Interview: Energi Nusa Mandiri pins hope on low calorie coal

By Thomas Sembiring 

PT Energi Nusa Mandiri, the parent company of PT Pesona Khatulistiwa Nusantara (PKN), has silently continued to step forward . Given its low calorific coal reserves, the company continues its innovation to improve the company's added-value and business chains.

Energi Nusa, which focuses on coal business line through PKN, now developing its business structure in order to be more focused and integrated. Through other subsidiary, Mega Energi Khatulistiwa, the company is preparing to develop coal upgrading plant and PLTGU with capacity of 30 MW. Meanwhile, through Sumber Alam Sekurau, the company operates a coal-fired power plant with capacity of 1x7.5 MW in Tanjung Selor, North Kalimantan.

Thomas Robiana Sembiring, Reporter Petromindo/CoalAsia, together with photographer Dasir has a chance to interview Rayendra Pradipta,  Director of Energi Nusa. The interview was aimed at exploring the company's business program in using proven technology to support to develop downstream coal industry that provides value-added to its business. Following is an excerpt of the interview with Rayendra Pradipta:

How is the performance of the company’s coal business in the first quarter this year?

The performance in the first quarter was slightly below than that of the same quarter last year. As you know, there has been gap of coal price compared to the same period last year, in a range of 3.08-10.2 percent. As comparison, the average selling price of our coal in the first quarter this year was around US$17-US$18 per ton, or US$5 lower compared to the average selling price last year of US$4 per ton. Thus, our revenues declined.

In term of production, it was relatively similar with last year.  In the first quarter this year, we produce 650,000 tons of coal, lower than last year of 720,000 tons. The production was lower as we change the contractors as well as bad weather. We have different contractors for different mining assets, Harmoni Panca Utama for Klubir, and Mandiri Indah Lestari, a new contractor, for Sekayan mining.

How is the production plan for Q2? Are there any potential buyers?

In April we have secured buyer for 359,000 tons, thus almost half of the first quarter. We hope to sell around 300,000 tons of coal in May and similar volume in the following months. Thus, we expect to sell 900,000 tons of coal in the second quarter.  It was still below the target of 1.6 million tons for the quarter. That’s why we will boost the production during dry season in June-August.

Are there any new buyers or new markets?

We have just tied up with Thailand buyer. It has actually began in 2018. Thailand is developing cement plants. They need coal with calorie of above GAR 4,200. However, they need coal with GAR 3,100 as an energy source. The Thai company has agreed to buy one vessel (Panamax capacity of 55,000 tons) per month.

Our new potential market is actually China. They are really welcome for our coal with GAR 3,400. Actually, we deliver to smelters there (Thailand) as the off-takers for our coal, therefore, we now send the inventory stock. We know it is difficult, but that is a challenge for us.

What are the main challenges through to the end of this year?

I don’t want to talk about challenges without talking about our downstream (coal) business. Our coal downstream project will start this year, therefore, next year we can generate revenues from this project. This means that we can sell coal at mine-mouth. Given this potential revenues, we expect are more sustainable revenues stream from next year. In addition to operational aspect, the other challenge is about (coal) price. No one can beat this challenge.

In term of coal industry as a whole, how the company sees the industry at present?

This industry cannot separate itself with the international market trend. India is shifting to hydro-power plants, while Africa adopts high DMO (domestic market obligation) level, just like Indonesia. We don’t really understand the China market. Initially, they (China) wants to develop nuclear power plants, but now they are tryying to use coal with GAR 3100.

Instead of worrying international markets, we probably better to focus on domestic market, pushing the industrialization process and developing manufacturing plants as many as possible. There is no other way. I think, as smelters are developed, coal-fired power plants (PLTUs) will also develop.

Do you think the efforts to develop the industrial sector that can absorb domestic coal output  are on track?

The industries absorb low-calorific coal. We know the coal reference price (HBA) does no represent all coal products. We have discussed with the government on how to ensure the low-calorific coal can be economically viable for the government.

As for the coal mining contract of works (PKP2B) such as PKN with GAR of 3100 is equivalent to 13.5 percent for royalty, while other companies obtained 3.5 percent for royalty. The question now is how to make this royalty to be lower. The tax for the products will be applied on its downstream business units.

For instance, we carry out the research and development duty of the government in the Coal Production Profit Sharing (DHPB) in return for lower royalty payment, on condition that we bring in technology in developing the downstream coal industry. We are now in talks with the MEMR to explore this possibility. If this option is accepted by the government, we can eliminate 10 percent of the production costs.

What is the specific coal downstream project being developed by the company?

We have developed mine-mouth power plant project with capacity of 7.5 MW through our subsidiary firm Sumber Alam Sekurau. PLN has absorbed 5.5 MW of the power plant’s output and the remaining electricity is used internally by the company. That is the maximum absorption of PLN.

For this reason, we are producing semi coking coal, which can also be consumed by smelters. So far, the smelters import their coking coal needs. Instead of spending US$12 for freight costs, it is better to take from our barge. Thus, we processed the coal into semi coking coal, but it has residues in the form of liquid and gas. We then process this residue into marine fuel oil and the gas can be used to generate electricity. The electricity can be obtained from PLN. Going forward,  we may not expand business to coal-fired power plants, instead through gas power plants (PLTGU).

How is the planned investment of the company for this year?

We have reported to the National Investment Coordinating Board (BKPM) about our investment plan, which amounting to US$73 million.

How is the construction progress?

This investment will be allocated for an integrated project, consisting of semi coking coal, coal tar and gas power plant. The construction progress has probably reach 60 percent. The project will not without bituminous coal, therefore, we need coal with  GAR 6000.

The PKN’s coal is heated to produce steam and then blending it with coal with GAR 6000 which will turn into semi coking coal. The residues is put in boiler and the remaining becomes coal tar.

How is the coal composition? Where do you get the high-calorific coal supply?

The composition of the low and high calorific coal is about 50:50. Our low calorific coal will be mixed with high calorific coal from elsewhere. We are still in talks with potential sources.

How is the final output of processing 1 million tons of coal?

Of this volume, we can produce 50,000 coal tar, 600,000 semi coking coal and 30 MW of power plant capacity.

When the construction of this semi coking coal processing facility is completed?

God Willing, it will be completed this year. We hope its commissioning process won’t be complicated. This is a project to process coal and turn it into gas to generate electricity. Thus, this facility will opeate 24 hours a day. Hopefully, it could start operating in September this year.

Are there any potential buyers?

The (coking coal) buyers are national smelters as well as China. While the buyer for coal tar is Harita group (also as shareholder). The coal tar can be processed into fuel. We are also in talks with a potential buyer in West Java who wants to process coal tar into asphalt. Meanwhile, the electricity will be sold to PLN by Sumber Alam Sekurau. The contract with PLN has been sealed.

How is the outlook of the company for the next five years?

We have a modest target. We can generate revenues of US$17 million from coal sales per quarter. When the project runs, we may produce 600,000 tons of coking coal. Given the coking coal price, the revenues per year could reach US$170 million.  We will also generate income from selling 13.6 MW of electricity capacity excess power at price of Rp825 per kWh.

Given this promising future, do you have a plan to launch IPO in the next five years?

It depends on the shareholders. Usually, companies launch IPO to generate fresh funds from the public. We will see how shareholders will direct the company’s business. If we can tackle it (financing), we may not need for launching IPO at present.

What is your hope for the regulators?

I think as the holder for the third generation of Coal Concession Contract (PKP2B) with royalty of 13.5 percent for coal with GAR 3,100 and above, you can imagine how we will manage the costs. The cost of goods sold level is already high. Therefore, we discussed with the government over the possibility of the use of R&D fees contained in the DHPB. We hope the government will allow us to use it (funds) as we have already invested in the downstream projects. If this demand is approved, the company can improve its profit margin.

The second expectation is that the government implements the regulation correctly. As a case in point is the DMO (domestic market obligation) policy, which is mandatory for all coal producers. The penalty for those who failed to meet the DMO requirement must also be enforced. But, we know what is happening in the regional areas, a coal producer continue its production although it failed to meet the DMO requirement. This situation prompted companies to transfer quota to other parties at certain condition.

The third expectation is the mandatory use of domestic coal to deliver coal abroad won’t be implemented hastily. We have also see the readiness and capability of domestic coal producers. Since we have shipping business line, the mandatory use of domestic vessel won’t affect our operations in domestic market.

What is your hope for the industry players and general public?

We hope other coal players will develop the coal downstream business.

Editing by Roffie Kurniawan