ‘captive’ takeoff
agreement of 3 Mt/y by 1987 to be fired in the first two
400 MWe units.
According to the World Bank (2001) report from which these
figures were derived, observations suggested that the project
lacked a firm and coherent management structure for the
coordination of production, infrastructure and shipping, which
were at the time governed by different ministries. One of the
major mistakes proved to be the selection of a bucket wheel
excavator (BWE) as the method of mining, which
subsequently proved to be the wrong technology for PTBA.
The BWE is inflexible in operation and requires a high degree
of planning which in turn requires technical staff with
advanced training. A large inventory of 14,000 different
components and the remoteness of the mine made parts and
equipment difficult to obtain. The rainy climate made BWE
risky to use, leading to a shortfall in excavation rates. Costs
were inflated while the downside risk of a low coal price was
not properly considered. The geology and feasibility of
production methods were not fully evaluated and
environmental water pollution was not properly addressed
during the construction phase or thereafter. The project was
delayed by four years, the mine produced 20% below the
3 Mt/y expected and the financial return was negative.
Overall, the World Bank and the Indonesian Government
learned valuable lessons. Since the Air Laya project,
subsequent mine projects have almost universally adopted the
truck and shovel method of extraction. Even PTBA truck and
shovel operations were operating at 29% of the cost of Air
Laya and proved to be highly profitable. However, it is
important to note that with a greater emphasis on high
moisture coal reserves for future projects, BWE should not be
excluded from consideration if the geology of the seams and
its cost-effectiveness mean it is appropriate to use.
15.1 The history of the Contracts of
Work
Around 1984, First Generation CoW were awarded by
Presidential Decree, followed ten years later by the Second
Generation CoW contracts. Soon after came the Third
Generation CoW, awarded in 1997. The First Generation
contracts had the right to mine the bulk of the country’s
reserves and still represent the leading producers and
exporters. Second Generation contracts represented just 2 Gt
of the country’s reserves, while Third Generation contracts
applied to concessions in areas that contained a potential
32
13.5 Gt. While the royalty rates were the same for all
contracts, the investors received different taxation treatment.
By 1999, Indonesia’s Ministry of Mines and Energy realised
the potential for Indonesia’s coal mining industry and
provided new incentives to encourage the development of low
quality coal in the more remote areas of Indonesia. The
incentives included the introduction of lower royalties for coal
mining activities during a period of slumped coal prices in
1999 (AJM, 1999). The price of some high quality coals were
25 $/t free-on-board (FOB) on which royalties of 13.5% were
paid. Lower quality products were being sold for 10–20 $/t.
Holders of First Generation contracts operated mines that
became the core business of the Indonesian coal industry,
serving mainly the international market. While the export
market grew stronger, developments occurred in January 2004
in the background, when Indonesia adopted a new National
Coal Policy, which sought to promote the development of the
country’s coal resources to meet domestic requirements, since
oil and gas reserves were declining. The policy included
Indonesia’s Coal Development Programme which is
summarised as follows:
● greater utilisation of low rank coal;
● development of minemouth coal-fired power plants;
● coal liquefaction and coal gasification to produce
substitute fuels for diesel;
● upgrading of brown coal (lignite);
● conversion of 7753 MWe of diesel-fired power plants to
coal-fired plants;
● construction of 10,000 MWe capacity of new coal-fired
plants in 2009-10;
● better use of coal briquettes for small industry and
household applications;
● development of an Integrated Coal Transportation System
to link coal mines and export terminals, which are located
in the southern part of Sumatra, and in Kalimantan.
The updated scheme has added more sophistication to the
domestic coal contracts. It stipulates that contracts with local
end-users can be renegotiated on a more regular basis
depending on the prevailing price of internationally traded
coal. It also accounts for the quality of coal and the
remoteness of the mine location. While the government
revenue from royalties could drop initially, it was anticipated
that revenues would pick up as low rank coal production
increased in more remote regions.
By 2005, Indonesia had overtaken Australia as the leading
exporter of steam coal. The Indonesian coal industry
registered an average annual growth of 10%/y from 2000.
This outstripped the average growth rate of both international
seaborne coal and domestic demand. Practically, all the
production in Indonesia was driven by export demand from
power stations and industries in other major Asian economies
(see Table 4).
Throughout the period since 2000, Indonesia seemed to break
IEA CLEAN COAL CENTRE
 A brief history of Indonesian coal production

environmental protection and its impact on coal production in

Table 4 Largest coal producing organisations in
Indonesia. Most reported events include force majeure or
Indonesia 2007 (MCIS, various issues)
transportation bottlenecks that affect short-term supply.
Producing group Mt However, what is often overlooked in coal reports is the
importance of Indonesia’s environment, most notably that of
BUMI, of which is: 54.2 Kalimantan (Indonesian Borneo), and the same may well
apply to Sumatra. This may be due to the fact that the coal
PT Kaltim Prima 38.9
industry faces few impediments regarding environmental
PT Arutmin 15.3 regulation, yet Borneo is home to an extremely diverse
ecosystem that is rich in tropical flora and fauna.
PT Adaro 36.1

PT Kideco Jaya Agung 20.5
Banpu, of which is: 17.7
PT Indominco Mandiri 11.5
PT Berau 12.1
PT Tambang Batubara Bukit Asam (PTBA) 11.0
PT Bayan Resources 8.0
PT Anugerah Bara Kaltim 4.0
PT Jorong Barutama Greston* 3.0
Total 166.5
* refers to 2005
its export record every year due to strengthening prices and
higher demand. The rupiah exchange rates with the US$ had
settled somewhat, and exports were boosted when China
withheld its own export tonnage from the world market (due to
strong internal demand). Furthermore, a strengthening in the
Australian currency reduced Australian export
competitiveness. In 2005-06, infrastructure problems in
Australia created supply bottlenecks to the export loading
ports preventing Australian producers from exploiting the extra
demand in the Asian market. These reductions in exports from
Australia and China thus created a supply gap in the Asia-
Pacific market, which Indonesian exporters were quick to fill.
Interestingly, a considerable amount of coal in Indonesia had
been reported to be mined illegally and exported to take
advantage of the high prices arising between 2005 and 2008.
According to government reports, 20 Mt of coal was produced
and exported illegally every year during this period, and could
continue if the price of coal remains attractive. Most of the
illegally mined coal came from operations adjacent to existing
legal operations.
Some unauthorised operations were allegedly issued
illegitimate permits by local governments that did not gain the
necessary authorisation from the central authorities. The
20 Mt business accounted for a massive 10% of production,
losing the government the equivalent of $270 million in
revenue from taxes and royalties, had prices remained around
100 $/t FOB (Coal Age, 2008).
15.2 The impact of forestry
protection
The international coal trade press writes little about
However, the Engineering and Mining Journal (E&MJ,
2008a) published an article covering this issue, describing
how much of the important forest grows above mineral
deposits. The impact of mineral mining, in this case coal, is
not surprisingly opposed by some government officials,
environmental non-government organisations (NGOs), and
local communities. Although it is commonplace for coal
producers to work with parties to resolve environmental
issues, environmental law will continue to place pressure on
developers of opencast mines, and coal producers will need to
adapt to any changes and ever stricter working conditions
over the long term.
Back in 1999, a year after former President Suharto left
office, a major law was passed, the Forestry Law 41. Under
this law, certain categories of forest were designated for
protection. Certain economic activities could be undertaken
depending on the forest category to help ensure that the
forests were not irrevocably damaged or changed. So, while
mining companies could gain necessary permits from the
Ministry of Mines and Energy Resources to mine
concessions, any concession that contains forest also required
a ‘borrow to use’ permit from the Department of Forestry.
Law 41 is somewhat confusing, and in some cases seems
irrelevant. Article 38 of Law 41 prohibits opencast mining in
areas designated as protected forests. This poses a particular
hindrance since coal seams generally lie in shallower
formations in Indonesia, and underground mining is almost
impossible in areas where the terrain is soft. However under
Article 19, coal producers also have the opportunity to change
the status of a forest, making opencast mining possible. So
while well-intended, Law 41 could be adapted to suit the
mining industry under certain circumstances, although not
always. Law 41 became effective enough to discourage a
number of mine developments. Out of 22 companies that have
applied for mining licences since the adoption of Law 41,
thirteen successful licences were granted concessions in areas
with protected forests (E&MJ, 2008a). Some companies were
still awaiting verdicts from the Department of Forestry by
2008, and this uncertainty reduced the number of companies
applying for mining permits.
In 2004 the government responded. In a decree, President
Megawati Sukarnoputri declared that mining contracts signed
for areas that were designated as protected will be allowed to
proceed, despite Law 41 (Lezard, 2004). This initiative was a
bid to restore confidence in the mining sectors that were
previously discouraged by Law 41.
The Ministry of Forestry came under criticism, particularly

Prospects for coal and clean coal technologies in Indonesia 33

A brief history of Indonesian coal production
from the mining lobby which claimed that the tree logging
industry has become exempt from paying the same indemnity
as mining companies for using natural forest for commercial
purposes. According to a survey by PriceWaterhouseCoopers,
conflict between mining and forestry interests ranked as some
of the most serious obstacles facing mining investment in
Indonesia, so clearly there were continuing efforts by the
Department of Forestry and interest groups to put pressure on
mine developers (Forbes, 2007).
Interestingly, the law appears to have been diluted by a
presidential decree issued on 4 February 2008. It states that
mining firms will pay into a compensation fund during the
contract period, and the funds would be used to replant
forests. Firms were able to pay between Rp 1.8–2.4 million
($200–265) per hectare for forest land. As well as opencast
mining, other activities that would be subject to the decree
include oil and gas companies, power transmission,
hydroelectric projects, geothermal power, toll road operators,
housing, and waste dumps (Azhari and others, 2008).
Previously, mining firms had to provide new land to
compensate for the use of forest areas, at twice the scale of
the mining area. Unsurprisingly the decree faced criticism
from opposition groups, but cautious support from the mining
sector.
15.3 Changes to the regulatory
regime
Indonesia’s mining regulations have undergone a long awaited
revision, but received a muted response from the main coal
producers. In late 2008, the government announced a series of
changes to the concession permit scheme which decentralised
the decision-making process away from central government
and towards the local and provincial authorities. It also
changed the terms of CoWs.
Some of the key changes involving the shift of authority have
led to some legal uncertainty due to overlapping authority
between local and regional governments. As a result,
according to a brief analysis by the Oxford Business Group
(OBG, 2009), the past decade saw only one new CoW issued
to an international mining company, while some international
investors, such as Australian firm BHP Billiton, have chosen
to abandon their large-scale commitments altogether.
Some critical changes to concession are the upper limits for
areas of exploration. For existing First Generation
concessions, these were set at 100,000 ha per operation, but
under the new law, coal operations may only have access to
50,000 ha of land per operation for coal mining (and
100,000 ha for metal mining). This new limit should promote
more diversity in the number of operations, but could
encourage more illegal mining and less control over enforcing
environmental rehabilitation, although these criticisms are
speculation in these early days of the new law.
Another fundamental change is the limit to the amount of
time allowed for extraction which has been revised down to
20 years, with two possible 10-year extensions. The previous
law permitted CoW to be valid for 30 years with one possible
34
20-year extension. Even within this period, revisions could
have been enforced if the terms and conditions of the
concession were broken. According to OBG (2009), analysts
believe that big investors need economies of scale and time to
ensure a guarantee on their investments, and that the new
terms may be insufficient. While the government has stated
that the restriction on land usage is aimed at encouraging the
growth of smaller local investors, many warn that the new
rules will deter larger foreign investments critical to the
industry’s expansion. These new laws are seen to be
applicable to CoW, but not to smaller KP contracts.
While there is some resolution on the way mining laws have
changed, initial discussions during the drafting stage earlier in
2008 suggested the direction the government could take in the
future.
These include discussions between government officials and
coal producers about reserving 30–35% of lower heating
value coal for the domestic market, with smaller measures
applying to producers of higher heating value coal. An early
draft of the new regulations also suggested that the domestic
market obligation (DMO), could be set on an annual basis
(MCIS, 2008). This has major implications as it sets out a
firm commitment for the government on energy security and
preserving solid growth in the domestic coal market,
particularly for the oft mentioned power generation.
Further to these discussions, there is also a sentiment that the
industry may well consolidate and a raft of new suppliers
could replace the current industry structure. Castano (2008)
reported on the increasing support for greater state control
and could see the CoW being replaced, but this remains a
vision rather than a reality at the moment. Nevertheless,
Castano (2008) detailed ideas that included some form of
staged expansion of current CoW reserves, which would
require a CoW licence renewal on a more regular basis.
Even as the CoWs remain in place, there have been calls by
government members to raise taxes and royalties from the
coal companies, and to formalise an agreed price formulation
upon which tax revenues are calculated. Currently, the
government would prefer to avoid changing the structure of
the industry fundamentally at a time when the coal industry as
it stands could expand operations and infrastructure on their
own. Shortening the CoWs from 30 to 20 years could mean
the expiry of CoWs within the next 5–10 years.
Within the detail of any agreement, the regulatory
environment must consider whether more or less state control
serves the national interest. For example, China is positively
encouraging Indonesian exports by signing longer-term
agreements with producers. Under this type of market
condition, Indonesia is under pressure to produce more, while
facing a reduction in the reserves of internationally-traded
coals. Meeting the needs of overseas supply contracts almost
forces the government to resort to lower rank and less
economically transportable coals in Sumatra to meet domestic
needs. Whether this is good for security of supply is not
certain.
The government is working to introduce a DMO to allocate a
IEA CLEAN COAL CENTRE
 A brief history of Indonesian coal production

certain amount of production for domestic energy needs.

Jakarta is planning to bring 35 new coal-fired power plants on
stream by the end of 2009 to help supply the growing demand
from industrial sectors. However, tying Indonesia to local
coals reduces fuel diversity. It may also subject Indonesia to
potential risks of power shortage in the possible event of force
majeure or industrial action; importing low rank coals to
compensate is less feasible due to the high costs of
transporting a low calorific value fuel.

Prospects for coal and clean coal technologies in Indonesia 35

 16 Coal production – costs and methods
Indonesian coal is some of the cheapest to produce in the
world, and while this statement embodies coals mined
mainly for export, it could also apply to future low rank coal
operations. Early research by Neil (2005) suggests that the
cost of producing coal in Indonesia can range from 17 $/t to
more than 30 $/t. Baruya (2007) estimated that in 2005, the
average FOB cash cost of Indonesian thermal coal was
around 26 $/t (28 $/t on a 6000 kcal/kg or 25 MJ/kg basis).
Of this, 20 $/t was the cost ex-mine, 4 $/t was inland
transport, and 2 $/t was port costs. The cost of supplying
steam coal to the world market is reviewed in a report by
Baruya (2007) which draws on work published by Devon
(2005) and Neil (2005).
The cost curve shown provides a good framework from which
it is possible to derive a more up-to-date range based on
further evidence. Such evidence is provided by Marston
(2008) and press reports (see Figure 11) which shows that the
cash costs of getting coal loaded onto an ocean-going vessel
can range between 20 S/t and 50 $/t (unadjusted for heating
values). Assuming 34 $/t is the midpoint of this range
(average cash cost in 2007), the cost of supplying coal to the
export market rose 33% between 2005 and 2007. A
commercially sensitive report suggested that the FOB cash
cost of coal in 2008 averaged closer to 46 $/t (unadjusted for
heating values), indicating a further increase of 33% on 2007
levels (>77% above 2005).
The cost range for steam coals can be as low as 20 $/t for low
rank coals to 46 $/t, and as high as 118 $/t for metallurgical
coals. While most Indonesian coal operations have common
characteristics, namely opencast methods of truck and shovel
mining, low dipping thick seams, and so forth, coal
Venezuela
Colombia
South Africa
Indonesia
Queensland
New South Wales
0 10 20
FOB vessel cash cost, US$/t
Figure 11 Cash cost of export steam coal in 2007 (Marston, 2008)
36
production costs can remain less than straightforward due to
the wide range of coal qualities.
The higher rank coals may be more expensive to mine (on a
heating value basis), but the cost of all mining operations have
risen in the years between 2005 and 2008. One example is
how the cost of materials and fuel have driven up costs of
production for BUMI’s operations in Indonesia. In their first
quarter financial report for 2008 (1Q2008), BUMI
experienced a cost averaging 31 $/t, while in the whole
financial year of 2007 (FY2007), the cost of mined coal was
just 26 $/t.
For the industry as a whole, equipment and spare parts, such
as truck tyres, were in short supply and the order books were
such that lead times were very long. Also, the removal of fuel
subsidies meant that the cost of diesel fuel for trucks pushed
up operating costs. This was particularly problematic for the
Indonesian coal industry which uses trucks extensively
throughout its entire coal mining industry. These all indicated
an upward shift in the supply cost curve for Indonesian coals.
JP Morgan carried out a share value assessment of
Banpu-owned IMT, and speculated that IMT would enjoy
higher realised coal prices until 2009/10, but higher prices
received would be accompanied by higher costs. Mine
contracting, coal transportation and direct fuel usage
accounted for nearly 70% of the company’s cash operating
costs in FY2007. All of these major cost items are linked to
fuel (mainly diesel) costs. JP Morgan concluded that as oil
prices rise, so would ITMG’s production costs. In their
forecasts, they project cash operating costs to rise from 24 $/t
in FY2007 to 30 $/t in FY2008 (+24%) (Chawalitakul, 2008).
30 40 50 60 70
IEA CLEAN COAL CENTRE
 Coal production – costs and methods

Looking industry-wide, this trend would have a greater

impact on some operations more than others, especially less
productive ones, such as those operating under increasingly
difficult geological conditions. For example, overburden
removal (and transport) for opencast mining becomes one of
many important cost components. Some of the largest
producers have long enjoyed mining thick seams with
relatively shallow dips and low stripping ratios for some
years. As mentioned earlier, stripping ratios refer to the
volume of overburden (topsoil, earth and overlying rock) that
needs to be removed to yield a single tonne of coal (ROM).
Stripping ratios are examined in detail by Baruya (2007). In
the meantime, according to Neil (2005), stripping ratios can
range from 2.5:1 for Adaro to 8.5:1 for Indominco. While
these stripping ratios are relatively low, some operations are
as high as 14:1.

Estimates from company data suggest that productivity is

likely to be around 6000–12,000 t/man-year; the upper end of
this range is comparable with good performing mines in the
Hunter Valley, Australia. Some accuracy may be lost in
assessing labour productivity figures due to the data for staff
not employed directly by the mine owners. Third parties,
namely contractors, carry out mine operations in Indonesia
and contract staff numbers may not be recorded accurately by
the owner.

The use of mining contractors has increased substantially over

the years. In 1994, contractors were responsible for 62% of
total coal production (Nye, 2005). By 2004, contract firms
carried out 83% of production. Recent reports suggest that
contract firms now account for 95% of Indonesian coal
production (E&MJ, 2008b).

Contractors are able to operate in a number of mines, moving

expertise from one to another wherever it is appropriate.
Many mining assets are written down at the end of the
contract tenure, and handed over to the government.
Contractors therefore have the flexibility to either continue
operating in the same mine, or shift the workforce to another
site. This use of contractors simplifies operations for the mine
owner since contractors decrease exposure to fixed costs, such
as upfront capital expenditure and future depreciation, as well
as managing mine staff and production. This means that the
mines can be exploited by the owner on a more certain cost
basis.

Neil (2005) uses two specific examples of company

operations that make large use of contractors and consultants.
These companies are some of the largest operators in the
country and include BUMI (owner of Arutmin and Kaltim
Prima) and PTBA. Contractor costs can account for 50–60%
of production costs and on average would translate to
10–15 $/t (2005 figures). As well as contractors, mining
consultants provide expertise in technical assistance to both
contractors and the owner operators. In the case of BUMI,
consultants can add a further 14%. In total, using third party
firms could account for 10–17 US$/t on average. Personnel
costs are becoming greater with a shortage of skilled labour in
the mining industry worldwide. As such, the rise in contractor
rates will put further pressures on production costs (Nye,
2005).

Prospects for coal and clean coal technologies in Indonesia 37

 17 Inland transport infrastructure: river barge, road, and rail
Due to the number of producers and numerous transport
routes in Kalimantan, coal export links between mines and
ship loading terminals do not seem as concentrated as they are
in exporting countries that rely on one or two large ports such
as Richard’s Bay Coal Terminal (South Africa),
Qinghuangdao (China), and to a lesser degree the Australian
terminals. Somehow, Indonesia has expanded export
capabilities using proven and simple methods that would be
the envy of many coal exporting countries. This is largely due
to the proximity of coal mines to navigable rivers and
coastlines that favour Indonesia’s export industry. Figures 12
and 13 chart the locations of the major coal operations along
with the main methods of inland transportation and export
terminals for Kalimantan and Sumatra. These maps
accompany the following discussion as well as Chapters 6 to
13.
A great deal of the following section cites two reports both of
which are available in the public domain: the Indonesian Coal
Industry Book (ICMA, 2006) and the RWE World Market for
Hard coal (Ritschel and Schiffer, 2007) as well as a number of
other sources. Coal is moved in a variety of ways from mine
to port or end-user. Indonesian coal can be moved via a
combination of road trucks and river barges, while other
operations make use of large conveyor belts (covered and
uncovered) for distances of a few km to a lengthy 32 km
(see Chapter 6). The completion of Adaro’s conveyor belt
between the Wara mine (South Kalimantan) and closer to the
Kalanis Barge Terminal will be one of the longer OLC’s
operating in the world today. Kaltim Prima uses a conveyor
belt to take coal 13 km to its Tanjung Bara coal port in East
Kalimantan.
At most Indonesian mines, coal is trucked directly to coal
processing/barge loading facilities located on tidewater or on
a barge-navigable river. Although truck is an expensive means
of transporting coal, the distances involved are extremely
short, usually 10–25 km. A few mines may need to truck the
coal to coastal points as far as 75 km away. Trucks provide
increased mobility. Meanwhile, building a new railway
infrastructure to cover short distances of just 50–70 km would
prove more costly than the methods adopted today.
In 2004, 90 Mt of coal was transported by barge to domestic
customers, terminals, or anchorage trans-shipment points; a
further 40–50 Mt was transported almost exclusively by truck.
According to the Indonesian Coal Book (2006), the barge
loading, trans-shipment, and port facilities in Indonesia as of
2005 were able to handle 160 Mt of coal per year, although
maximum throughput was a feasible 174 Mt/y. In 2005,
129 Mt was reported to have been exported from Indonesia
(MCIS, 2008) suggesting that the export facilities were 80%
utilised. By 2006, coal exports had reached 183 Mt (MCIS,
2008), so expansion was clearly not a problem. Today, export
capacity is well in excess of 300 Mt (see Table 5, page 42).
Lower rank coals from both Kalimantan and Sumatra are less
suitable for transport due to the high moisture content and a
38
higher tendency to spontaneously combust due to the volatile
content. Spontaneous combustion could be inhibited by inert
gas blanketing and suitable compaction techniques, but
generally the transportation of low rank coals is minimised.
Reducing the moisture content by rewatering for example
could prevent higher transport costs per unit of energy.
Various techniques for upgrading low rank coals in Indonesia
are discussed in more detail in Chapter 22.
Most Sumatran coals are less amenable to being transported
long distances than Kalimantan coals due to the higher unit
costs of transportation. Nevertheless, in Sumatra some coals
are moved by rail. For example, coal produced by PTBA has a
long rail route to the Kartapati port near Pelambang and also
Tarahan Port by Tanjungkarang. Plans to upgrade the rail
system in Sumatra is at the tendering stage and the planned
$1 billion investment could boost the amount of coal sent by
rail from 12 Mt to 50 Mt (CANZ, 2009).
Transport costs are recognised as being a major factor in the
future development of coal within Indonesia. In general, the
weighted distance to ports will tend to increase as reserves
near the coast are mined out.
17.1 Barging
Barging has proved to be key to providing effective coal
movements in Indonesia. Barges are an extremely
cost-effective method of getting the coal from the mine to the
coast, either to a port or to offshore ship loaders. The average
unit cost of barging ranges from 0.5 to 3.0 $/t (Neil, 2005).
This makes barging considerably cheaper than practically any
other alternative.
In South Kalimantan, operations operated by Adaro Indonesia
transport coal via barge on the Barito River from the Kalanis
Barge Terminal to be loaded using trans-shippers to bulk
carriers at the Taboneo anchorage point. This river is essential
to Adaro’s plans to expand coal production in this region, and
is discussed later in the chapter. Coal operations in East
Kalimantan use the Mahakam River to barge coal to ports
such as Balikpapaan.
Barges are used extensively for trans-shipping coal from
rivers to coastal loading points for exports, as well as for
domestic trade from Kalimantan and Sumatra to power
stations located in Java.
Self-propelled barge transport across the Jawa (Java) Sea is
common practice, and deliveries are made by barge to some
export destinations within south east Asia, such as
neighbouring trade partners Malaysia and Thailand.
Barges with capacities of between 3500–14,000 dwt move
coal from the shore to offshore loaders or nearby ports
capable of loading Capesize (80–180,000 dwt) vessels.
Economies of scale have meant that barge capacity can
IEA CLEAN COAL CENTRE
 Inland transport infrastructure: river barge, road, and rail

port coal terminal (operating company)

maximum deadweight
Tarakan Island (Mandisi Inti
anchorage point for offshore loading Perkasa) 7500 dwt
(operating company) max deadweight
capacity

river terminal Berau

Muara Pantai (Berau
coastal terminal Coal) 15,000 dwt
company
name location of main concession

inland transportation link

Kaltim
Prima
Tanjung Bara (KPC) 210,000 dwt
East Kalimantan * overland transport via conveyor

Bontang/Tajung Meranggas
Indominco (Indominco) 90,000 dwt
Muara Berau (Berau Coal) 8000 dwt
Bayan

Samarinda Belora and Lao Tebu river terminals

(each 8000 dwt)

Central Kalimantan

Balikpapan 65,000 dwt

Kideco
Tanah Merah (Kideco) 60,000 dwt
Apar Bay 6000 dwt
Adaro Makassar Strait
Kelanis river terminal
(Adarol) 10,000 dwt

Arutmin
Sembilang and Air Tawar river terminals, each 7500 dwt

South Kalimantan
Tanjung Permancingan 8000 dwt

N. Pulau Laut (Arutmin and common user) 150,000 dwt

Satui river terminal 5000 dwt
Taboneo (Adaro) 15,000 dwt Sebuku (Bahari Chakruwala/Straits) 6000 dwt
Arutmin
Tanjung Pantang 8,000 dwt
Jorong
Jorong (Banpu) 7000 dwt
S. Pulau Laut (common user) 200,000 dwt
Muara Satui (Arutmin and common user) 7500 dwt

Figure 12 Coal export map of Kalimantan

currently reach 14,000 dwt, more than double the capacity of
similar barges used in the 1980s. Even in today’s market,
these massive barges can compete on short haul voyages to
domestic and nearby regional export markets, while smaller
10,000 dwt barges are useful for trans-shipment operations.
Indonesia currently has the largest infrastructure of barge and
offshore trans-shipment for dry bulk in the world.
A continuing drive for productivity and cost reduction is
being pursued in the Indonesian barge industry, where the
massive volumes compensate for the high costs of trucking
from many Indonesian export producers (Pitch, 2005).

Prospects for coal and clean coal technologies in Indonesia 39

Inland transport infrastructure: river barge, road, and rail

Rantaubarangin
port coal terminal (operating company)
maximum deadweight
Riau
anchorage point for offshore loading
(operating company) max deadweight
capacity
Allied Indo and PTBA
river terminal

Solok coastal terminal

company
location of main concession
Teluk Bayur 35,000 dwt name
inland transportation link

West Sumatra
Jambi

Sungaipenuh

Kertipati
(PTBA) 7,000 dwt

Bengkhulu South Sumatra Palembang

Lahat

Pulau Baai 40,000 dwt PTBA

Lampung

Bandar
Lampung

Tarahan (PTBA) 40,000 dwt

Figure 13 Coal export map of South Sumatra

Productivity gains could be increased by a significant margin

following the dredging work carried out at the Barito river.
This could lift the river’s capacity from 40–60 Mt/y to a
massive 200 Mt/y, and is being exploited by Adaro, one of the
main producers of the region. Previously some 15 km of the
river was capable of only single-lane barge traffic of
13,000 dwt barges. In addition, when fully laden these barges
were only capable of sailing at high tide. Dredging works
have since permitted two-lane traffic in this difficult stretch of
river, and operation through low tide periods means access is
possible 24 hours a day (as opposed to just 12 hours). Users
transporting coal through the channel are charged 0.3 $/t
(MCIS, 2008).
17.2 Road and rail
Road haulage is used widely, for either transporting coal to
river barge terminals, or in the case of many operations in
East Kalimantan, trucks are used to take coal directly from the
mine to coastal terminals. Vehicles range in capacity from
10 t dump trucks using local roads to 160 t road trains.
Trucking between the mine to coastal onshore terminals is
higher than that for barges, averaging around 4–7 $/t, but over
a relatively short distance it remains an extremely
cost-effective method of moving coal to export terminals.
The combination of barges and trucks has proved a highly

40 IEA CLEAN COAL CENTRE


economic and flexible system of transportation when compared
to the rail solutions often used in other major exporting
countries. This has not precluded rail from being developed in
Indonesia. Moving coal by rail is more common in Sumatra,
particularly in the South Sumatra and Lampung provinces.
However, rail transportation suffered from poor reliability in
the past and requires considerably more investment. Currently,
PTBA transports coal via a 400 km rail link connecting its mine
to the Tarahan port on the Sunda Strait, and smaller tonnages
go through Kertapati. Other rail projects are being mooted for
development in South Sumatra and Kalimantan. PTBA is to
embark on a double track railway to double the rail capacity.
PTBA is also considering the construction of a canal from its
mine to the Bangka Channel. If these infrastructure
developments are successfully realised, PTBA production could
quadruple, but the 2010 deadline is considered optimistic.
Completion is likely to be considerably later.
17.3 Offshore loaders and
trans-shipment
The limits to the vessel size at Indonesian ports have given
rise to the use of offshore terminals, as discussed earlier,
enabling Panamax (approximately 65–80,000 deadweight or
dwt) and Capesize (approximately 80–175,000 dwt) vessels to
be loaded easily. Consequently, export coals are loaded into
barges at either river or coastal located loading facilities and
transported to offshore transfer points for loading onto
ocean-going vessels or barged to a deep water coal terminal.
Indonesia has an unusually large capacity of shiploading
terminals that are situated off the country’s coast in the form of
offshore loaders. The two main designs of offshore loaders used
in Indonesia are trans-shippers, which either utilise continuous
bucket chains for transfer from the barge, or the continuous
conveyor system and ship loading boom. The latest
trans-shippers also combine storage facilities that improve the
availability of spot shipments from Indonesia. For example,
Adaro operates the Banjarmasin floating crane with a
15–20,000 t/d capacity and can accommodate vessels weighing
more than 200,000 dwt. A typical Capesize vessel of
100–150,000 dwt could therefore take around 5–10 days to load
fully. Kideco and KPC also operate floating cranes while Berau
operates a semi submersible trans-shipment (SST) system.
Offshore loading cranes are a fraction of the capital cost of
fixed onshore port facilities, partly because they avoid the
need for land for siting. These so-called floating
trans-shippers cost around $10 million for a crane capable of
throughputting 3.3 Mt/y of coal. A large 30 Mt/y onshore
terminal, however, would cost $1000 million, and so
recovering the fixed costs of capital would be inflated by an
order of ten times that of a floating crane. On an economic
basis, floating trans-shippers have their benefits, even though
the throughput capacity of the trans-shipper is considerably
lower than that of a fixed land system.
17.4 Port facilities
Table 5 lists the major ports and export terminals that exist in
Prospects for coal and clean coal technologies in Indonesia
Inland transport infrastructure: river barge, road, and rail
Indonesia and is derived from MEMR data published by the
IEA (2008) in the Energy Policy Review of Indonesia and
industry sources. According to these sources Indonesia’s port
capacity is 309 Mt/y. Not surprisingly, the bulk of the capacity
is located in East and South Kalimantan, the respective
capacities being 140–150 Mt/y and 120–130 Mt/y. A further
50 Mt/y is located in Sumatra. These capacities refer to
maximum port capacities, and so actual capacities are
probably less than these figures, but nevertheless indicate the
potential for expansion in the future. Port costs are fairly
standard by world standards, in the range 1–3 US$/t (Baruya,
2007).
There are a number of companies which have either exclusive
or overall control over a number of ports. Companies with
dedicated port facilities include: Adaro Indonesia, Indominco,
Kideco, Arutmin, Bukit Asam (PTBA), Berau Coal, and
Kaltim Prima to name just the main producers (see Table 5).
A few facilities are not strictly coastal ports, but are located
on rivers. One such example is the Kerpati Jetty, which is a
river terminal used by PTBA in Sumatra.
The combined North and South Pulau Laut Coal Terminals
have a maximum capacity of 126 Mt/y. The South Terminal is
owned by PT Indonesian Bulk Terminal and is the largest in
South Kalimantan (72 Mt/y). The Pulau Laut Coal Terminal is
a common-user located on the South Western tip of the island
of Pulau Laut opposite the south eastern coast of South
Kalimantan Province in Indonesia. Kaltim Prima has the
largest capacity in East Kalimantan, the Tanjung Bara Coal
Terminal, with a maximum capacity of 77 Mt/y.
Where the onshore coal terminal might have restrictions on
vessel size, the ports operate in conjunction with offshore
floating terminals that can accommodate larger ships.
Balikpapan Coal Terminal is located in a sheltered area of
Balikpapan Bay. The port readily accepts Panamax and
Capesize vessels, the latter being loaded at the Kalimantan
Floating Terminal (KFT) which is capable of manoeuvring to
locations that suit demand and weather conditions. This
particular facility has four unloading cranes and 65,000 t
stockpiling capacity where blending can take place.
In combination with the country’s offshore loaders, there does
not appear to be any shortage in export terminal capacity,
given that the maximum potential capacity is 350–360 Mt/y
(port and anchorage capacity). Total export for 2007 and 2008
was about 200 Mt. Add to this the potential 30 Mt/y or so
passing through coal discharge ports of Cigading
(Indocement), Paiton PEC, Paiton PLC, Paiton Jawa Power,
and Suralaya, the total amount of coal that could be passing
through Indonesian export ports is at least 230 Mt. With a
maximum capacity of 365 Mt, Indonesian ports in 2007 might
only have run at a utilisation of 65%. Indonesia therefore has
plenty of scope for expansion in the near term.
17.5 Common disruptions in coal
supply
Coal exporters are faced by the usual constraints set by the
physical capacity of production, and transportation. There are
41
Inland transport infrastructure: river barge, road, and rail

Table 5 Estimated export capacity in 2007/08 (Author’s estimates based on ICMA, 2007)

Port (P) terminal or anchorage (A) point Main User Estimated maximum capacity, Mt/y*

East Kalimantan
Balikpapaan Coal Terminal (P) Common user 23
Bontang Coal Terminal (P) Indominco 21
Tanah Merah Coal Terminal (P) Kideco 22
Tanjung Bara Coal Terminal (P) Kaltim Prima Coal 76
Teluk Apar (A) 2
Muara Berau/Muara Jawa (A) Various 3
Muara Pantai (A) Berau Coal 5
Tarakan (A) Mandiri Inti Perkasa 3
Subtotal for East Kalimantan 155
South Kalimantan
North Pulau Laut Coal Terminal (P) Arutmin 54
South Pulau Laut Coal Terminal (P) Common user 72
Jorong (A) Joromg Barutama 3
Sebuku (A) Bahari Cakrawala 2
Muara Satui (A) Arutmin, various 3
Taboneo (A) Adaro, various 5
Tanjung Petang (A) Arutmin, various 3
Satui (A) 2
Sembilang (A) 3
Tanjung Permancingan (A) 3
Subtotal for South Kalimantan 149
Sumatra
Kertapati Jetty (river) (A) Bukit Asam 3
Muarasabak (A) Various 2
Sungaipakning (A) Riau Coal, Manunggal Inti Arta 4
Pulau Baai Port (P) Various 14
Tarahan Coal Terminal (A) Bukit Asam 14
Teluk Bayur Port (P) Bukit Asam, Karbindo 13
Subtotal for Sumatra 50
Total port capacity 309
Total anchorage capacity 44
Trans-shipment fleet Estimated Mt/y*
Adaro floating crane 7
Berau semi-submersible trans-shipment 7
Kideco floating crane 7
KPC Floating transfer station 7
Common user floating crane 5
* annual tonnage based on maximum daily capacity times 360 days – actual tonnage will be below this

also occasional episodes of non capacity related bottlenecks
that affect the smooth operation of supplying coal to
international and domestic markets.
The Indonesian coal industry is not renowned for regular
industrial disputes, although they still occur. Weather related
incidents are more regular and frequently create what is
termed force majeure. This is an unplanned event that can
prevent the smooth operation of the coal supply chain or often
halt the supply of coal altogether. Indonesia’s climate is

42 IEA CLEAN COAL CENTRE

 Inland transport infrastructure: river barge, road, and rail

predominantly tropical. Some variations in the climate occur

depending on the latitude but Kalimantan and Sumatra are
both bisected by the equator. Hilly areas are cooler, but rain
falls throughout the year, often as thunderstorms. There is a
relatively dry season in July to September; December to
March are typically the wettest periods. However even outside
these months, rainfall is capable of causing problems, forcing
coal suppliers to rely on stocks at the export terminals to
ensure that supply contracts are honoured.

Many of the access routes between the mine or preparation

plant and the river barge terminal are by road. However, the
country’s regular wet seasons cause disruption to these road
links as well as the mine operations. In 2008, at least six
major producers were affected by heavy rains, causing
problems to mining operations, road haulage, and vessel
queuing. In most cases, rainfall causes flooding at the
production facilities and on roads, while tugs and barges can
also be subject to damage. The companies worst hit were
Adaro, Gunung Bayan, Kideco, Indominco, and ABK.
Similarly, when river levels are low, barge access can halt,
again putting stockpiles to the test for effective buffer
supplies. These problems are not unsurmountable given that
most producers operate coal stocks, thus ensuring delivery
schedules can be met. However, beyond the stockpiles, the
impact of adverse weather on the barge and port facilities just
prior to shiploading means vessel loading is delayed, and
demurrage charges are applicable. At times of high freight
costs, the daily charter rate for a vessel caught in an
unplanned queue can be high.

Prospects for coal and clean coal technologies in Indonesia 43

 18 Electricity generation
This chapter describes the various issues regarding the
Indonesian electricity market and the development of
generating capacity. There is also discussion on the
characteristics of the various forms of generating stations in
which coal plays an increasingly important role.
18.1 A brief history of the industry
The electricity supply industry is dominated by the state
company PT Perusaahan Listrik Negara, (PLN). PLN has
36 million customers and 113 TWh of sales. Some 29 TWh is
purchased from independent power producers (IPP) and other
non-PLN generating companies, while 102 TWh is produced
by PLN itself.
The history of PLN dates back to 1965, when two state
energy companies were established. The first was PLN the
power company, and the second was PT Perusahaan Gas
Negara (PGN), a gas processing company. Therefore, 1965
was probably the first time the electricity industry was formed
in its current semblance. At that time PLN only had 300 MW
of electrical power generating capacity. After some changes in
the company status, the market remained largely unchanged
until the 1990s when the government granted an opportunity
for the private sector to take part in the business of providing
electricity to help alleviate the worsening shortage of
generating capacity in the market and reduce dependence on
oil-fired power.
At this time, the Indonesian Government introduced an IPP
programme inviting private domestic and foreign corporations
to build, own and operate (BOO) generating plants. The IPP
schemes were to be largely fuelled by coal or natural gas,
although small geothermal projects would also be adopted
(Turner, 1997). As of 1997, the programme included twelve
plants amounting to 7500 MWe of coal-fired generation. A
further 2000 MW of this programme was natural gas fired.
Major incentives for an IPP to invest included generous
offtake contracts that ensured a good rate of return for the
station owner (more importantly, in US$). These contracts
also had an element of long-term security for much of the life
of the station. This latter incentive refers to purchase
agreements agreed with PLN to allow IPP stations to operate
for up to 80% capacity a maximum 30 years. PLN even
switched off some of its own capacity to meet the guarantee.
This relieved PLN of the burden of capital investment and the
risks associated with building new and more efficient power
stations.
By June 1998, thirteen IPP projects had signed PPAs for
periods of 20–30 years. The firms involved includes
companies such as Mission Energy (USA), Powergen (UK),
Siemens (Germany), Ansaldo Energia (Italy), Mitsubishi
(Japan), National Power (UK), and former Enron (USA).
Since Suharto’s departure, all the concessions for electricity
deals and even the UK’s Thames Water contracts in East
44
Jakarta were placed under scrutiny by the succeeding
government.
In 1998, Power in Asia reported on some of the
non-conventional business practices being carried out in the
new Indonesian power market. The drive to promote foreign
investment in Indonesian power gave the former Suharto
Government departments the opportunity to promote
allegedly irregular financial transactions in order for foreign
projects to proceed (PiA, 1998). In the 1990s, virtually every
joint venture by an IPP was partnered with a Suharto family
member or Suharto appointee. PLN was almost driven to
bankruptcy by deals with IPPs that were owned by the
Suharto family members.
IPPs, once heralded as the prime customers and key growth
market for coal, were giving way to possible restructuring of
the power business, postponement or even cancellation
altogether. The risks of signing long-term PPAs proved to be
high as the Asian currency crisis ensued. The 30-year tariff
deal was for the equivalent of 7.5 ¢/kWh, but the depreciation
of the rupiah forced PLN to push for a renegotiation.
PLN unilaterally terminated a PPA to one geothermal project
and formed a committee to review all others. Other projects
included the Tanjung Jati B on the north coast of Java where
construction was halted ($1.8 bn, 1329 MWe coal plant). The
Paiton 1 and 2 projects in East Java experienced start-up
delays due to the lack of power demand on the Bali-Java grid
at the time. The Asian currency crisis became a subsequent
reason for the IPP Paiton Energy Company to consider
renegotiating the contractual terms of its PPA with PLN.
The effect of the Asian economic crisis reduced demand for
goods and services across the region. Daily reports of rioting,
food shortages and unemployment weakened the economic
outlook (Marston, 1998). IMF and World Bank funding
exceeding $1.2 bn intended to help boost and stabilise the
economy was postponed at a time when the economy was
suffering the most, just after the Asian currency crisis.
Somehow, throughout all the upheaval occurring in the
domestic market for power generation, the coal export
industry continued to expand and further its presence in the
world market for steam coal. The low cost of Indonesian
coals, and the continual productivity improvements meant that
Indonesian exporters were better positioned than most to
survive the period of great uncertainty in the 1990s, even
when the price of coal was low.
Confidence was eventually restored following a global
economic upturn and successive rulers pledged to deal with
corruption and reform of the markets. In 2004, the courts
overruled plans to divest PLN and liberalise the electricity
market, claiming it was unconstitutional. This consolidated
PLN’s control over the power market although MEMR and
local and regional government retains some influence in
certain matters. Today the electricity market has moved on
IEA CLEAN COAL CENTRE

slightly, and while PLN remains the dominant force in the
power market, IPPs remain an increasingly important provider
of capacity development. Yet, while the crisis in the power
market continues, there seems a greater confidence in meeting
the challenges.
18.2 Crisis in the power markets
The country has suffered from power shortages for many
years and PLN has been forced to manage existing power
demands despite shortages of power supply. In 2008,
Indonesian industry was at risk of losing $4.5 million over a
two-month period due to production interruptions resulting
from power blackouts (Jakarta Post, 2008d). Industrial
facilities avoided power outages by shifting their operation
schedules to minimise financial losses. In July 2008, the
government responded by issuing a regulation ordering
manufacturing industry in Java and Bali to shift one or two
working days every month to a weekend, but excluded those
facilities that operated 24 h/d. This measure helped save an
average of 180 MW/d, but remained well short of the
600 MW/d of savings that was actually required (Jakarta Post,
2008f).
Hospitals and the Indonesian Red Cross in Bandung reported
power cuts disrupting operations with little warning, and
back-up power systems could not be brought into service to
avert the problem (Jakarta Post, 2008b). While fatalities were
not reported, clinical operations remained at high risk of
being subject to power cuts.
Further power saving measures were proposed forcing
commercial properties in Java and Bali to undergo extreme
efficiency measures. Under the PLN regulation, malls, hotels
1000
Rp/kWh
R1
1300 2200
VA
R1
500 900 VA
R1
s/d 450 VA
households
social groups
S1-S3
0
2.6 43.8
Figure 14 Electric power state subsidy to end-users in 2006 (PLN, 2007)
Prospects for coal and clean coal technologies in Indonesia
Electricity generation
and offices would be required to use their own power
generators ten hours per week between 17:00 and
22:00 hours – the busiest hours for stores and hotels.
Shopping centres were opposed to the plan, saying additional
costs of up to Rp100 million (US$10,869) per month would
be incurred.
In 2008, PLN imposed rotating power blackouts in Jakarta
and surrounding suburbs due to a massive shortage of power
(1000 MWe) resulting from a range of events that hit the
region simultaneously. Flooding afflicted 60% of Jakarta for
two days, while a disruption in coal and oil deliveries to
power stations resulted from rough seas affecting offshore
transport (Jakarta Post, 2008a).
The possibility of mandatory blackouts were also considered
during the holy period of Ramadan and the New Year public
holiday. Electricity consumption in Java and Bali was
estimated to increase by 2.5% during this period and so PLN
expected to save up to 200 MWe of electricity every day by
forcing commercial properties such as shopping malls, hotels
and offices to switch to on-site back-up generators.
There is a danger that the Indonesian economy could suffer a
repeat of the 1990s economic crisis, resulting in a considerable
downturn in end-user demand. This demand ‘destruction’ can
be brought about by high prices for energy as well as the
impact of blackouts. Yet, a more predictable and possibly
fundamental impact on the demand for electricity could be the
gradual withdrawal of subsidies to the end-users of electricity.
Figure 14 illustrates the degree to which the government
funded Rp35 trillion towards households and industries. In
2008, an estimated state budget of Rp60 trillion was reported
to be set aside for financing the subsidised power tariffs for
PLN subsidy – Rp1.77 trillion
government subsidy – Rp34.78 trillion
consumer payment – Rp70.74 trillion
B2
>2200 B3
s/d >200
R1 200 kVA
kVA
VA 1.3
>200 kVA
1.4
>30,000 kVA
R2-R3
B1 1.1-1.2
business
industries
groups
public
P1-P3
17.3 43.6 4.2
Sales, TWh
45
Electricity generation
2009 (ESDM, 2008). Given that the elasticity of the demand
for electricity might be considered low in many industrialised
countries, the proportion of income that is devoted to energy
by a household in an emerging economy may be much higher.
The demand elasticity may therefore be significantly higher in
Indonesia than first thought.
Therefore, demand destruction could be potentially high,
easing the burden on the power system, reducing the need for
new electricity capacity and lessening the financial investment
required. The obvious downside is the impact on end-users,
notably households, and the ensuing social disruption and
probable increase in power theft and losses that might cost the
PLN in different ways. However, the signals to suggest this
are not yet apparent. Frequent reports of power shortages keep
highlighting the threat to the country’s economy especially
during periods of global economic crisis.
18.3 Power generating capacity in
Indonesia
Before 1990, Indonesia had less than 10 GWe of generating
capacity; more than half was fuelled by oil products. After
1990, Indonesia witnessed a startling rise in power generating
capacity during the initial IPP programme. Power capacity
developments throughout most of the 1990s kept pace with
the high growth in demand, especially in areas which had
previously not been electrified. This growth continued for a
short period after the 1997 currency crisis when committed
investments were still being built, with a range of gas and
coal-fired projects coming on line along with a number of
hydro and geothermal developments.
The period 1997 to 2005 saw a rise in consumption averaging
7%/y, yet generating capacity (mainly thermal) did not follow
the same trend, but instead grew by just 3–4%/y. The
aftermath of the economic crisis led to capacity building
slowing down significantly between 2000 and 2003. The
period of near zero growth in new capacity construction in the
early 2000s had major repercussions leading to a subsequent
shortage of capacity in the late 2000s which the government
is now keen to rectify. Since 2003, fortunes have changed
somewhat for coal-fired power through the ‘crash’ programme
(see Chapter 19).
The fragmented nature of the country’s islands makes it
impossible to establish a unified grid system that covers the
entire country. For this reason, power stations were built on
the island of Java where there is the most demand for power,
although not necessarily endowed with energy resources. The
key major power grid is located in Java, which also links Bali
and Madura. The major coal reserves are where the smaller
power grids exist in Sumatra, Kalimantan, and Sulawesi.
According to the official figures published by MEMR (IEA,
2008), the losses incurred by the transmission and distribution
network amounted to a substantial 11% in 2007, an
improvement on the 16–17% reported in 2002-03.
Grid reinforcements and transmission upgrades are seen as an
effective way forward to help meet the country’s power needs.
Transmission and distribution losses exceeding 10% are still
46
too high and the systems require better maintenance and
upgrading. Raising funds to finance such capital intensive
projects is difficult as the tariffs remain subsidised. It also
puts great pressure on PLN to meet the power station
construction targets (IEA, 2008). Tariffs for industrial
consumers are already set to rise, but whether this will release
enough funds is yet to be seen.
The PLN annual report published in 2007 reported the total
capacity to be 25 GWe for the year 2006, while MEMR report
power generating capacity in 2006 to be around 31 GWe
(CDIEMR, 2006). It is likely that the latter refers to the power
capacity to which PLN have access, which also includes IPP
and industrial generators. This is confirmed by reports from
GPR (2008) which estimate that additional capacity of
non-PLN generation is around 6–7 GWe. When added to the
25 GWe of capacity stipulated in the PLN annual report, this
means the total national capacity is close to 31–32 GWe.
Historically, oil has been the main fuel for power generation.
As Figure 15 shows, the country’s capacity still has a
significant proportion that is oil- and diesel-fired (accounting
for 20%). As part of the policy to promote greater energy
security, some 8 GWe of diesel-fired capacity is earmarked to
be converted to coal-fired capacity, in addition to the extra
10 GWe of new coal-fired power capacity by the year 2010.
However, the likelihood of the full capacity conversion
occurring by this time is questionable. There has been little
reporting of the closure of power stations in Indonesia. In the
light of the power supply crisis that has afflicted the Java and
Bali grid, there is probably increasing pressure to keep older
stations open.
hydroelectricity 11%
geothermal 3%
coal 34%
oil 8%
gas GT 9%
CCGT 26%
diesel 10%
Figure 15 Estimated installed power generating
capacity in Indonesia, 2006 (IEA CCC
estimates based on MEMR, 2007)
IEA CLEAN COAL CENTRE

Today, the bulk of generated power comes from the country’s
gas- and coal-fired stations, each of which contributes 34% of
the capacity. All the coal capacity is based on conventional
boiler and steam turbine technology. Two-thirds of the
gas-fired capacity is higher efficiency CCGT; the rest is lower
efficiency, but more flexible, single-cycle gas systems
(turbines, boilers and internal combustion engines).
Figure 15 shows that hydro accounts for just 11% of the
country’s 31 GWe generating capacity.
Indonesia has a substantial potential for hydroelectricity.
According to MEMR (2007), Indonesia has the potential for
75 GWe, with a micro/mini hydro potential of 0.5 GWe. The
World Energy Council estimates a gross theoretical capability
of 2200 TWh/y, although just 40 TWh is economically
exploitable. Reconciling the two figures is dependent on the
assumptions of potential hydro operation throughout the year,
but assuming a good annual utilisation of 40%, then the
economically exploitable capability published by the WEC
translates to an installed gross capacity closer to 11 GWe.
Other potential, but less significant resources include wind
energy potential of 9 GWe, solar potential of 4.8 kWh/m2/d,
and a biomass potential of 49 GWe.
Coal-fired generation is discussed in considerably more detail
in Chapter 19. However, as a brief introduction, coal-fired
generation increased from 0.2 GWe in 1996 to 10 GWe in
2005 driving the total consumption of steam coal in the
country from 6 Mt to 27 Mt (Coaltrans, 2006). In early 2006,
the government announced that oil-fired power (8 GWe)
would be replaced by coal-fired stations.
While there are ambitious plans to build new capacity, the
supporting infrastructure has been inadequate. According to
the IEA (2008), reliability and quality throughout the system
has been compromised as repair and maintenance has been
less than adequate. Along with the occasional fuel supply
disruption, the rising cost of fuel consumption (and
emissions) from less efficient plants, has meant that some
power stations have been unable to be fully utilised, although
improvements are being made in the newer plants.
18.4 Nuclear power
Korea has been heavily involved in Indonesia’s efforts to
develop nuclear power. The Korea Electric Power Corp and
Korea Hydro & Nuclear Power Co (KHNP) signed a
memorandum of understanding in 2007 with Indonesia’s PT
Medco Energi Internasional to make progress on a feasibility
study to build two 1000 MWe OPR-1000 units from KHNP at
a cost of US$3 billion. Also in 2007, the Japanese and
Indonesian Governments signed an agreement to assist in the
preparation, planning, and promotion of Indonesia’s nuclear
power development. The IAEA is reviewing the safety aspects
of two proposals with Indonesia’s Nuclear Technology
Supervisory Agency.
While a working group of the Ministry (MEMR) is still
considering nuclear power as a concept, local opposition is a
problem. One of the proposals, the Muria plant, is earmarked
Prospects for coal and clean coal technologies in Indonesia
Electricity generation
to start operation in 2016 and could provide 4000–6000 MWe
to the Java-Bali grid although the more detailed progress
seems to have been achieved with the Korean 2x1000 MWe
project (Jakarta Post, 2008e). According to the MEMR
working group, Indonesia needs 10,000 MWe of nuclear
capacity on at least three sites in coming years.
18.5 Utilisation and efficiency of the
power station fleet
Indonesia has a range of both large and very small coal-fired
power stations, some as small as a few MW for industrial
sites. This is also the case for gas- and oil-fired stations. For
this reason, different plants can operate very differently across
the energy industry. Official figures published by the MEMR
indicate that the capacity factor or utilisation of the thermal
fleet averaged 48% in 2006 (IEA, 2008).
Official figures of station performance published by MEMR
do not provide readily the utilisation or generating efficiency
for any particular type of plant, namely coal, gas or oil.
Instead, utilisation and generating efficiency trends are
published for all ‘thermal’ plants only. Utilisation detail is
given, however, for hydroelectricity and geothermal power.
Using the best available data, a breakdown of the thermal fleet
is still possible. Based on the author’s analysis, the fleet
utilisation and efficiency can be derived for a simple list of
generating technology types including:
● coal;
● natural gas in combined cycle;
● natural gas in single cycle, boiler, or internal
combustion;
● hydroelectricity;
● geothermal;
● other renewables (excluding geothermal and hydro).
Despatch curves are an effective method of illustrating the
way power stations have operated over a period of a year.
Figure 16 provides a representative despatch curve based on
the groupings listed above. This despatch ‘curve’ includes the
whole Indonesian power generating fleet as of 2006, inclusive
of both PLN and non-PLN generators. In reality, the despatch
of power stations is not carried out in such discrete blocks. On
a day-to-day basis, the despatch curve is smooth and
generation for individual station units is spread across the
curve. Station despatch changes hourly as well as annually
depending on the availability of the plant and the cost of
generation. Nevertheless, the illustration provides a useful
simplified picture of the way a fleet of stations operate over a
typical year.
Figure 16 shows how the country’s 30 GWe of generating
capacity comprises mainly coal-fired and gas-fired CCGT
capacity. The vertical axis indicates the amount of generating
capacity the country had operating in 2006-07, and the
horizontal axis shows the percentage of the year that these
fleets of power stations operated, otherwise referred to as
utilisation (100% being 365 days, or 8760 hours). The area of
each block indicates the amount of power generated in GWh
(convert % utilisation to hours by multiplying by 87.6).
47
Electricity generation
35
30
Gross generating capacity, GWe
25
20
15
10
0
0 5 10 10 20 25
Figure 16 Representative power despatch curve for Indonesia. Based on utilisations averaged over seven
years, and capacity levels for 2006
One of the outcomes of the IEA CCC analysis is the modest
utilisation of the coal and CCGT plants, which average 60%
or less, somewhat higher than the official 48% for all thermal
plants. Given that the country has been heading towards a
state of power shortage, one would expect thermal plants to
have been pushed harder to produce more power. That they
haven’t could be due to a range of factors such as fuel
availability; the rise in fuel input prices making operation of
inefficient plant prohibitively expensive; and inadequate
infrastructure development to carry more electricity across the
grid from the power stations.
Nevertheless, the figure of 60% utilisation still seems low
when compared to the utilisation of some of the more recently
built coal-fired stations. Some newer coal-fired stations have
been available for operation for well over 80% of the year,
such as those at the Paiton II complex (Elsworth, 2008) . This
potential for high utilisation would infer that other, older coal
stations must be operating well below the fleet average for
coal of 60–65%.
Gas-fired (non-CCGT) and oil-fired generators act as either
back-up or peaking plant during periods of high demand, and
so are located further up the despatch curve. The rising cost of
oil products in recent years means that operating oil plants
have become prohibitively expensive, given the low
generating efficiencies achieved by some of these ageing
plants. However, a massive drop in the world price of crude
oil in late-2008 and early-2009 may make oil generation more
attractive, but not by much if the prices of gas and coal drop
as well. Coal-fired power is discussed in more detail in
Chapters 19–21.
Hydroelectricity is considered a ‘must-run’ source of power,
and hence during periods of low reservoir or run-of-river
48
oil (boiler/IC/turbine)
gas turbine/boiler/CHP
hydroelectricity
gas CCGT
existing coal
geothermal and others
30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Utilisation, %
levels, shortfalls in availability and output must be met by
fossil-fuelled sources. Yet, since 2000 utilisation has averaged
little more than 30%. Opponents of fossil fuels might push for
a greater role for renewable energy; however in times of need,
renewables cannot always deliver. For example, the Cirata and
Saguling hydroelectric stations in West Java operated below
capacity due to the poor availability of water. Low hydro
availability seems an unusual problem given that flooding
affected Jakarta, but nevertheless illustrates the limited
conditions under which hydro can operate. Hydro requires
weeks and months of steady water supply in preceding months
before it can adequately supply electricity to any market.
Promoting more wind energy is always possible, but current
technology is insufficient to meet the needs of a rapidly
growing economy in a cost-effective way. Given the
geographical nature of Indonesia, the amount of wind
capacity to service a 30% reserve margin above peak demand
would require a phenomenal investment in a form of power
generation that can be highly (and regularly) unpredictable,
again underestimating the complex nature of renewable
investments in many parts of the world.
In the right location, geothermal energy provides a much
more secure form of electricity production than both wind and
hydro, and has been actively pursued in Indonesia.
Geothermal power is a more stable and available source of
renewable power, albeit limited by extremely high capital
costs per kWe and suitable locations. Geothermal power is
available for around 90% of the year in Indonesia, which is
probably better than any other form of renewable energy. Its
high utilisation makes it superior in many ways to wind power
and hydroelectricity.
Indonesia lies on the cusp of three tectonic plates, the edge of
IEA CLEAN COAL CENTRE

the Euro-Asian plate, the northward moving Indo-Australian
plate, and the westward-moving Pacific plate. The Indonesian
region is therefore one of the most seismically active zones on
earth and has many active and potentially active volcanoes.
Out of the 400 or so volcanoes in Indonesia, 100 are active.
Volcanoes are located along the entire western coasts of
Sumatra and through Java. Much of the volcanic activity
involves eruptions of ash, but seldom lava.
Indonesia is the fourth largest generator of geothermal
electricity in the world, producing 6770 GWh of electricity in
2006 (CDIEMR, 2007). The top three producers of
geothermal power are the USA, Philippines and Mexico. The
government has identified as many as 255 prospects, of which
70 are specified as high-temperature reservoirs, with an
estimated total resource potential of nearly 20,000 MWe
(WEC, 2007). Of this potential, about 48% is in Sumatra,
30% in Java-Bali, 7% in Sulawesi and 15% in other islands.
Taken together, the low and high-enthalpy potential totals
some 27,000 MW.
The effects of Indonesia’s financial crisis in 1997 are still
being felt. Prior to this time the Government had planned to
install some 3000 MW geothermal power by 2006, but by
end-2004 the country had increased its installed geothermal
electric power generation capacity to just 797 MWe
(operationally capable of at least 807 MWe). This latter figure
includes existing facilities at Gunung Salak (330 MWe),
Kamojang (140 MWe), Darajat (145 MWe), Wayang Windu
(110 MWe), Sibayak (2 MWe), Lahendang (20 MWe), and
Dieng (60 MWe). It remains the Government’s policy to
significantly alter the fuel mix of electricity generation by
increasing the use of coal, geothermal energy and hydro
power and thus reducing the use of oil and gas. To this end, it
plans to have 6000 MWe of geothermal generating plant
installed by 2020.
60
50
40
Net efficiency, %
30
20
10
0
gas CCGT gas turbine/
boiler/CHP
Figure 17 Percentage efficiency of Indonesian power fleet in 2006 (MEMR, 2008)
Prospects for coal and clean coal technologies in Indonesia
Electricity generation
18.6 Generating efficiencies of the
thermal fleet
Rising fuel input costs hamper PLN’s ability to operate the
system effectively, whilst still running quite inefficient plant
capacity, especially amongst the older plants. Like utilisation,
MEMR publishes trends in station efficiency, but for the total
thermal generating fleet. As of 2006, the average efficiency of
all thermal plants stood at 34%. This efficiency level is not low
by the standards of many emerging economies. However,
considering a large proportion of the power output comes from
higher efficiency CCGT, it could suggest that much of the
existing non-CCGT capacity, namely older gas, coal, and oil-
fired plants, are all operating at or below the average of 34%.
Based on the author’s analysis, a breakdown of station
efficiencies can be calculated for all the main groups listed in
Section 18.5. The average net efficiency of the coal-fired fleet
was estimated to be around 30%, which is typical of older
subcritical stations, but seems low when compared to the list
of newer build stations shown in Table 6. The list in Table 6
was published by Marpaung and Miyatake (2003) and
provides plant-by-plant heat rates that have been converted to
percentage efficiencies and show that the newer coal-fired
stations are achieving efficiencies of 34–37%. This efficiency
rate is more plausible as the major complexes located at
Paiton, Suralaya, and Tanjung Jati account for more than
8 GWe of coal-fired generating capacity, and therefore at least
80% of the coal fired capacity in the country. It seems
unlikely the calculated fleet efficiency of 30% is due to the
numerous smaller stations, which account for just the
remaining fifth of the coal generating stations. The
discrepancy may arise from overestimates of coal
consumption by the IEA, or under-reporting of the power
output from coal stations as published by PLN. Either way,
existing coal oil officially
(boiler/IC/ reported
turbine) thermal
average
49
Electricity generation

Table 6 Heat rates and efficiencies of selected Indonesian power stations (Marpaung and Miyatake, 2003)

Plant Technology Fuel kcal/kWh heat rate kWh input % efficiency

Suralaya Steam boiler Coal 2532 2.943 34

Suralaya Steam boiler Coal 2433 2.828 35

Paiton Steam boiler Coal 2380 2.766 36

Paiton I Steam Boiler Coal 2324 2.701 37

Paiton II Steam Boiler Coal 2324 2.701 37

Tanjung Jati B Steam Boiler Coal 2324 2.701 37

M Karang CC Diesel 1880 2.185 46

M Tawar CC Diesel 2067 2.402 42

T Lorok CC Diesel 2034 2.364 42

Grati CC Diesel 1866 2.169 46

M Tawar GT Diesel 3147 3.658 27

Grati GT Diesel 2799 3.253 31

Gresik GT Diesel 4230 4.916 20

Bali GT Diesel 4683 5.443 18

Bali GT Diesel 3423 3.978 25

Bali GT Diesel 3448 4.007 25

Gilimanuk GT Diesel 2996 3.482 29

Priok Steam boiler Diesel 2857 3.320 30

Bali Steam boiler Diesel 2268 2.636 38

Priok CC Natural gas 1997 2.321 43

Gresik CC Natural gas 2047 2.379 42

M Karang Steam boiler Natural gas 2999 3.486 29

M Karang Steam boiler Natural gas 2699 3.137 32

Cikarang GT Natural gas 2047 2.379 42

T Lorok Steam boiler Oil 2955 3.434 29

Gresik Steam boiler Oil 2661 3.093 32

Gresik Steam boiler Oil 2529 2.939 34

the data that is provided publicly does not provide a clear
enough picture.
According to author calculations, the average efficiency of the
CCGT fleet is just below 50%, a figure typical of plants built
in the 1990s, but low compared to the efficiencies of 50–60%
typical for this type of technology built today (see Figure 17).
The efficiencies for the remaining thermal stations, namely
gas and oil (in both combined cycle and non-combined cycle)
suggest that listed CCGTs operate at around 42–43%, and
non-CCGT and oil stations operate at around 31%, although
some operate at an efficiency as low as 18%. This shows that,
apart from coal, the average estimates calculated for the fleet
shown in Figure 17 are in broad agreement with the list of
stations in Table 6.
Author’s analysis suggests that existing oil boilers operate at a
notably poorer generating efficiency of around 25%. A large
proportion of the oil-fired units are internal combustion
generators using diesel, and anecdotally, it is suggested that
many power blackouts were avoided in the past by
commercial and wealthy domestic users switching to diesel
back-up generators in times of need.
The low efficiencies of all the older thermal generators makes
fossil fuel generation relatively expensive. Electricity tariffs
paid by end-users in industry, commerce and households are
subsidised and so therefore do not reflect properly the cost of
power generation in Indonesia today. Large subsidies place
great pressure on government funding, as well as placing
pressure on PLN to deliver on investment targets while unable

50 IEA CLEAN COAL CENTRE

 Electricity generation

to pass on the cost increases to customers in full. This will

continue to be a burden unless subsidies are revised
significantly. However, recommending a withdrawal of
subsidies is straightforward, but the political and social
sensitivity of removing subsidies and raising tariffs to
end-users is a critical consideration.

Prospects for coal and clean coal technologies in Indonesia 51

 19 Coal-fired technology in Indonesia
In 2006, coal-fired capacity amounted to just over 10 GWe.
All the units were subcritical and almost 80% of the capacity
was built after 2000; therefore the fleet is comparatively new.
The IEA CoalPower database has a complete list of coal-fired
stations and their respective unit sizes and design parameters,
and from this the author’s analysis shows the average size of a
coal-fired unit in Indonesia to be 150–200 MWe. However,
there is a gradual trend to slightly larger units when
comparing the average unit size built in the 1990s (150 MWe)
to those built in the 2000s (200 MWe).
Some of the largest stations comprise up to 660 MWe units,
such as those built at the Paiton I and II, Tanjung Jati B, and
Suralaya 1–6 power complexes. These stations are equipped
to modern standards with particulate control and flue gas
desulphurisation (FGD), and some are fitted with low NOx
burners.
In total, Indonesia has 8 GWe of capacity fitted with some
form of SO2 control, either through scrubbing or boiler
sorbent design. This accounts for 80% of the coal-fired
capacity. Paitons I and II use seawater for cooling and FGD,
making up 2.6 GWe of the FGD capacity in the country. A
further 1.3 GWe of the country’s coal-fired capacity is fitted
with standard FGD technology such as wet limestone
scrubbers at the Tanjung Jati B power plant (units 1 and 2),
with a further two units fitted with similar equipment and due
online by 2010. More than 8 GWe of coal-fired capacity is
also fitted with particulate filters, while 4 GWe have low NOx
facilities mainly from low NOx boiler design.
These stations set the standards for efficiency for future
projects in Indonesia, but are not major advances in
technology by global standards as they operate under
subcritical steam conditions. While supercritical plants are
likely to achieve 40–44% net efficiency, the current fleet of
old and newer plants is well below 40% (net). While the
current average generating efficiency is calculated to be
around 30% for the coal-fired fleet, plants such as Paiton are
operating at closer to 37–39%.
However, in August 2008, International Power announced a
new project that could be completed by 2012, the Paiton III.
The new Paiton III project could steer Indonesia towards
developing more supercritical stations if it is built and
commissioned successfully. This project consists of an
815 MWe plant located on the Paiton complex in the east of
Java, and is designed with supercritical steam conditions, to
boost its efficiency above those stations operating in the
country today. However, financial closure of the project was
due in 2009 and comprises of a combination of debt and
equity. Whether the debt will still be financially sound during
the global credit crisis in 2008-09 means that the project, like
many others, could face difficulties. Nevertheless, the project
is heavily supported by a PPA lasting 30 years with PLN.
The project should cost 1780 $/kWe, to be financed by a mix
of project finance and equity. The sales tariff was set at
52
42 $/MWh, comparable with 43.6 $/MWh set for the
660 MWe Cirebon plant in West Java. Paiton III is part of the
Paiton complex (plants 1 and 2 are owned and operated by
separate companies) which comprises a number of large
power stations. Another being constructed by PLN is the
1320 MWe Paiton Baru which is due online in 2010, and will
be supplied by PT Arutmin. Other projects include PT
Makmur Sejahtera Wisesa (PT Adaro) which is a 60 MWe
plant based on twin 30 MWe circulating fluidised bed
(CFBC) units. The project also has the security of a 13-year
power purchase agreement with Adaro Indonesia.
Tanjung Jati is another potential site for a supercritical station
in West Java, also being developed by International Power.
According to Elsworth and Mackey (2008), the project is to
be located at Cirebon West Java. The nominal capacity is
expected to be 1320 MWe, but since this plant is planned for
sometime after 2015, the capacity of the station may well
change if it is built.
PLN also plan to include potential supercritical stations over
the long term: Indramayu (2 x 1000 MW) and Cilacap (2 x
1000 MW). Both locations are in West Java and are currently
only being considered.
Fluidised bed technologies are also utilised for effective
sulphur and ash control at two stations, the 200 MWe Tarahan
Baru and a small 22 MW at Jatiluhur Factory with boilers
built by Indian boiler manufacturer, BHEL. The ACFB boiler
used in Tarahan Baru was supplied by the Japanese firm Fuji.
More information regarding fluidised bed technology can be
obtained from www.iea-coal.org.
19.1 The ‘crash programme’ –
Phase I (2006-10) and Phase II
(2009-13)
The importance of the ‘crash programme’ goes well beyond
just meeting the shortage of supply of electricity. The move
away from fuels such as oil and less emphasis on gas -fired
power relieves the demand on the tightening supplies of
pipeline natural gas from domestic sources, and the rising cost
of fuel oil, at least for the next few years.
In response to the widespread and frequent blackouts
experienced across Java, the government ‘crash programme’
aims to commission 20,000 MWe of new generating capacity,
10,000 MWe of which was scheduled to come online by 2010,
and the remaining 10,000 MWe some time after as finances
permitted. The initial 10,000 MWe due by the end of 2010 is
fuelled entirely by coal, including 3000 MWe located in
western Java that will utilise low rank coal reserves. The
remaining 7000 MWe of coal-fired plants are located within
the Java-Bali grid system.
Table 7 lists the key coal-fired power projects that were
planned to form a major part of the first phase of the ‘crash
IEA CLEAN COAL CENTRE
 Coal-fired technology is Indonesia

Table 7 Coal-based power plant construction by PLN (PLN, 2007)

Project Capacity, MW Operating year Location

PLTU Southern West Java 3 x 300–400 2010 Sukabumi, West Java

PLTU 1 East Java, Pacitan 2 x 300 2010 Pacitan, East Java

PLTU Labuan 2 x 300–400 – Pandeglang, West Java

PLTU Tanjung Jati Baru 1 x 600–700 2010 Jepara, Central Java

PLTU Rembang 2 x 300–400 2009 Rembang, Central Java

PLTU 1 Banten, Suralaya 1 x 600–700 2010 Suralaya, Cilegon

PLTU 3 Banten Project 3 x 300–400 2009 Kemiri, Tangerang

PLTU West North Java 3 x 300 2010 Indramayu, West Java

PLTU Tanjung Awar-Awar 3 x 300–400 2009 Tuban, East Java

PLTU Paiton Baru 3 x 600 2010 Probolinggo, East Java

PLTU Madura 2 x 100 – Pamekasan, Madura

PLTGU Bojonegara 3 x 740 – Cilegon, Banten

PLTU Indramayu 2 x 300 – Indramayu Betung, South Sumatra

PLTU Nusa Penida 2 x 100 – Nusa Penida Island

PLTU Anyer 1 x 330 – Anyer, Banten

PLTU Kuala Tanjung 2 x 112 – South Sumatra

PLTU Banjarsari 2 x 100 – South Sumatra

PLTU Banyuasin 2 x 100 – Betung, South Sumatra

PLTU Baturaja 2 x 100 – South Sumatra

PLTU Tanjung 2 x 55 – South Kalimantan

PLTA Poso 255 – Central Sulawest

PLTU Arahan 4 x 600 2012 Muara Enim, South Sumatra

PLTU Central Bangko 4 x 600 2010/2011 Muara Enim, South Sumatra

programme’. Not all of these projects would be completed
within the proposed timescale, and some may not be built.
Nevertheless, the programme remains a firm commitment to
alleviate the power crisis that already faces much of the
economy. Based on the list, seven of the eleven projects will
be located in Java and two in Sumatra. The entire list
represents 18,000 MWe, although 12,600 MWe had
commissioning dates as of 2006 when the list was originally
compiled. The construction and financial status of each
project changes and it is quite likely that the names,
capacities, and final commissioning dates will have altered by
2010.
The Phase I of the programme cost $8 bn. Of the $8 bn total
funding, the programme required $4.4 bn in foreign currency
loans. As of August 2008, just $2.4 bn had been raised (PiA,
2008). A further $1.4 bn was raised from local currency loans,
out of a total $1.9 bn required for the programme. As the
target date of 2010 for the first phase of the ‘crash
programme’ was drawing closer, refinancing during the
2008-09 global economic problems led to higher loan interest
rates being sought by some funding bodies, such as the
foreign lender the Chinese Export-Import Bank and other
Chinese investors (PiA, 2009). PLN investments were
therefore subject to the risks faced by global financial
markets, especially from that of foreign lenders. By April
2009, Chinese lenders accounted for $1.7 bn of the $5.5 bn
funds PLN had secured (Ismar, 2009).
Phase II of the ‘crash programme’ consists of plants to come
on line between 2009 and 2013, but given the delays
experienced by the first phase, many Phase I stations are
unlikely to come online until at least 2011, and so the first and
second phases will overlap, with Phase II projects likely to be
completed thereafter. Financing Phase II of the ‘crash
programme’ will require $17.25 bn, more than double the unit
cost of the coal-fired projects in Phase I (PiA, 2009). The
reason for the hike in cost is the increased role of independent
power producers (IPP) who will require higher returns on
investment. Furthermore, Phase II has less emphasis on
coal-fired power, and instead includes 4.7 GWe of geothermal
capacity which incurs a higher capital investment than coal
projects.

Prospects for coal and clean coal technologies in Indonesia 53

Coal-fired technology is Indonesia
Only 2.6 GWe is expected to be coal fired, 1.4 GWe will be gas
fired, and 1.2 GWe hydroelectric plant. While the operation of
all the plant is expected to start in 2014, if finance problems
arise as it did for Phase I, it is possible that the completion of
the ‘crash programme’ may be sometime around 2016, but this
has not been confirmed by any official source.
While there appears to be some expectation that the
government target could fall short, it does demonstrate a
pro-active attitude of the government towards the electricity
crisis, and soon after the aftermath of the currency crisis of
the 1990s. Indonesia is also studying the possibility of
building a high voltage cable across the Sunda straits which
separates the southern tip of Sumatra and the western part of
Java. The 800 km link would be capable of transmitting
3000 MWe between South Sumatra and Java. Provided
funding of $1.8 bn is raised, the project could be completed
by 2012 (Energy Times, 2008).
The economic crisis of the 1990s left the private sector
reluctant to reinvest in Indonesia for some years, but there has
been a turnaround in sentiment more recently. The PLN
capacity construction plans and IPP stations that are under
construction will result in the trend seen in Figure 18 –
assuming no further decommissioning occurs. Between 2000
and 2005, Indonesia saw no new coal-fired stations coming
online, but 2006 brought in the 300 MWe Calicap power
station and Tanjung Jati B (2 x 660 MWe) stations. The initial
operation of Tanjung Jati B was not straightforward as
problems with weather affected logistics which subsequently
hit coal supply.
Between 2006 and 2012, Indonesia could see a doubling of
its coal-fired power station capacity (see Figure 18). This
doubling assumes the construction of only those stations
shown in Table 7 that have firm commissioning dates,
namely the 12.6 GWe of stations earmarked to come online
between 2009 and 2012, which overlaps with the Phase II of
60
additional coal (PLN with delayed schedule)
additional coal
50 existing coal
gas CCGT
Power generating capacity, GWe
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 18 Power capacity trends 2000-15, GWe
54
the ‘crash programme’ which expects geothermal and gas-
fired projects to feature in the investment programme. One
of the notable features of the second phase of the ‘crash
programme is the heavier reliance on private sector
involvement, much of which could come from foreign
interests.
Figure 18 factors in a 2–3 year delay in the commissioning of
some of the plants, omitting those stations where the
commissioning date is not yet known.
Whether this building trend is enough to meet the demand
remains to be seen, but with improvements in operating
utilisation and efficiencies of the coal-fired fleet, plus
improvements in transmission, coal is clearly helping to
alleviate the power crisis, although there is some way to go.
Environmentally, the use of control systems can minimise air
pollution, but CO2 emissions from the power sector are set to
rise. Over the long term this will be deemed unacceptable if
Indonesia signs up to CO2 emission cuts under a global
agreement. In the meantime, CO2 reduction measures have
been at the periphery of Indonesian energy policy, but are
quickly growing in importance.
19.2 Clean coal technology and
tackling climate change
According to the IEA (2008), Indonesia ranked 19th amongst
the highest emitters of fossil fuel greenhouse gases, with
some 24% attributed to coal burning. Considering the major
push to promote energy and economic security through
adoption of coal-fired generation, any increase in CO2
emissions is likely to be substantial. According to reports in
2008, emissions from the energy sector could rise from
1 GtCO2 to 2.9 Gt in 2050 (Simamora, 2008). As road
transport and industry are also consumers of primary energy,
this level will be much higher.
oil (boiler/IC/turbine)
gas turbine/boiler/CHP
wind/solar/geothermal/tidal
hydroelectricity
IEA CLEAN COAL CENTRE
 Coal-fired technology is Indonesia

Tackling air pollution such as SOx, NOx and particulate

matter is relatively straightforward, while the only promising
development to limit the rise in CO2 would be the adoption of
supercritical technology for coal-fired plant. Since the fleet of
coal stations was built within the last 10–20 years, it is
premature to replace the existing plant, but over the long term,
a replacement or upgrade regime of subcritical stations to
supercritical or ultra-supercritical stations will need to be
considered.

While gas-fired power and renewables are likely alternatives,

the depletion of gas reserves rules out any major policy shift
to reliance on power generated from domestically produced
gas (although it does not rule out imported LNG). In 2006,
President Susilo Bambang Yudhoyono issued a presidential
decree to increase the percentage of renewable energy usage
to 17% by 2025. Predictable renewable energies are limited to
geothermal and hydroelectricity which are location dependent
but will continue to be explored. Unpredictable and more
intermittent wind power could add considerable strain to a
transmission system that is already under intense pressure and
at risk of failure in many parts of the country. Nevertheless,
renewable energy should still be pursued wherever it is
practicable to do so.

Efforts are being made worldwide on clean coal technology

R&D, but commercial deployment is still a long way off, and
it is not a viable solution for Indonesia in the short to medium
term. However, carbon capture and storage (CCS) is being
pushed politically as a potential lifeline for the dwindling oil
industry. It could benefit greatly from CCS and CO2 injection
into oil reservoirs to boost recovery of oil reserves.

In 2008, Indonesia held a workshop on the role of CCS in

Indonesia where the Energy and Mineral Resources Minister,
Purnomo Yusgiantoro, and the State Minister for the
Environment, Rachmat Witoelar, declared that CCS
technology was the most practical method of containing large
quantities of CO2. Not only would the energy sector cut
emissions, but the country’s oil production could increase by
60%. A study by Lemigas suggested that East Kalimantan and
South Sumatra could be selected as potential candidates for
CCS projects since many depleted oil and gas reservoirs are
located conveniently near emission sources such as coal-fired
power station and LNG plants.

However, Indonesia’s hope of implementing CCS at even the

demonstration stage is dependent on international
co-operation and funding. If the CDM mechanism under the
Kyoto Protocol (or succeeding agreement) recognises CCS as
a viable technology, richer countries could provide funding
for CCS developers to build and operate in Indonesia. In
exchange, every tonne of CO2 that is stored (permanently)
helps to offset CO2 reduction targets in those participating
richer countries – but at a price. Unless the price of
internationally tradeable CO2 is both predictable and high
enough, there will be little incentive to invest. The potential to
host emission cutting projects is therefore large in Indonesia,
but highly unlikely to be developed by Indonesian firms or
state-run bodies alone.

Prospects for coal and clean coal technologies in Indonesia 55

 20 Coal demand boom in the power sector
Coal consumption in Indonesia has been boosted by the
Indonesian Government’s pledge to reduce the role of oil and
wood fuels in most sections of the economy. The increasing
demand for coal in recent years for industry and power utilities
has been driven by continuing economic growth. Given the
relatively low GDP per capita at just US$1640 (2006),
increased economic activity has brought about a natural rise in
the demand for energy and particularly for coal-fired electricity.
Since 2000, domestic coal sales have increased by 14%/y,
reaching almost 50 Mt in 2006 (Figure 19).
Considerable growth in coal consumption is expected,
underpinned by government plans to increase coal-fired
power station capacity by at least 10,000 MWe by 2010, and a
further 2600 MWe by 2014 (see Section 19.1). This
development in coal-fired power sits alongside other
developments in geothermal, gas and hydro power, but
coal-fired power spearheads the overall programme of
development.
The power market is controlled by the state company PLN, and
has seen demand for coal rise by 12.5%/y, doubling
consumption from 12 Mtce in 2000 to 24 Mtce in 2006, and is
set to continue growing. In 2005, the country had ten coal-fired
power stations, six owned and operated by PLN. The largest of
the ten is the Suralaya power station which has a capacity of
3400 MWe and consumes around 9–12 Mt of coal per year
making it a significant consumer and emitter of CO2.
20.1 The role of low rank coal in the
power sector
According to MEMR (2008a), the total demand for ‘low rank’
50 other industry
pulp and paper industry
cement
electricity generation
40 iron and steel
30
Sales, Mtce
20
10
0
2000 2001 2002
Figure 19 Domestic coal sales within Indonesia 2000-06, Mtce (CDIEMR, 2007)
56
coal in the power sector could grow to 72 Mt by 2010 fuelling
18 GWe of generating capacity. The term ‘low rank’ typically
refers to high moisture coals, namely lignite, but also
encompasses some subbituminous coals so the definition of
‘low rank’ must be treated with care. In 2006, the total sales
of all coals to the power sector stood at 28 Mt (ICMA, 2006).
The ‘crash programme’ could increase total demand for coal
in the electricity sector in 2015 to 96 Mt/y, and 118 Mt/y by
2025. While this shift to coal-fired power is occurring, the
government is hoping to wean the economy away from oil.
Oil is the key commodity to which Indonesia is most exposed
in terms of price risk, due to the shift to imports and loss of
domestic production.
Low rank coals such as lignite are limited in their tradeability
due to the high cost of transporting a low heating value coal
which carries much moisture. The coal qualities of lignite
overlap with poorer quality subbituminous coals and so the
definition of lignite might be confusing when determining
which company produces which specific type of coal. For
instance, exportable products such as Arutmin’s Ecocoal and
Kideco’s Samarangau both contain 35% moisture and heating
values of roughly 21 MJ/kg (5000 kcal/kg). Typically, a
lignite might therefore be around 15 MJ/kg (3600 kcal/kg),
with moisture content possibly exceeding 40%.
Indonesia is rich in lignite and high moisture subbituminous
coals. The main producer of lignite is the state-owned PT
Bukit Asam (PTBA) although smaller tonnages are also
produced by the private company Gunung Bayan and other,
smaller producers in West and South Sumatra. Power
stations that burn purely lignite are not always
straightforward to identify as many burn subbituminous
coals with high moisture contents. According to the IEA
2003 2004 2005 2006
IEA CLEAN COAL CENTRE

CCC power station database, CoalPower, the Banjarmasin
power station operated by PLN is one such example of a
station that burns lignite. At just 130 MWe Banjarmasin is
not a significant producer of electricity. However, Indonesia
has around 5–6 GWe of generating capacity fuelled by
subbituminous coals whose qualities border on lignite in
terms of moisture content, but have a higher calorific value
(as defined by MEMR as having a heating value <21 MJ/kg
or 5000 kcal/kg).
Production and consumption of lignite is not easily
determined since even the IEA Indonesian energy balance
categorises all coal used in Indonesia under the category of
‘Other bituminous’. Practically no production, trade, or
consumption data are given for subbituminous or lignite coals
(IEA, 2008). Similar omissions occur in the WEC and trade
journals which publish a wealth of reserves and resources data
on lignite, but refer vaguely to the actual production and
consumption of lignite in power stations, briquetting plants,
and industry.
Based on a list of planned plants to be constructed by PLN
(see Table 7, page 53), some 6 GWe of plants are earmarked
for, or are under construction in South Sumatra. South
Sumatran coals have quite respectable heating values of
21–27 MJ/kg (5000–6500 kcal/kg) but high moisture
contents, often exceeding 50%. Classifying these coals as
lignite or subbituminous is therefore not as straightforward as
it first seems. However, expansion of the power industry
indicates that perhaps a further 13–17 Mt of low rank coal
will be needed to fuel these power plants over the next five to
ten years. Therefore, low rank coals could constitute half of
future coal demand.
20.2 Coal demand in industry
Reports in 2002 suggested that energy intensive industries
such as pulp and paper, cement, textiles, and food producers
could save 50% of their energy procurement costs by
switching away from oil to coal (ISAI, 2002). Little has
changed since. A switch to coal is becoming a necessity as the
power generation sector shifts to a more secure and cheaper
source of fuel.
According to IEA data, industrial coal demand amounted to
18.6 Mtce (in 2006), and has steadily increased its share of
the market since 2000. Coal usage in heavy industry is limited
to non-metallic minerals production, chiefly cement
(see Figure 19). According to MEMR (2007), the cement
sector had increased coal consumption at a rate of 16%/y
between 2000 and 2006, rising from 2 Mtce to 5 Mtce.
Cement production in 2005-06 averaged around 34–35 Mt, of
which 32 Mt was used domestically and 2 Mt was exported
(ASI, 2009). The cement industry has a design capacity of
some 45 Mt/y of cement (41 Mt of clinker). Clinker is a
product of sintering a powdery ‘rawmix’ of limestone and
clay (or shale) in a cement kiln. Clinker consists of nodules of
3–25 mm in diameter which is later mixed with additives
(typically gypsum) that aids grinding and the setting of the
final cement product.
Prospects for coal and clean coal technologies in Indonesia
Coal demand boom in the power sector
There are eleven major cement works spread across East and
West Java, Sumatra, and Sulawesi (see Table 8). The largest
producer is PT Indocement Tunggal Prakarsa, commonly
known as Indocement. According to the corporate website,
Indocement operates 12 plants with an annual capacity of
17 Mt mainly located in West Java. All the fuel consumed by
Indocement is domestically-sourced coal, while biomass such
as rice husk is burned successfully in two plants. Indocement
operates a 55 MWe coal-fired plant to provide all the power
required by a plant located at Tarjun. The plant is located in
Kalimantan and so is well suited to receive local coals. Most
other sites are located in Java, and served by grid electricity.
In the case of Citeurup, there is a 300 MWe diesel-/gas-fired
plant, as well as a number of small back-up plants that operate
on oil products. The state-owned company Semen Gresik (or
Gresik Cement) also operates 2x25 MW coal-fired units at the
Tonasa cement plant. Coal consumption elsewhere in the
cement industry is primarily for cement production.
Paper and pulp industries have had a less spectacular growth
in coal use, but still high rising at 7%/y between 2000 and
2006 to 1 Mtce (see Figure 19). Coal use averages around 1–2
Mt/y and is consumed by four major producers of paper, pulp,
and paper products. Historically the largest consumer of coal
in the paper and pulp industry has been the Indonesian-based
paper and stationery company, PT Tjiwi Kimba (see Table 8).
The most interesting trend, apart from power generation is the
rise in ‘other’ industries. Other non-specified industries have
experienced the highest growth of any sector, rising by an
average of 22% every year since 2000, eventually reaching
12.6 Mtce. The likely recipients of this coal are other smaller
industries that might include small brick and ceramic works
as well as the rapidly growing manufacturing sector, or any
other sector operating small heat and steam raising boilers
fired with coal. Jolly and others (2004) suggested that the
government’s promotion of the use of coal briquettes in the
household sector would be significant. In reality coal
briquettes have experienced limited growth, amounting to a
mere 30 ktoe in 2006. This may well grow in the future.
20.3 Projections for coal demand
beyond 2012
Energy supply policy appears to centre around the avoidance
of oil consumption. In doing so, the current energy mix could
change radically. The potential for coal to serve a greater role
in the domestic energy market could even compromise
long-term growth in coal exports. This is evident in the
projected coal mix set out by MEMR (2008a) in Figure 20.
A great deal of this optimism comes from the programme of
power generation conversion and new coal-fired capacity
(see Chapter 19). Industry projections show some agreement
with the official government figures. According to PT BUMI
Resources, only 42% of the 10,000 MWe (4200 MWe) is
likely to be operational by 2010, although the operation of the
full target capacity will only be delayed by a year or two. In
the longer term, MEMR estimates that the overall domestic
consumption of coal will rise from around 50 Mt in 2006 to
220 Mt in 2025. It is worth stressing that the demand for coal
57
Coal demand boom in the power sector

Table 8 Consumers of coal in Indonesia, t (ICMA, 2006)

Company Location 2001 2002 2003 2004 2005

Coal-fired power plant

Asam-asam South Kalimantan 488,147 568,436 568,000 554,307 n/a
Bukit Asam South Sumatra 1,153,974 1,057,564 1,142,646 1,090,774 1,092,141
Freeport Indonesia Papua 646,085 557,945 669,334 593,650 650,990
Newmont Minahasa North Sulawesi 38.968 28,082 24,000 – –
Newmont Nusa Tenggara W Nusa Tenggara 406,132 477,610 480,000 482,578 523,114
Paiton I (PJB) East Java – – 2,370,264 1,541,893 2,506,026
Paiton II (Jawa Power) East Java 6,276,104 8,300,753 3,251,014 3,560,659 4,395,998
Paiton (PEC) East Java – – 3,439,611 4,207,456 5,113,446
Sijantang (Ombilin) West Sumatra 374,894 105,361 229,580 182,639 580,172
Suralaya West Java 10,172,030 8,950,787 10,821,164 10,664,587 12,469,392
Subtotal 19,556,334 20,046,538 22,995,613 22,878,544 *26,371,588

Cement industry
Indocement Cirebon, PT West Java 380,396 294,216 313,497 – –
Indocement Citeureup, PT West Java 1,352,144 1,019,868 800,923 1,639,131 1,619,575
Indocement Tarjun, Pt South Kalimantan 341,509 370,118 269,564 – –
Semen Andalas, PT West Sumatra 35,643 47,050 168,000 162,929 –
Semen Baturaja, Pt South Sumatra 71,340 103,357 94,005 122,493 133,002
Semen Bosowa Maros, PT South Sulawesi 247,509 152,976 251,007 246,696 213,503
Semen Cibinong, PT (Holcim) West Java 602,772 897,669 885,643 918,833 891,393
Semen Gresik, PT East Java 912,029 862,606 715,172 1,033,225 1,064,138
Semen Padang, PT West Sumatra 474,430 680,636 692,392 703,015 746,242
Semen Tonasa, PT South Sulawesi 724,963 462,696 577,777 445,833 474,869
Semen Kupang, PT E Nusa Tenggara – – 5,639 13,535 9,440
Subtotal 5,142,737 4,684,969 4,773,621 5,285,690 *5,635,401

Pulp industry
Indah Kiat, PT Riau 163,282 7,514 1,198,000 369,421 378,928
Inti Indorayon Utama, PT North Sumatra – 8,355 – 8,355 n/a
Jaya Kertas, PT East Java 20,884 27,834 32,549 54,502 n/a
Tjiwi Kimia, PT East Java 638,652 455,881 473,949 728,630 n/a
Subtotal 822,818 499,585 1,704,498 1,160,908 *1,404,986

Metallurgy
Antam Tbk, PT South Sulawesi 13,598 120,000 62,273 46,270 53,263
Inco Tbk, PT South Sulawesi 123,496 77,874 109,511 51,162 140,000
Koba Tin, PT Bangka Belitung 30,231 2,185 10,000 7,321 8,045
Timah Tbk, PT Bangka Belitung 14,371 8,661 20,122 14,427 n/a
Subtotal 181,698 208,720 201,907 119,180 *203,236
Briquette 31,265 24,078 24,976 22,552 28,216
Others 1,593,063 3,792,481 957,323 6,343,119 7,600,000
Total 27,327,916 29,257,002 30,657,939 35,809,995 *41,243,429

n/a not available; * estimate

58 IEA CLEAN COAL CENTRE

 Coal demand boom in the power sector

100 in 2025 is dependent on planned projects obtaining funding

and that economic growth does not suffer a turbulent or
90
significant downturn that could hamper capital investment or
80 indeed the demand for energy.
70
As part of a sensitivity analysis to these projections,
Share of fuel, %

60 Chawalitakul and Amit reported in 2008 on the impact on

50
coal demand resulting from the ‘crash programme’. The
headline result was an increased demand of 36 Mt/y
40 (see Table 9). This additional 36 Mt/y is consistent with the
30 official MEMR projections for 2010. By 2010 therefore, the
coal demand from the electricity sector would be 72.3 Mt/y.
20

10
20.4 Impact of plant utilisation on
0
2005 2025 future coal demand
renewables and other coal The assumptions made by Chawalitakul and Amit (2008) used
natural gas oil for calculating coal demand are that coal-fired power stations
liquefied coal
all operate at a rate of 7884 hours per year, equivalent to 90%
of the year. Officially, the capacity factor for thermal plants
Figure 20 Official projections for the Indonesian published by MEMR (2007) was just 46–52% per year
primary energy mix (MEMR, 2008a) between 2000 and 2006, so a reality check may be needed
when considering the future performance of the coal-fired
fleet, especially with regards to fuel consumption and
subsequent power station emissions.
Table 9 Projected coal demand by sector, Mt
(MEMR, 2008a) Analysis described in Section 18.5 suggests that coal-fired
stations probably only operated for 60–65% per year,
2005 2006 2007 2008 2009 2010 considerably short of the 90% assumed by Chawalitakul and
Amit (2008) as shown in Table 10. However, new stations will
Electricity 25.7 33.7 36.5 40 61.7 72.3
operate at higher loads as suggested by Emsworth (2008). Yet,
Cement industry 5.2 5.9 6.6 6.9 7.6 8.4 90% is still an extremely high utilisation rate common more
among nuclear power stations rather than coal-fired stations,
Metallurgical
2.5 2.7 3.3 4.0
but still possible. If a conservative utilisation of 75% were
Industry, pulp, 1.6 2.2
textile, briquette applied to new coal stations, the additional coal consumption
by the 10,000 MWe ‘crash programme’ would be nearer
UDC – – – – – 1.0 15–25 Mt/y instead of 36 Mt/y (see Figure 21). The lower end
Others 8.9 6.2 4.4 3.4 2.4 4.3 of the range (15 Mt/y) is consistent with today’s consumption
of mainly subbituminous coals, and the higher figure
Total 41.4 48 50 53 75 90 (25 Mt/y) would apply if all the additional capacity used
lower rank coals with lower heating values and higher
moisture contents. While this does not provide conclusive
results, it outlines the potential error that can arise based on
Table 10 Indonesia’s 10 GW of coal-fired the assumptions made.
capacity – how much coal is needed?
(Chawalitakul and Amit, 2008)
20.5 Impacts of power generating
Criteria Assumption
efficiency on coal demand
Power capacity, MWe 10,000
In addition to plant utilisation, consideration must be made
Operating hours, h/y (equivalent to 90% for appropriate generating efficiencies. According to
7,884
utilisation) Chawalitakul and Amit (2008), the additional 36 Mt of coal
Power production, GWh 78,840 consumption comes from stations with efficiencies of 34%
(based on an heat rate of 10,550 kJ/kWh), burning a low
Power heat rate, kJ/kWh 10,550 quality coal of 23 MJ/kg (5500 kcal/kg).
Energy required, PJ 831,760
According to IEA CCC analysis, the average net efficiency of
Coal quality, kcal/kg 5,500 coal-fired stations operating in Indonesia in 2006 was around
Coal heat rate, MJ/kg 23.02
30%. So if the efficiency of the ‘crash programme’ fleet is just
34%, there does not appear to be a significant improvement in
Coal required, Mt/y 36.1 efficiency in the future build programme. The 34% efficiency

Prospects for coal and clean coal technologies in Indonesia 59

Coal demand boom in the power sector

80 additional coal (IPP at 75% util)

additional coal (PLN with delayed schedule at 75% util)
70 existing coal (at 64% utilisation from 2009)
oil (boiler/IC/turbine)
gas turbine/boiler/CHP
60 gas CCGT
Fuel demand, Mtce

50

40

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 21 Fuel demand by power generation sector

seems low for a new build, regardless of the coal quality.

Modern subcritical plants typically achieve 34–37%
efficiency (Morpaung and Mayataki, 2003), although 38–39%
is commonplace. Supercritical and ultra-supercritical plants
can achieve 41–47% net efficiency depending on the design.
So, at a conservative estimate for subcritical efficiency of
38% (including FGD and low NOx and particulate control
measures), the demand for coal from 10,000 MWe of capacity
could be 3–4 Mt/y lower than if the same fleet operated at
34%. Every percentage point increase in efficiency decreases
coal consumption by an average 800,000 t for the
10,000 MWe of capacity. The implications for coal usage,
fuel costs, and stack emissions are therefore important.

60 IEA CLEAN COAL CENTRE

 21 Can domestic producers respond to rising demand?
Total coal demand could rise from around 40–50 Mt/y in
2007-08 to 220 Mt in 2025. All of these projections are in the
context of domestic coal demand in the Indonesian economy.
When considering the additional demand arising from the
international traded market, the impact on producers could be
massive and could also have repercussions on the world
market. As the export market is currently expected to reach
211.2 Mt in 2008 (SSY, 2008), further increases are expected
to slow, but to what extent, it is not yet possible to determine.
Currently, around 80% of all the coal produced is exported,
and as production in 2007 alone reached around 250 Mt, the
ceiling on exports will have to be lifted, or imposed by the use
of quotas or taxation (Coal Age, 2008).
Government projections for domestic coal demand assumed
exports were fixed at 150 Mt/y from 2009 to 2025 to
accommodate the coal demand generated by the ‘crash
programme’ and beyond. Without these measures, further
increases in demand could place pressure on the coal supply
chain that is already pushing production to around 250 Mt/y
(200–210 Mt export; 40–50 Mt domestic demand).
Figure 22 shows how domestic demand is expected to rise
from 50 Mt in 2008 to 60–70 Mt in 2010, and 100 Mt/y by
2012-13 when the ‘crash programme’ is likely to be
completed (MEMR, 2008a).
Add to this a modest rise in exports (230–240 Mt/y), and
production will need to reach 330–340 Mt/y to match the
expected increase in the domestic and international markets
by 2013. Figure 22 also shows how long-term projections for
2025 suggest that coal production will need to reach up to
460 Mt/y. This depends on whether exports are maintained at
240 Mt/y, although past official forecasts assume exports will
be held at just 150 Mt/y.
If Indonesia is not able to increase the production of coal
sufficiently over the long term due to the pressure on reserves,
the implications are that Indonesia could withdraw from the
international coal market over time, and then have the
potential to be a coal importer. However, this statement is
speculative and assumes that export quality coal is diverted
away from the international market and towards the domestic
market. If the expansion in demand is for low rank coals,
notably lignite and high moisture subbituminous coals, there
would be almost no pressure on the coal export industry.
Pressure does however mount on the exploitation of these
other low rank coals which will invariably be on greenfield
sites and will require considerable capital investment.
Transport costs will restrict low rank coals to being used
closer to the minemouth. As a large proportion of low rank
coals occur in Sumatra, future power stations may need to be
built there. Demand is centred around the island of Java which
contains more than 60% of the population and the energy
demand, so investment to build sufficient transmission
capacity to take the electricity across the growth regions of
the country to other islands could be substantial.
21.1 Export coal versus domestic
market
While there has been emphasis on the use of low rank coals, a
significant proportion of future capacity may still require a
great deal of subbituminous coal that would otherwise be

500
exports
450 others
UBC
400 metallurgical, pulp, textiles, briquettes
cement
350 electricity generation

300
Coal, Mt

250

200

150

100

50

0
2005 2006 2007 2008 2009 2010 2012 2015 2020 2025

Figure 22 Projected coal demand and exports 2005-25, Mt (MEMR, 2008a; MCIS, 2008; SSY, 2008)

Prospects for coal and clean coal technologies in Indonesia 61

Can domestic producers respond to rising demand?
exported. This extra demand from domestic power stations
could conflict with the export business, especially during
periods of high international prices.
In the future, the government may impose a domestic market
obligation (DMO) to prevent coal supplies from being
diverted away from domestic power stations. This obligation
would be imposed on the Indonesian coal industry to ensure a
certain proportion or tonnage of product is directed to
Indonesian end-user customers. A DMO could be developed
to discourage export business by the imposition of some kind
of out-going taxes or tariffs. However, this may prove difficult
as the government’s previous attempt in 2005 was ruled
illegal by the country’s highest court. As an alternative, the
government may impose a quota system, enforcing all coal
producers to allocate a certain portion of their production for
domestic sales. A side-effect is that the government may lose
some revenue from export taxes, but the value to the domestic
economy to prevent blackouts could be considerably greater.
How the DMO would take form is unknown, if one were to
exist at all. Some coal mining companies already have
contractual agreements with domestic end-users. For
example, ITMG already sells around 1.1 Mt/y (6.3%) of its
coal domestically – mainly from the lower quality Jorong
mine. Hence, if the required DMO is not too onerous, the
company may have already met its obligations. However, it
may need to raise its domestic sales if the required DMO is
significantly higher (say 10–15% of total production). A more
negative impact, however, could come from a policy that
forces DMO allocated coal to be sold at a substantial discount
to the seaborne market prices. However, the coal used for
power generation in Indonesia tends to be of lower quality
(heat rate) and hence the price on a heating value equivalent
basis may be comparable, so that the discount applied need
not be too significant.
The Indonesian Coal Association seems satisfied that the
domestic industry can meet the needs of any DMO provided
domestic prices match that of coal being sold internationally
(Castiano, 2008). Discussion between government officials
and the coal industry are already under way. Currently,
domestically traded coal is priced 20% below the export
equivalent (accounting for coal qualities). However, the
demand projections shown in previous chapters would
suggest that around 50% of the country’s production in 2025
might need to be directed to the domestic market while
production might need to be in the range of 400–450 Mt/y to
also service the export market at levels close to those of today.
The challenge faced by both government, the power sector
and the coal industry is considerable.
21.2 Coal pricing – international and
domestic
Since 2003, Indonesian coal has been exported at free-on-board
(FOB) prices relative to Australian exports, who were then
market leaders in steam coal exports. Indonesian coal traded at
a discount to Australian exports from Newcastle on a FOB
basis. More recently, Indonesia’s role as chief exporter of steam
coal came about from taking advantage of the rising demand in
62
the global seaborne market, while supplies from other exporters
such as South Africa and Australia were unable to keep pace
due to slower developments in coal infrastructure, and China
withdrew from the market to satisfy domestic demand.
Indonesia also benefits from having low sulphur coal.
In 2008, Indonesian coal exporters were able to deliver during
a period of extremely high demand and rising prices. At
times, Indonesian steam coal was being traded at a premium
of 5–8 $/t over Australian export coal (based on the
GlobalCoal Physical Newcastle index). While a large part of
the coal industry is geared towards exports settled at market
prices, a smaller proportion of the export coal from Indonesia
has been subject to some government influence, indirectly and
directly. Firstly, there is the indirect effect of mining
operations, which have benefited historically from purchasing
subsidised fuels such as diesel. Secondly, direct impacts come
from government departments influencing the price at which
coal is sold to customers.
Recent discussions have pushed prices up towards market
levels. For example, in 2008 Indonesian coal officials met
with the fuel buying arm of Malaysian utility TNB to
renegotiate contracts between the utility and Indonesia’s coal
producers. Previously, contract prices were settled at rates
well below the market level for export coal. The Indonesian
Government recognised the value of coal as a commodity and
the potential for maximising royalty and tax revenues. To
redress the difference between the TNB contracts and the
world price of coal, government auditors informed ministry
officials that coal contracts should reflect index prices used by
the international market.
The government brought together all the stakeholders,
including TNB and a number of heavyweight suppliers such
as Bumi Resources, Adaro, Bayan Resources, and Kideco.
One supplier that was not identified was believed to have had
a five-year contract of 42.5 $/t on a 26.6 MJ/kg basis
(6350 kcal/kg GAD). A price renegotiation is thought to have
raised this by 25 $/t. PT Bayan Resources were asked to
renegotiate contracts with TNB, increasing the price by 10 $/t
to 100 $/t (as of the 4th quarter 2008) along with certain
renegotiations of the terms and conditions of annual contracts.
Reports suggested that contracts with other Asian buyers had
been reopened to negotiation while European and US buyers
had refused to hold discussions.
The Indonesian Government suggested that suppliers of low
heating value coal should reserve 30–35% of the production
for the domestic market, with lesser measures applied to
higher heating value products (MCIS, 2008e). It was decided
that the pricing indicators provided by Argus/Coalindo
Indonesian Coal Price Index or ICI would be used for royalty
calculations, while pricing calculations use the Barlow Jonker
index. The two approaches invariably have two outcomes due
to slightly differing methodologies and a possible difference
in the basket of coals included, so settling on a consistent
pricing formula becomes difficult. A monthly reference price
based on the CoalIndo/Indonesian Coal Index, Barlow Jonker
and globalCoal was later proposed in 2008. This combined
index will be used for price negotiations for both domestic
and exported coal.
IEA CLEAN COAL CENTRE
 Can domestic producers respond to rising demand?

Singapore-based company Straits Asia Resources acquired the
Sebuku mine in South Kalimantan. For contracts to supply
coal in 2008, Sebuku coal sold for a price of 70 $/t (basis
26.4 MJ/kg or 6300 kcal air-dried basis), though 1.5 Mt was
contracted for 2008 at prices per tonne in the mid-$40s. As
such, the index prices and spot prices published in 2008 may
not fully reflect the actual prices achieved for a number of
contracts already secured, at then seemingly high prices. This
means that Straits Asia Resources had committed tonnage in
2008 at prices perhaps 60% below the prevailing world
market price. This is just one example of the risks of settling
contracts during a period of dynamic price change that the
government is keen to address.
accommodate the rise in domestic consumption and exports to
countries like India.
21.4 The effect of exchange rates
In 1997, the US$ rate averaged Rp2909. By the end of 1998,
the US$ had increased to Rp10,014, a massive change of
300%. At the height of the crisis for the Indonesian currency,
the rate descended to Rp18,000 and Indonesia lost 13.5% of
its GDP. During the same period, the average FOB price of
Indonesian coal fell from 39.9 $/t to 35.8 $/t, a reduction of
10%. Conversely, the exchange rate collapse meant that
domestic revenues rose from 116,000 Rp/t to 359,000 Rp/t.

21.3 Effects on international coal
trade
In recent years, the export market has benefitted from high
FOB prices (compared with previous decades), but with the
high prices producers have also incurred higher costs of
production. Nevertheless, there is a possibility that coal
exports could rise from an estimated 211 Mt/y to 240 Mt/y
before 2015. An earlier projection published by MEMR
assumed that coal exports would need to remain at around
150 Mt/y to fulfil government objectives to meet domestic
demand, but this export level may not reflect today’s trading
climate. Whether this 150 Mt/y includes the large quantities
of illegally mined coal (possibly 20 Mt/y) or not is unclear,
but it is unlikely.
Combined with an increase in exports of 13% (from 41.7 Mt
to 42.7 Mt), revenues in domestic currency rose by a
phenomenal 350%. The full value of this revenue boost was
curtailed by high domestic inflation. The producer price index
(PPI) increased by 202%, severely eroding the value of the
rupiah revenues, and putting a great deal of upward pressure
on the cost of coal production. By 2005, the value of the
rupiah had not improved greatly and the national PPI was
running at 15%, so cost pressures seem to remain in the
Indonesian industry. Exchange rates therefore can pose major
problems for the coal industry.

For purely illustrative purposes however, any form of ceiling

set on export trade could restrict the flow of tax revenues,
especially when the prices are high. For this reason, the
government remains firm on allowing the business to continue
as usual, at least for the time being. A 150 Mt/y ceiling would
nevertheless, effectively lose the government at least
US$990 million in revenue from the 13.5% taxation
(assuming 120 $/t FOB) that is applied to export sales of coal.
Whether the export price of coal remains strong is uncertain
(and some would say improbable), but state revenues are
currently benefitting greatly from world market prices. A
reduction in exports could be engineered through a higher tax,
perhaps 20% or more, or the quota system through the DMO.

According to the IEA (2008), coal exports in 2007 amounted

to 202 Mt, although figures from MCIS (2008g) show exports
being 195 Mt. If we assume that priority is given to the largest
importers, theoretically, an export ceiling of 150 Mt means
Indonesia would have been able to supply only the top seven
buyers who imported a combined 148 Mt of coal in 2007. In
reality, the current export level is clearly much higher, but
until the government announce its intentions to cap exports, it
is difficult to determine the actual impact on the world
market.

Interestingly, India has overtaken Taiwan as the number three

importer of Indonesian coal, with an additional 25 Mt or more
of coal planned to be imported by Reliance Power (India) in
coming years. India could be the top importer of Indonesian
coal, possibly at the expense of many other smaller importers
in Table 11 if overall production does not increase to

Prospects for coal and clean coal technologies in Indonesia 63

Can domestic producers respond to rising demand?

Table 11 Coal exports by country 2000-07 (kt) (MCIS, 2008g)

2007 cumulative
sum of exports
2000 2001 2002 2003 2004 2005 2006 2007 % of total
from largest to
smallest
Japan 13703 14972 16706 19919 22547 27313 35134 35175 35175 18
South Korea 4891 5420 7462 7857 11572 14213 21505 27371 62546 32
India 3494 4265 5067 7738 10630 16255 20742 25103 87649 45
Taiwan 12836 13658 12780 15608 17668 17743 26661 24776 112426 58
China 142 657 2531 534 1426 2503 6656 13234 125659 64
Thailand 2732 3157 3822 4222 4665 6404 8383 11822 137482 71
Hong Kong 2923 4613 4098 6800 7367 9337 10985 11235 148717 76
Malaysia 1556 2226 3285 5174 6101 7382 8783 9367 158085 81
Italy 1638 1733 2787 4536 5198 6285 7509 6127 164212 84
Philippines 3339 3607 3132 3075 3579 3906 5472 5687 169899 87
USA 627 686 1075 1651 1960 2050 3741 4558 174457 89
Spain 2794 2168 2720 2938 2776 3317 4445 4309 178765 92
Switzerland 0 76 67 210 2067 1847 2883 4279 183044 94
Chile 906 1080 764 271 791 1368 1994 2345 185389 95
Pakistan 0 0 120 302 567 1166 1893 1890 187279 96
UK 1 95 70 794 1080 1302 2153 1308 188587 97
Netherlands 2700 2818 1786 1881 1106 2139 5691 1267 189854 97
Slovenia 567 843 649 528 623 634 1149 1132 190985 98
New Zealand 0 62 0 275 658 968 1390 679 191664 98
Vietnam 0 0 0 8 16 279 420 596 192260 99
Ireland 320 603 295 0 0 602 941 464 192724 99
Croatia 0 66 165 288 521 95 271 460 193185 99
Sierra Leone 0 0 0 0 0 0 274 353 193538 99
Belgium 0 66 179 72 72 7 144 301 193838 99
Portugal 70 606 444 159 0 144 473 223 194061 100
Brazil 469 356 285 344 292 146 150 217 194278 100
Costa Rica 43 0 0 0 0 0 0 129 194407 100
Greece 133 68 213 283 63 65 205 114 194521 100
Sri Lanka 1 0 27 23 65 107 112 96 194617 100
France 0 0 0 0 27 136 132 72 194689 100
Syria 0 0 0 0 0 0 0 70 194759 100
Turkey 0 0 0 0 0 0 41 60 194819 100
Macedonia 0 0 0 0 0 0 0 57 194876 100
Cambodia 0 0 0 0 0 0 0 54 194930 100
Singapore 0 0 0 0 15 0 206 19 194949 100
South Africa 0 0 0 0 0 0 0 1 194949 100
Germany 105 108 67 392 330 132 271 0 194949 100
Australia 0 158 0 0 0 0 0 0 194949 100
TOTAL 56158 65029 71540 87523 104976 128520 182975 194949

64 IEA CLEAN COAL CENTRE

 22 A brief review of coal upgrading in Indonesia
Indonesia is active in a number areas of coal upgrading, which
includes raising the quality of low rank coals for export and use
in power plants firing higher rank coals and advanced coal
liquefaction to produce liquid oil alternatives. More detailed
research on coal upgrading is available from a number of
reports produced by the IEA Clean Coal Centre including Coal
to liquids (Couch, 2008), Lignite upgrading (Couch, 1990),
Coal upgrading to reduce CO2 emissions (Couch, 2002). This
area of coal quality improvement is constantly being reviewed
by the IEA Clean Coal Centre and a further update is pending.
22.1 Coal liquefaction
Coal liquefaction is not strictly a form of upgrading, but a
conversion process. The process is attracting a great deal of
interest worldwide and forms part of the energy policy for
Indonesia. High oil prices and the establishment of proven
technology (albeit at cost) has meant that countries that are
deficient in oil resources may well look to coal as an
alternative to supplement oil import dependency.
One of the largest energy deals between Indonesia and a
foreign government was signed in July 2007. It is between the
Indonesian and South Korean Governments and would total
US$ 8.5 bn in value (World Coal, 2007). This is equivalent to
the funding needed to carry out the first phase of the ‘crash
programme’ (see Section 19.1). The agreement covers a range
of energy infrastructure projects including coal, LNG and oil
projects. The bulk of this deal is dedicated to a coal liquefaction
plant in East Kalimantan which brings together Indonesia’s PT
Nuansa Cipta Coal Investment and South Korea’s Kenertec,
Posco Engineering and Construction, and Samsung Securities
as the main participants in the US$5.5 bn deal. The whole
project aims to use 26.4 MJ/kg (6300 kcal/kg) coal from the
Nunukan coal mine, in which Korea’s Kenertec has a 40%
stake. It will aim to sell coal both domestically and abroad.
According to Reuters (2007), the plant is intended to supply 5%
of South Korea’s demand by 2020. Interestingly, Indonesia’s
own indigenous oil supplies are dwindling and will require a
rise in imports, so while the coal liquefaction plant could serve
Indonesia in the long run, the immediate plans appear to service
South Korea’s energy interests. The expertise and experience
however will prove invaluable for Indonesia which aims to
increase the role of coal liquefaction in the energy mix to 2% of
primary energy consumption by 2025 (MEMR, 2008a).
Construction is shortly to begin on the first 1 Mt/y unit of a
5 Mt/y plant that will upgrade low rank high moisture
Indonesian steam coal into a high energy fuel equivalent to a
bituminous coal.
22.2 White Energy drying and
briquetting process
In 2008, White Energy constructed a 1 Mt/y coal upgrading
Prospects for coal and clean coal technologies in Indonesia
and briquetting plant in Indonesia in a joint venture with PT
Bayan International Pte Ltd, at Tabang in East Kalimantan.
The upgrading process involves crushing and drying to reduce
the coal water content. Compaction generates close bonds
between the dried coal particles and eliminates nearly all
voids. This forms a high density, higher energy content
briquette with a low permeability, an important factor in
providing stability against spontaneous combustion.
The White Energy solution avoids the use of separate binders,
and instead resorts to mechanically binding dried coal
particles. This is part of the reason White Energy claims a
much lower capital cost than alternative solutions. The plant
is the first commercial venture of its kind in Indonesia, and
though a consortium including Kobe Steel and JCOAL, is
building a demonstration project in south Kalimantan to trial
the upgrading of Arutmin product.
22.3 The upgraded brown coal (UBC)
process to upgrade high
moisture coals
The UBC process is a new technology to convert low rank
coal into transportable solid fuel with a higher heat value
without the problems of spontaneous combustion. In May
2007, Kobe Steel Ltd began construction of a 590 t/d UBC
demonstration plant in Arutmin’s Satui mine in southern
Kalimantan. The plant was completed in July 2008 and
commissioning began in August to produce trial products for
power generators in Indonesia and Japan. The total investment
is forecast at ¥8 bn (US$70 million).
The UBC process uses a dewatering method developed by
Kobe Steel to reduce the moisture in the brown coal. The
innovative five-step process uses light oil to remove the water
in the brown coal.
Full trial operation was due in late-2008 and following a
two-year trial, Kobe Steel aims to begin commercial
marketing of the UBC process from by the middle of 2010.
22.4 K-fuel process
In January 2008, Evergreen Energy and Sumito Corporation
announced a successful series of tests confirming that certain
coals from Kalimantan were well suited to the K-fuel
upgrading process.
According to Jacobsen (2008), the Evergreen process uses
heat and pressure to physically and chemically upgrade high
moisture coals to a better quality product. K-fuel has already
been in operation since 2005 at a 750,000 t/y production
facility at Gillette in Wyoming. The engineering
specifications, economic evaluation, and marketability
analysis will be carried out for a 1.5 Mt/y K-Fuel coal
refinery located in Kalimantan (Evergreen, 2008). The initial
65
A brief review of coal upgrading in Indonesia

tests showed that raw lignite coal could be refined into a

product with 64% less moisture, 56% less mercury and 52%
higher heat value increasing from 15 MJ/kg to 23 MJ/kg.
Since the lignite is already low in sulphur, the benefits to
upgrading the coal are clear in quality terms. The possibility
of exporting such coals to close export markets in Asia has
been considered.

66 IEA CLEAN COAL CENTRE

 23 Conclusions
Indonesia has become the world leader in steam (thermal)
coal exports, and the international market has been the
primary driver for the production of coal for many years now.
The interest in Indonesian coal remains strong for the
properties that the coals have. Low sulphur and low ash
contents are typical traits of Indonesia’s current production
and, with modest heating values the coals are perfect for
blending. Indonesian coal producers still operate with a low
cost base compared to many other exporters around the world,
and are well located to access the massive and ever growing
Asian coal consuming markets. However, the future could be
different. Indonesia’s economy has been growing at a pace
that has driven demand for coal internally in the power and
industrial sectors.
The economy produced around 630 Mtce of energy in 2006,
but consumed just 260 Mtce, clearly showing the export
nature of the energy business that exists today. However,
some energy reserves are reaching, or will reach, critical
depletion within the next twenty years. Given the cumulative
production between 2005 and 2025, the total amount of coal
that will be mined will cumulatively sum 7000 Mt. This
production total is also the same as the current mineable
reserves, and therefore Indonesian reserves could be depleted
by 2025. Clearly this brings about a need for further
exploration of the country’s reserves base and to bring
forward resources into the mineable reserves category. Or
there may be a failure to meet either domestic demand or
exports, depending on whether the rise in demand
materialises.
Some 80% of all the coal produced is by the so-called First
Generation or Generation I contractors, that hold the first
licences under Contracts of Works (CoWs). The industry
consists mainly of private companies. As of 2007, the largest
companies by annual production, were as follows:
● BUMI Group (70 Mt/y, comprising PT Kaltim Prima and
PT Arutmin operations);
● PT Adaro Indonesia (34 Mt/y);
● PT Kideco Jaya Agung (20.5 Mt/y);
● Banpu operations that produced a combined 17.7 Mt/y;
● State-owned PTBA producing 11 Mt/y (non-CoW
producer).
When combined with a multitude of other CoW and
non-CoW producers, the country produced around 245 Mt of
coal in 2007. Whether the future of Indonesian coal lies with
the large producers after the First Generation CoW contracts
expire is not known. Regulatory uncertainty in areas of
mining and forestry protection has left some investors
undecided about the long-term future of coal production.
Firm commitments to promote mining will no doubt promote
greater confidence among existing and future investors in
Indonesia. Foreign interest in the Indonesian coal industry is
growing, especially Chinese and Indian sub-continent
companies looking to source coal for operations in their
homeland.
Prospects for coal and clean coal technologies in Indonesia
Further expansion is occurring mainly at existing operations.
So while strong coal prices since 2003 have led to some
investment in new mines, these have not been at the scale of
established operations. Expansion of Indonesia’s low-cost
production could slow down as existing reserves become
deeper and further inland. The cost of production will rise
eroding the advantage Indonesia has enjoyed for some time.
However, reserves depletion could make Indonesia a less
attractive investment for large players, so the long-term future
of production may rely on a larger number of smaller
producers. A possible outcome is that economies of scale may
be lost, and the cost of Indonesian coal may rise. In addition,
coal fields that are deeper and further inland may pose further
investment needs and again rising costs. The upside to the
industry is that having a large workforce that is based on
contractors (accounting for up to 95% of output) builds
knowledge and experience. The coal industry is mature and
makes use of local manpower and materials wherever
possible.
One of the main obstacles to future investment in Indonesian
coal mining, especially by foreign companies, is the potential
conflict that may arise from more strict environmental
protection of the forests and wildlife on Kalimantan and
Sumatra. While there appears to be some leniency towards
mining companies, and more so for the logging industry,
commercial exploitation of the country’s forests looks set to
continue.
Utilities across the world, but mainly Asian ones, consume
large amounts of Indonesian coal. Indonesia is seen as so
strategically important, that many of these countries, some
with their own vast reserves such as China and India, are
buying coal-producing and infrastructure assets to secure
supplies in the long term. They are even investing large sums
into coal facilities to upgrade high moisture coals in Indonesia
for export.
Despite the long-term uncertainties, the short to medium term
business prospects remain good. Unlike most other exporters
around the world, Indonesia has a unique infrastructure that
enables the country’s producers to throughput almost any
amount of coal. The combination of barge, coastal port, and
offshore trans-shipment capacities is spread across a number
of different routes from a multitude of mines. This seems to
give the country limitless potential to export coal successfully,
even if some of the routes are affected by weather or force
majeure. In many ways this also enhances the country’s
reliability of supply and makes it a popular choice for Asian
and European importers.
The government benefits from large taxation receipts from the
coal producers due to a combination of high production and
high prices. The possibility of the current or future market
structure changing could discourage coal production and
export. This may change if the sentiment in government shifts
to limit the activities of foreign private companies having
67
Conclusions
stakes in such a large part of the coal industry. In conjunction
with a possible drop in coal prices in the future, the strategy
of the government may shift from having an export industry
to diverting production to meet the growing need for
coal-fired power within the country.
Whether this diversion is required depends on the mining
industry stepping up exploration and production capacity to
meet a potential rise of 36 Mt/y between 2006 and 2015 from
the ‘crash programme’ alone. Much of this is expected to be
met by lower rank coals mined in Kalimantan and Sumatra.
Total demand for coal could rise from 50–55 Mt/y in 2008 to
220 Mt/y in 2025. Even if coal exports rise only modestly
from around 200–210 Mt/y in 2008 to 236 Mt/y in 2012-13,
and stay level to 2025, coal production would need to increase
to almost 460 Mt/y by 2025, an increase of more than 75% on
estimated 2008 production levels.
It is possible that both demand and exports could grow at a
lower rate, as a manifestation of high oil prices and the global
financial crisis that affected economies across the world in
2008. Demand destruction of electricity and other fuels could
therefore ensue in the Indonesian economy. Energy is heavily
subsidised, with a state budget for 2008 amounting to an
equivalent of US$14 bn to service the subsidies applied to
end-user consumers. Although politically sensitive, a gradual
withdrawal of subsidies over time could lead to a significant
rise in domestic energy prices which will have repercussions
throughout the entire economy. However, a consequence
could be lower taxes, particularly those imposed on coal sales.
Between 2006 and 2010, the government spearheaded a
campaign to build 10,000 MWe of coal-fired power capacity
through the state monopoly PLN. This was an attempt to deal
with the rising shortage of power. There is a likelihood that the
programme will be delayed by 2–3 years. A second phase of
the ‘crash programme’ will see a further 2.6 GWe of
coal-capacity, along with another 7 GWe of non-coal generators
made largely of geothermal, gas and hydro capacity.
Currently, the first phase of the ‘crash programme’ that
focuses on building 10,000 MWe of coal-fired power is
located in and around the centres of populations and
economic activity on the Java-Madura-Bali chain of islands.
In addition, there is interest in minemouth stations burning
local lower rank coals, which are located mainly in Sumatra,
away from the demand centres in Java and Bali where more
than 60% of the population lives. Some 25 projects amounting
to 3100 GWe are located outside Java. Bolstering the network
system with better inter-island connections is therefore
another priority.
Indonesia’s power building programme currently consists
almost entirely of subcritical stations, and none to date have
been of supercritical or ultra-supercritical design, although
plans to construct such plants have been announced.
Indonesia is not formally bound to reduce CO2 emissions, and
achieving the lowest CO2 per kWh is not a priority. However,
although the order book for supercritical plant is small, it
steers Indonesia in the right direction with regards to
minimising CO2 emissions from coal-fired plants.
68
The chief goal for PLN is to build and deliver power projects
with speed, and utilise as much of Indonesia’s plentiful
resources of lower rank coals as possible. Capital costs must
be kept to a minimum, which is why gas-fired generators are
also being pursued. The delays suffered by many power
projects in the 1990s were less to do with the physical
construction of plant, than with issues related to take-off
contracts, disagreements on tariffs, and finance. All these
issues are related to the financial crisis of the time between
IPP project developers and PLN. There seems to be a sense of
greater confidence in the power sector, but Indonesia is
unlikely to adopt or pilot any novel technologies in clean coal
combustion such as CCS without the aid of international
funding.
The impact on the coal industry of delivering more coal while
keeping the export business strong is potentially huge. The
future supply of coal raises concerns regarding how
sustainable any growth in demand and growth in exports can
be, when reserves may
be depleted within 25 years, despite a switch to lower rank,
high moisture coals. If new resources are not brought forward,
then there is a risk that the domestic and/or export markets
will need to compromise. Some export operations may need
to provide some coal for domestic usage, but how much is not
yet certain. At the same time, Indonesian producers are also
considering upgrading lower rank coals and the government
may even promote liquefaction in order to supplement the
dwindling reserves of oil and increasing oil imports. It is
possible domestic market obligations will be required for
fuelling domestic power stations and growing industry needs,
but this requires some degree of certainty amongst the policy
makers. A plausible, albeit unlikely, solution is that Indonesia
continues to export low sulphur, low ash coals to the rest of
Asia at a price premium, while importing cheaper higher
sulphur and higher ash products to blend with its domestic
products. So while the outlook for coal demand seems
optimistic for Indonesia (with some downside risks) the
outlook for coal supply is rather more uncertain. There are
scenarios that could bring about a ‘withdrawal’ or at least a
levelling off of Indonesia’s role in the export market, if the
domestic demand increases successfully to a size equivalent
to today’s export tonnage.
IEA CLEAN COAL CENTRE
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