Indonesia coal production capacity growth hindered by lack of foreign investment

Indonesia is predicted only to be able to push coal production from 98 million tons in 2001 to approximately 112 million tons in 2004 without the influx of foreign investment, according to a company?s executive.

?Major coal mining firms production are reaching limits of current infrastructure. Incremental expansion in 2002 and 2003 are 2 million tons each for Adaro Indonesia and Kaltim Prima Coal and 1.5 million tons each for Arutmin Indonesia and Kideco Jaya Agung. Another production addition will be coming from the development of new small mines, close to the big rivers in Kalimantan,? said Kenneth Farrell, president director of South Kalimantan based coal mining firm PT. Arutmin Indonesia in a conference organized by Coaltrans in Bali this week.

Farrell said that several new local companies such as Gunung Bayan Pratama, Perkasa Inakakata, Kalimantan Citrabara and Marunda Graha Mineral have new projects underway, all of which will be able to produce 6 million tons of bituminous coal combined by 2004.

According to Farrell, following the devolvement of political power from the central government to local governments, the industry has become exposed to greater uncertainties and sovereign risk that had deterred further capital investment by foreign mining houses and investors.

?No further foreign investment of significance is expected until sovereign risk of investing in Indonesia is reduced. This will mean that further growth in output will be modest and based on domestic capital,? he said.

He added that in the long term, the future of the Kalimantan coal industry growth will depend on the development of coal resources that are located inland and far from existing infrastructure. Most of Indonesia?s coal productions come from East and Southern part of East Kalimantan. Those resources are located in excess of 500 kilometers distances by river transport or in some cases are not close to navigable rivers.

To achieve economic development of these resources, new rail infrastructure will be required to transport coal to the coast. Such infrastructure development is beyond the capacity of mining companies and will require government involvement and most likely foreign investment on an intergovernmental basis, he said. (alex)