This document provides an overview of the Indonesian coal industry from 1988 to 2020. It discusses Indonesia's geography, population, and history with coal mining. It then examines the customers, economics, politics, and future outlook for Indonesia's coal industry. Key points include that Indonesia has large coal reserves and the industry is an important part of the economy. Major customers are China and India, but the future is uncertain due to environmental concerns and Indonesia's goal to use more renewable energy.

1.
The
Indonesian
Coal
Industry
Sunrise
to
Sunset:
1988-­2020
Ross
Hilton
ross.hilton@uni.sydney.edu.au

2.
1.
INDONESIAN
BACKGROUND
3
Geography:
3
People:
3
History
4
Conclusion:
4
2.
INDONESIAN
COAL:
5
History:
5
Internal
Use:
6
Reserves:
6
Value
to
Indonesia:
6
Locations:
6
Quality:
7
Conclusion:
7
3.
CUSTOMERS:
8
China:
8
India:
9
Conclusion:
10
4.
POLITICS,
POLITICAL
INTERFERENCE
AND
OWNERSHIP:
11
Conclusion:
11
5.
ECONOMICS:
12
Price:
12
Cost:
12
Extraction
Process:
12
Quality
and
Yield:
13
Transportation:
13
Conclusion:
14
6.
THE
FUTURE:
15
Conclusion:
15

3.
1.
Indonesian
Background
Geography:
Indonesia
comprises
of
17500
islands
straddling
the
Equator,
between
latitudes
11°S
and
6°N,
and
longitudes
95°E
and
141°E.
These
islands
have
a
total
land
mass
of
1,919,440
square
kilometers,
making
Indonesia
the
world's
16th
largest
country.
Only
6000
of
the
islands
are
inhabited,
and
the
largest
are
Java,
Sumatra,
Borneo
(shared
with
Brunei
and
Malaysia),
New
Guinea
(shared
with
Papua
New
Guinea),
and
Sulawesi.
The
average
population
density
is
134
people
per
square
kilometer.
Indonesia
is
located
on
the
edges
of
the
Pacific,
Eurasian,
and
Australian
tectonic
plates
making
it
the
site
of
numerous
volcanoes
and
frequent
earthquakes.
Indonesia
has
at
least
150
active
volcanoes,
including
Krakatoa
and
Tambora,
both
famous
for
their
devastating
eruptions
in
the
19th
century.
Lying
along
the
equator,
Indonesia
has
a
tropical
climate,
with
two
distinct
monsoonal
wet
and
dry
seasons.
Humidity
is
generally
high,
averaging
about
80%.
Temperatures
vary
little
throughout
the
year;
the
average
daily
temperature
range
of
Jakarta
being
26–30
°C.
People:
Indonesia
has
a
population
of
237.6
million,
with
high
population
growth
at
1.9%.
This
population
is
expected
to
grow
to
around
265
million
by
2020
and
306
million
by
2050.
19 July 2010 24 PESD WP# 93
Figure 1 Kalimantan and Sumatra are more favorably located to Asian markets than Australia.
Source: http://www.surftrip.com/image/maps/indonesia-map.jpg

4.
The
population
can
be
divided
into
about
300
ethnic
groups,
each
with
cultural
identities
developed
over
centuries,
and
influenced
by
Indian,
Arabic,
Chinese,
and
European
migration
and
colonialisation,
and
from
ethnic
origins.
The
largest
ethnic
group
is
the
Javanese,
who
comprise
42%
of
the
population,
and
are
politically
and
culturally
dominant.
The
Sundanese,
ethnic
Malays,
and
Madurese
are
the
largest
non-­‐Javanese
groups.
Despite
this
wide
range
of
ethnicity
a
strong
sense
of
Indonesian
nationhood
exists
alongside
strong
regional
identities,
and
society
is
largely
harmonious
Although
there
are
over
740
languages
and
dialects
spoken
within
the
country,
the
official
national
language
is
Bahasa
Indonesian,
a
form
of
Malay
based
on
the
prestige
dialect
of
the
Johor-­‐Riau
Sultanate.
This
somewhat
simplistic
language
had
been
promoted
by
Indonesian
nationalists
in
the
1920s,
and
was
declared
the
official
language
on
the
proclamation
of
independence
in
1945.
Bahasa
Indonesia
is
the
language
of
business,
politics,
national
media,
education,
and
academia.
However
most
Indonesians
speak
at
least
one
of
the
local
languages
and
dialects,
often
as
their
first
language.
History
Indonesia
has
had
a
complex
history,
and
has
only
really
existed
in
its
current
form
since
direct
presidential
elections
were
introduced
in
2004.
Prior
to
this
Indonesia
has
a
history
of
virtual
dictatorships
and
external
religious
and
trade
influences:
2004
–
current:
Direct
Presidential
elections,
regional
autonomy
and
democratic
processes.
1998-­‐2004
Transition
to
current
state.
1968-­‐1998:
Military
led
New
Order
Administration
of
General
Suharto
1949-­‐1968:
Authoritarian
government
of
Sukarno
1800-­‐1949:
Dutch
Colonial
rule
as
the
Dutch
East
Indies.
1600-­‐1800:
Religious/political
influence
from
Arab
traders
1300-­‐1600:
Hindu/political
influence
under
Gadah
Maja.
700-­‐1300:
Srivijaya
naval
kingdom
and
Hindu
influences.
Conclusion:
The
fact
that
democracy
in
Indonesia
has
less
than
a
ten-­‐year
history
means
that
the
nation
and
its
people
are
still
adjusting
to
new
found
freedoms
and
responsibilities.

5.
2.
Indonesian
Coal:
History:
Although
Indonesia
has
a
long
history
of
coal
mining,
the
first
commercial
operations
only
commenced
in
1849,
when
NV
Oost
Borneo
Maatschappij
began
mining
in
Pengaron,
East
Kalimantan.
This
was
followed
by
exploiting
activity
in
Ombilin,
Sawah
Lunto,
and
Bukit
Asam
in
South
Sumatra.
The
discovery
of
oil
in
East
Java
in
1884,
which
was
cheaper
and
easier
to
move
by
pipe
from
remote
locations,
reduced
interest
in
coal
mining.
By
1924
Indonesia
was
producing
over
60,000
barrels
of
oil
per
day,
and
by
the
start
of
world
War
2
Indonesia
was
the
largest
supplier
of
oil
in
the
Far
East,
producing
180,000
barrels
a
day,
and
by
1960
this
had
risen
to
400,000
barrels
a
day.
The
coal
mining
operations
on
the
other
hand
remained
small
scale,
peaking
at
about
2
million
tonnes
in
1941,
and
mainly
supplied
the
shipping
industry.
As
ships
moved
to
oil
fired
engines
the
industry
declined
to
almost
nothing,
producing
just
200,000
tonnes
of
coal
by
1972.
The
political
interference
of
the
Sukarno
government
further
restricted
mining
by
discouraging
foreign
investment
(and
therefore
limiting
access
to
mining
technology).
This
changed
with
the
new
US
influenced
Soeharto
government,
who
introduced
the
Foreign
Investment
Act
of
1967
and
the
Mining
act
of
1967.
By
1973
oil
embargo
resulting
from
the
Yom
Kippur
war
tripled
oil
prices,
and
reignited
interest
in
coal
as
a
fuel,
especial
in
the
booming
Japanese
and
Taiwanese
nations
who
were
worried
about
reliance
on
oil.
This
relaxing
of
foreign
investment
and
interest
in
an
alternative
led
to
a
slow
but
steady
increase
in
coal
mining
activity
in
Indonesia,
initially
through
Rio
Tinto
Zinc
and
a
subsidiary
of
the
Shell
company.
Interest
in
Indonesian
coal
continued
slowly
through
the
1980s
and
by
1983
five
companies
had
obtained
rights
to
20
million
tonnes
of
coal
deposits.
These
mining
activities
were
licensed
under
two
agreements,
contracts
of
work
(CCOW)
between
the
Government
of
Indonesia
and
locally
registered
foreign
companies,
and
Kuasa
Pertambangan
(KP)
or
contracts
with
local
investors
that
could
be
issued
at
Regency,
Province
or
central
government
level.
By
1990
the
industry
was
enjoying
30%
growth
a
year,
and
by
1995
Indonesia
was
exporting
over
30
million
tonnes
of
coal
a
year.
By
the
end
of
the
decade
this
had
risen
to
almost
55
million
tones
a
year
as
they
supplied
the
booming
Japanese
economy
with
energy.

6. Between
2000
and
2009
domestic
investors
gained
majority
ownership
of
Indonesia’s
coal
producers
with
the
support
of
the
government
of
Indonesia,
and
Provincial
and
Regional
governments
began
to
extend
their
influence
and
control
on
the
mining
industry.
The
local
ownership
and
increased
regulation
slowed
growth
to
12%
per
year,
but
despite
this
Indonesia
became
the
worlds
largest
exporter
of
steaming
coal
in
2005,
with
117
million
tonnes.
By
2009
this
had
risen
to
176
million
tonnes.
Coal
mining
operations
grew
to
keep
up
with
this
expert
demand.
From
less
than
5
million
tones
in
1988,
mining
grew
by
66
times
to
over
300
million
tonnes
within
less
than
25
years.
• Extracted
0.2
million
tonnes
in
1972
• Extracted
4.43
million
tonnes
in
1988
• Extracted
22.5
million
tonnes
in
1992
• Extracted
56
million
tonnes
in
2000
• Extracted
151.6
million
tonnes
in
2005
• Extracted
217
million
tonnes
in
2007
• Extracted
330
million
tonnes
in
2012
Internal
Use:
Only
82
million
tonnes
of
that
coal
is
used
internally,
about
24%.
The
rest
is
exported.
The
state
owned
power
generator
PLN
use
about
50
million
tonnes
of
the
locally
used
coal.
Reserves:
As
of
2012
Indonesia
has
known
Coal
Reserves
of
around
104
billion
tonnes,
with
some
22
billion
tonnes
of
proven
reserves
Value
to
Indonesia:
The
value
of
that
coal
to
Indonesia
• Rp
5.8
trillion
in
2007
• Rp
20.8
trillion
in
2012
It
is
interesting
to
note
that
although
coal
extraction
increased
by
only
52%,
in
five
years,
the
coal
revenue
went
up
by
358%.
Locations:
Indonesian
coal
deposits
are
widely
distributed,
but
the
largest
fields
are
found
on
the
Islands
of
Sumatra
and
Kalimantan.
52,44 M T
51,92 M T
0,014 M T
0,23 M T
0,002 M T
0,15 M T
RESOURCES
104,76 BILLION TON
RESERVE
20,99 BILLION TON
11,54 M T
7,17 M T
Coal Resources and Reserves
DESCRIPTION REALIZATION PLAN
2006 2007 2008 2009

7.
Sumatra
has
known
reserves
of
around
64.00
billion
tonnes,
located
in
three
main
coal
basins:
• Central
Sumatra
Basin
• South
Sumatra
Basin
• Bengkulu
Basin
However
only
10%
of
the
Sumatran
deposits
are
winnable
for
three
reasons:
• The
yield
rates
are
too
low
to
make
mining
economic
• The
quality
of
the
coal
is
low
• There
is
limited
transport
infrastructure
to
move
the
coal
to
port.
Kalimantan
has
known
reserves
of
around
60.00
billion
tonnes,
located
in
four
main
coal
basins:
• Tarakan
Basin
• Berau
Basin
• Kutai
Basin
• Barito
Basin
About
35%
of
the
Kalimantan
reserves
are
winnable.
There
are
also
small
reserves
in:
• Sulawaesi
(0.23b/t)
• Maluko
(0.002
b/t)
• Palua
(0.15
b/t)
• Java
(Jatibarnag
Basin)
(0.01
b/t)
Quality:
Indonesian
coal
is
predominantly
medium
quality
steaming
coal,
suitable
for
power
generation:
1%
Very
high
quality
(>7100
Kcal/Kg)
13%
High
quality
(6100
-­‐
7100
Kcal/Kg)
62%
Medium
quality
(5100-­‐6100
Kcal/Kg)
24%
Low
quality
(<5100
Kcal/Kg)
Conclusion:
Indonesia
is
now
a
world
leader
in
the
supply
of
steaming
coal.

8.
3.
Customers:
China:
China
has
170
billion
tonnes
of
coal,
and
is
home
to
the
second
largest
reserves
in
the
world,
with
about
19%
of
the
entire
global
reserves.
Until
2009
it
was
a
net
exporter
of
coal,
and
coal
is
the
key
to
its
economy,
providing
77%
of
its
energy
requirement.
China
now
imports
around
180
million
tonnes
of
coal
a
year,
despite
having
its
own
huge
resources.
The
Chinese
coal
resources
are
located
in
the
western
and
northern
inland
provinces.
The
two
provinces
of
Shanxi
and
Shaanxi
and
the
autonomous
region
of
Inner
Mongolia
alone
account
for
nearly
70
percent
of
China’s
proven
coal
reserves
and
more
than
half
of
national
coal
output.
However
the
coal
consuming
centers
are
located
along
China’s
heavily
populated
eastern
and
southern
coastline,
and
coal
must
be
transported
long
distances
via
railways,
roads,
inland
rivers
and
via
coastal
shipping
from
the
west
to
the
east
and
from
the
north
to
the
south.
The
privatisation
of
the
ports
in
the
more
relaxed
Eastern
and
Southern
coastal
areas
in
the
1990s
allowed
the
development
of
high
capacity
modern
ports
capable
of
handling
high
volumes
of
imported
coal.
In
contrast,
the
more
restrictive
government
run
Ministry
of
Railways
refused
to
allow
foreign
investment
in
new
railway
lines
and
infrastructure,
especially
in
a
new
southbound
railway
lines.
As
early
as
1995
China
had
planned
to
open
up
the
railways
to
foreign
investment
and
increase
track
length
by
50%
from
50,000Km
to
70,000
Km
by
the
year
200.
The
plan
included
building
three
railways
linking
Shanxi,
Shaanxi
and
other
coal
production
centres
with
east
coast
ports.
(These
still
have
not
been
built).
Han
Zhubin,
the
Chinese
Minister
for
Railways
1992-­‐1998,
was
a
political
appointment
with
no
college
education.
His
power
came
from
being
one
of
party
leader
Jiang
Zemin’s
“Shanghai
Gang”.
Although
Zhubin
decided
to
issue
Railway
Construction
Bonds
in
1995
these
raised
only
moderate
funds
for
expansion.
In
2007
these
bonds
had
only
raised
60
billion
Yuan.
It
was
not
until
the
late
2000’s
that
substantial
expansion
funds
became
available
with
the
release
in
2008/9
raised
a
further
100
billion
Yuan
($14.6
billion)
worth
of
Bonds.
By
2010
they
had
raised
700
billion
Yuan.
This
expansion
funding
came
too
late
and
coal
sent
from
local
mines
by
railway
has
fallen
from
70%
of
total
usage
to
below
50%
in
the
last
30
years,
whilst
imported
coal
has
gone
from
zero
to
around
40%
of
total
usage.
The
existing
lines
are
running
over
capacity
with
the
Daqin
Railway
line
transporting
440
million
tonnes
of
coal
in

9. 2011,
4.4
times
the
original
designed
capacity.
This
makes
the
lines
and
the
rolling
stock
unreliable,
and
the
other
lines
are
also
struggling
to
keep
up
with
demand.
The
Houyue
railway
transported
184.13
million
tonnes
of
coal,
an
increase
of
3%
or
5.39
million
tonnes
from
a
year
ago,
and
the
Shuohuang
Railway
hauled
177
million
tonnes
of
coal
in
2011
and
had
a
target
for
2012
of
191
million
tonnes.
The
unreliability
of
the
overworked
lines
is
further
affected
by
the
weather,
and
bad
winters
can
severely
impact
rail
delivery.
The
result
is
that
local
coal
cannot
be
transported
to
the
user
regions
economically,
whereas
Indonesian
coal
can
be
shipped
straight
into
the
Chinese
ports.
The
completion
of
the
Shanxi
and
Shaanxi
railways
will
alleviate
some
of
these
problems.
However,
the
lack
of
investment
that
created
the
transportation
bottleneck
has
also
impacted
the
Chinese
mining
industry.
Many
of
the
mines
are
small,
and
are
owned
by
township
and
village
enterprises.
They
are
labour
intensive
and
low
productivity
underground
operations,
without
the
ease
of
open
cut
or
the
high
technology
of
longwall
seam
mining.
Where
the
resources
are
suited
to
open
cut,
in
Inner
Mongolia,
there
is
social
resistance
to
the
land
seizure
activities
required
for
mine
expansion.
Given
the
above
problems
China
has
little
option
but
to
continue
importing
coal
in
the
foreseeable
future.
India:
India
has
236
billion
tonnes
of
coal,
with
114
billion
proven
reserves,
about
6%
of
global
reserves.
Despite
these
reserves,
India
is
a
major
importer
of
Indonesian
coal.
In
fact
Indonesia
supplies
more
coal
to
India
than
it
does
to
China.
The
reasons
are
three
fold:
1. India
has
similar
but
less
pronounced
problems
with
transport
from
the
mines
to
the
consumers
as
China
has.
Although
India
has
a
well
developed
railway
network,
transporting
the
coal
from
the
mines
to
the
population
centers
adds
greatly
to
the
cost
and
puts
tremendous
strain
on
India’s
struggling
railway
system.
2. India
doesn’t
currently
have
the
mining
capacity
to
supply
domestic
demand
especially
as
the
Indian
coal
is
deep
underground
and
requires
complex
mining
technology
to
extract
it.
3. Indonesia
coal,
because
it
is
easy
(and
cheap)
to
win
and
is
mined
close
to
the
port,
is
far
cheaper.
Therefore
India
is
buying
cheap
coal
to
supplement
local
demand
and
subsidise
the
economy.
However
Indonesia
is
unhappy
about
selling
cheap
coal
to
subsidise
India,
and
in
2009
introduced
the
Mining
Act,
which
stipulates
that
coal
must
be
sold
at
the

10. international
market
rate
(The
Newcastle
Australia
Power
Station
rate).
This
has
impacted
sales
to
India,
where
power
stations
had
forward
purchased
coal.
Conclusion:
For
technical
and
commercial
reasons,
Indonesia
has
become
a
major
supplier
of
coal
to
nations
with
larger
coal
deposits.

11.
4.
Politics,
Political
interference
and
ownership:
In
2009
the
Indonesia
Government
introduced
the
Mining
Law
(Law
No.4
of
2009
on
Mineral
and
Coal
Mining
(Law
No.
4/2009)
This
covered
a
number
of
areas,
but
in
typical
Indonesian
legal
fashion,
it
only
did
so
at
a
high
level
and
was
open
to
wide
interpretation.
It
introduced
a
new
mining
licence
system
that
replaced
the
mining
authorizations
(Kuasa
Pertambangan,
or
KPs)
that
previously
were
only
available
to
wholly
owned
Indonesian
companies
as
well
as
contracts
of
work
(CoWs)
and
coal
contracts
of
work
(CCoWs).
This
(in
theory)
opened
up
the
Indonesian
mining
industry
to
foreign
ownership.
There
was
a
resulting
boom
in
interest
in
Indonesian
coal
mining.
However,
subsequent
regulation
No.23/2010
introduced
in
2010
clarified
this
ownership,
with
a
minimum
20%
level
of
domestic
ownership
required
through
divestment,
effective
5
years
after
the
commencement
of
commercial
production.
Even
worse,
the
procedure
that
must
be
followed
to
divest
shares
so
that
20%
local
ownership
could
be
achieved
is
complex.
The
divestment
shares
must
first
be
offered
to
the
central
and
the
relevant
regional
government.
If
the
central
government
or
the
regional
government
declines
such
offer,
the
divestment
shares
must
then
be
offered
to
state
owned
and
regional
entities
and
if
such
entities
decline,
then
offered
to
private
entities.
And
in
2012
with
the
new
GR24/2012
the
Indonesian
government
again
changed
the
law,
now
stipulation
that
foreign
owned
mining
operations
had
to
divest
51%
interest
by
the
10th
year
of
commercial
production.
These
legal
revisions
introduce
two
problems
for
mining:
•
Loss
of
controlling
interest
•
Lack
of
confidence
in
legislative
stability
Conclusion:
New
legislation
and
growing
national
identity
will
result
in
a
loss
in
investment
and
more
difficult
access
to
technology.

12.
5.
Economics:
Price:
The
prices
in
Asia
for
steaming/thermal
coal
are
benchmarked
against
Power
Station
prices
at
Newcastle
Port,
Australia.
Prior
to
the
Mining
Act
of
2009
Indonesia
allowed
its
miners
to
sell
at
prices
well
below
this
standard.
This
was
possible
because
it
costs
Indonesian
large
miners
between
$30
and
$55
to
extract
a
tonne
of
coal
and
transport
it
to
a
port.
This
makes
it
the
cheapest
steaming
coal
in
the
world,
and
only
some
South
American
mines
can
match
the
price.
This
is
why
Indonesia
is
the
largest
coal
exporter
in
the
world.
It
is
about
price.
It
costs
Australian
miners
at
least
$80
to
extract
and
deliver
to
port
a
tonne
of
coal.
Chinas
domestic
price
of
coal
is
around
$98.5
per
tonne
of
coal,
due
to
difficulties
in
extraction
and
transportation
Cost:
The
three
determinants
of
cost
in
coal
mining
are
extraction
process,
quality
and
yield,
and
transportation.
Extraction
Process:
Coal
extraction
can
be
by
either
open
cut
or
underground
working.
In
open
cut
mining
an
open
quarry
operation
is
conducted,
utilising
a
large
hole
in
the
ground,
usually
terraced,
with
extraction
carried
out
by
blasting
and
loading
the
resulting
material
onto
dump
trucks.
It
is
simple
and
cheap,
but
uses
large
areas
of
land.
Underground
extraction
involves
subterranean
tunneling
using
complex
drilling
machines
and
long
wall
mining
equipment,
and
extraction
via
lengthy
conveyor
systems.
By
its
very
nature
underground
extraction
is
only
suited
to
high
yield
deposits,
with
the
underground
tunnels
targeting
high
yield
seams.
Open
cut
on
the
other
hand
is
more
suited
to
low
yield
deposits,
removing
entire
contents
and
then
extracting
the
coal
using
washing
technology
such
as
floatation
tanks
and
hydrocyclones.
Other
than
the
cost
differential
between
underground
and
open
cut
workings
the
technology
costs
are
reasonably
constant.
Both
processes
are
machine
and
technology
reliant
and
are
therefore
relatively
unaffected
by
human
resource
costs.

13. Quality
and
Yield:
Coal
quality
(measured
in
calorific
content)
and
yield
vary
even
across
different
areas
in
the
same
mine.
The
most
profitable
mines
have
the
height
yield
of
the
highest
calorific
content
coal
per
tonne
of
extracted
material.
An
average
yield
for
an
open
cut
mine
would
be
about
1:1,
or
for
every
tone
of
coal
extracted
there
is
a
tonne
of
waste.
A
longwall
operation
has
a
far
better
recovery
yield
of
about
4:1,
recovering
four
tonnes
of
coal
for
every
tonne
of
waste,
due
to
the
targeted
nature
of
following
a
coal
seam.
However
the
coal
needs
to
be
separated
from
the
waste
(usually
shale)
in
all
but
the
highest
yield
deposits.
This
process,
called
washing,
is
carried
out
as
close
to
the
extraction
site
as
possible,
to
avoid
shipping
waste
material.
The
need
to
wash
even
all
but
the
best
yielding
underground
material
has
given
open
cut
mining
a
distinct
advantage
over
the
last
25
years.
The
calorific
value
of
coal
is
an
important
trade
off
between
quantity
and
quality.
The
highest
quality,
known
as
Antracite,
has
a
calorific
value
of
around
8,000
kcal/kg,
Bituminous
coal
has
around
7000,
Sub
Bituminous
around
5000
and
Lignite
around
4000.
High
calorific
coals
like
Swansea
Anthracite
were
specifically
mined
in
the
Victorian
era
for
the
Royal
Navy
due
to
its
high
energy
per
tonne
of
coal
on
the
ship.
It
was
also
valued
for
its
smokeless
properties,
both
from
a
naval
perspective
and
after
the
London
smog
of
1952
for
its
environmental
properties.
Modern
coal
fired
power
stations
are
far
less
fussy
about
the
calorific
value
of
the
coal
they
consume,
and
run
with
a
thermal
efficiency
of
around
35%,
requiring
around
0.4Kg
of
Bituminous
coal
to
produce
1Kw/h
of
energy.
A
typical
Australian
thermal
coal
contains
6,080
kcal/kg
of
usable
energy,
Transportation:
Transport
to
a
port,
and
shipping
costs
to
port
of
destination
are
proving
to
be
the
real
cost
determinants
of
coal
mining.
The
tonnage
and
volumes
are
high,
and
road
transport
is
prohibitively
expensive.
Only
rail
and
ship/barge
transportation
can
prove
cost
effective.
In
Australia
where
the
coal
is
transported
via
rail
the
transport
costs
account
for
around
25%
of
the
cost
of
a
tonne
of
coal,
compared
to
labour
costs
of
22%
and
operational
costs
of
21%.
At
$80/tonne
this
would
mean
around
$20
per
tonne
just
for
transport
to
the
port.
Rail
is
also
expensive
and
difficult
to
establish,
involving
engineering
feats
such
as
bridges,
cuttings
and
tunnels,
and
is
subject
to
complexities
of
government
and
labour
control.
Indeed
it
is
more
a
factor
of
the
establishment
and
investment
in
the
rail
network
than
the
actually
running
costs
that
provide
the
real
advantages.

14.
The
reason
behind
the
cost
effectiveness
and
success
of
the
Kalimantan
coal
basins
therefore
relates
to
simple
factors.
Easy
open
cut
mining
alongside
the
extensive
river
networks
that
traverse
the
tropical
rain
forests
and
swamps
allow
the
coal
to
be
shipped
by
barge
to
one
of
23
coal
loading
terminals,
many
of
them
floating.
Eight
of
those
terminals
are
in
South
Kalimantan,
and
15
are
in
East
Kalimantan.
There
are
a
further
29
smaller
transition
or
temporary
coal
loading
facilities
operational
in
Kalimantan.
By
comparison
there
are
only
5
terminals
in
Java
and
8
in
Sumatra.
These
rivers
provide
free
and
prebuilt
transport
networks
out
to
the
open
ocean.
Conclusion:
Indonesia
currently
has
a
strong
competitive
advantage
though
low
cost
open
cut
coak
mining
operations
close
to
low
cost
transport
facilities
(rivers).

15.
6.
The
future:
1. The
US
is
switching
to
shale
gas
energy.
This
has
two
effects:
a. Cheaper
energy
costs
and
high
unemployment
are
reducing
the
costs
of
manufacture
in
the
USA,
whereas
the
revers
in
happening
in
China.
Companies
are
now
starting
to
pull
back
from
China
manufacture
to
local
production.
(Apple
just
announced
that
some
of
its
products
will
now
be
manufacture
in
the
USA).
b. The
surplus
coal
from
the
switch
to
shale
gas
will
be
sold
cheaply
on
the
international
market,
competing
against
Indonesian
coal.
2. China
is
fixing
its
railway
problems.
China
will
strive
to
expand
rail
lines
from
Shanxi,
Shaanxi
and
western
Inner
Mongolia
to
Caofeidian
Port,
from
central
and
southern
Shanxi
to
Shandong
coastal
ports,
etc.
and
build
new
lines
from
Ordos
and
Shaanxi
to
central
China
like
Hubei,
Hunan
and
Jiangxi.
This
will
lift
local
carrying
capacity
to
3
billion
tonnes
by
2015.
This
will
greatly
reduce
the
cost
of
local
coal.
3. By
2015-­‐5
new
streamlined
and
cost
efficient
coal
mines
in
the
USA,
Australia,
Russia,
African
and
South
America
will
come
on
stream.
4. By
2018
at
current
extraction
rates,
the
easy
to
win
coal
in
the
Balikpapan
region
of
Indonesia
will
have
become
exhausted.
The
increased
transport
and/or
winning
costs
of
further
stocks
will
remove
the
price
advantage
that
Indonesia
currently
holds.
Conclusion:
It
is
therefore
hard
not
to
conclude
that
by
2020
the
Indonesia
coal
boom
will
be
over.