ICMA urges Indonesia Power to source coal from legitimate sources

Indonesian Coal Mining Association (ICMA), a grouping of Indonesian coal producers that are responsible for 90 percent of the country?s coal output, urges PLN?s unit PT. Indonesia Power (IP) not to buy its coal requirement for 3,400 MW Suralaya power plant from illegitimate sources despite lower price they offer.

?IP should not just scouting for lowest price coal without considering how these suppliers get their coal supplies and the way they operate their mines. But instead Indonesia Power must first make sure that the supplies come from proper suppliers which endorse good mining practice and paying royalty to the government,? said ICMA chairman Jeffrey Muljono on Sunday.

IP is holding a competitive bidding to procure 5 million tons of coal per year for three years starting 2006 to replace existing contracts, which will expire this year. The company has picked 5 little-known coal suppliers which offer lowest price, excluding established bidders such as East Kalimantan miners PT.Kideco Jaya Agung and PT.Berau Coal which supplied Suralaya that will expire this year. Each bidder will supply 1 MTPA.

The five companies offer coal prices on par or below IP?s estimated price of Rp. 279,500 (US$28) per ton with the calorific value of 5,100 Kcal/kg. It?s not immediately clear whether the price is FOB or CIF.

Jeffrey suspected that the five bidders get coal from illegitimate sources. ?Illegitimate miners only mine the coal on the surface with low stripping ratio. They are actually not miners but only rouge traders whose only focus is to get quick cash and, not reserves optimization,? he said. ?IP should not endorse that kind of suppliers.? He also expressed doubt if the suppliers are operating their own mines.

He said the price the short-listed suppliers offer is too low by industry?s current price. ?They would not be offering that kind of price if the coal come from legitimate source,? he said.

Illegal mining has ben rampant in Indonesia, especially in coal-rich South Kalimantan province. Sources estimated that the province is extracting at least 10 MTPA of illegal coal. The miners are operating without paying royalties and reclamation fund, mining at low stripping ratio and even operating at legitimate miners? concession areas. Illegal miners in South Kalimantan arereportedly backed by authorities.

Jeffrey also criticizes the way Indonesia Power holds the bidding. ?If a miner wants to bid in TaiPower?s pre-qualification tender, it must have proven track record of being able to deliver 1MTPA of coal per year and must prove that the mine(s) where the coal is sourced applies good mining practice. Indonesia Power, on the other hand, only inspects the bidders when they are already declared winners,? he said.

Indonesia Power official earlier told Petromindo.Com that it is currently inspect the capabilities of the five suppliers, namely PT Risna Karya, PT Natuna Energi, PT Kasih Industri, PT Central Korporindo, and PT Oktasan. If IP finds some of the bidders are not capable to deliver the expected tonnage, it will move to the other failed bidders that offering higher price. (alex)