Interview: Mifa seeks to boost coal production

By Thomas Sembiring

Coal firm PT Mifa Bersaudara, a low-rank coal producer in Aceh Barat Regency, Aceh Province, is seeking to boost coal production volume next year and the following year to reach what it described as “optimum” production level to help ensure better returns given the relatively weaker price of its 3,400 kcal/kg coal due to limited market.

The company has also been making preparations and discussions with potential partners to develop coal upgrading plants to help expand the market, particularly at home, for its low calorific value (CV) coal.

The expansion plans are being implemented amid industry challenges marked among others by the current declining trend in the price coal, and regulatory challenges, which have pushed miners to adopt efficiency measures to survive.

Mifa is part of IDX-listed integrated coal mining company PT ABM Investama Tbk, which through subsidiary PT Reswara Minergi Hartama acquired in 2011 PT Media Djaya Bersama, the owner of Mifa and another Aceh-based coal firm PT Bara Energi Lestari (BEL).  Mifa started coal production in 2014, and has since gradually increased production to reach 5 million tons last year, and is targeted to further increase to 8 million tons this year.     

Petromindo.com’s Reporter Thomas Sembiring and Photographer Mudasir recently interviewed Mifa’s President Director Ricky Nelson about the company’s operating performance this year, business strategy and expansion plans.  Following are the excerpts of the interview.

Question: When did you assume the top post at Mifa?  What are the expectations of the shareholders?

I was appointed (into the post) at a shareholders meeting in early 2019.   Changes were made at the time so as to push productivity and efficiency.  It was expected that decision making process would not consume much lengthy time.  The big hope is to realize the long-term plan since we started the Aceh project.  Operation and productivity is the main thing.

We have long-term plan in Aceh.  With coal reserves of more than 200 million tons at Mifa and BEL, we must optimize this to help ensure economical and efficient operations.  If we run production rate of 10 million tons per year, it (the mine life) would be about 20 years.  We (Mifa) want to have production level of 10 million-12 million tons next year, and to reach the optimum production level of about 12 million-15 million tons (per year), in the following year.

Initially, the target was to reach the optimum production level within five years (since starting production).  But fate dictates differently, we would only reach around 8 million tons this year.

What is the company’s plan for this year?  What is the production and sales volume target?

Mifa this year is targeted to produce around 8 million tons, which is higher than realized coal output of 5 million tons last year.  Hopefully, this target can be realized.  Gradually, Mifa will continue to optimize its infrastructure capacity to further increase production (to reach the optimum level).

What about performance in the first half of this year?

Thank God it’s good.  Production (in the January-June 2019 period) reached nearly half of the full-year target.  Our production capacity is being increased gradually.  At the beginning of the year it (production capacity) was 5 million tons.  By mid-year it was already 7 million tons, and in the third quarter the capacity increased to 8 million tons.  

In summary, in the first semester our coal production reached nearly 4 million tons.  It was supposed to reach 4 million tons, but there was bad weather in June, causing us to lose about 30 percent of operating time.

What about Mifa’s coal market?  Where do you sell your coal?

Since the beginning, Mifa has been exporting coal primarily to India.  There are small volumes exported to China, Thailand and Vietnam.  Mifa’s coal is quite specific.  With calorific value (CV) of 3,400 kcal/kg, the market is limited.  The market is still developing.   Coal-fired power plants currently in operation (in Indonesia) have yet to utilize the 3,400 coal as a single product.  The coal is blended with higher CV coal to produce coal with CV of around 4,000 kcal/kg. 

Of the total sales volume of nearly 4 million tons during the first half of this year, about 80 percent went to India.  There are new markets including Vietnam and Thailand, accounting for only about 3 percent of total sales.

Do you see Vietnam and Thai as promising markets?

It can be said so because geographically, these markets are relatively close.  We’re also proud because our production capacity has continued to increase gradually.  This kind of production stability is seen as positive by buyers who considers sustainability of supply as important.

What about challenges and opportunities during the first half?  What’s your evaluation?

The first challenge is of course price.  But this is given.  We really felt the impact of the declining price trend.  Last year the price (of low CV coal) averaged at US$24 per ton.  From early this year to June the price continued to decline.  The price for 3,400 kcal/kg coal currently hovers at around $20.8 per ton.   As such, the company has to take efficiency measures in a bid to lower production costs. 

We have also improved synergy of operation, increasing efficiency at the coal chain starting from mining, crushing, hauling to the port.  At every points of the planning process, we want it to be accurate.  We really pushed the synergy of the operation chain in the first semester because with the current low price environment, we must be really smart.

Another challenge was the weather factor, particularly in the Indian Ocean.  Another factor was the Ramadhan and Idul Fitri celebrations (during the first semester).  Of course, our performance during this festive period couldn’t be the same as during normal days.  However, operationally, it has been generally smooth and was relatively in line with target.

In a bid to increase production, Mifa continues to make evaluation and improvement of the production chain particularly in the health and safety aspects.  We don’t want to have higher production at the expense of health and safety aspects.

What about operational plans in the remaining period of the year?

We maintain our (2019) production target.  Hopefully, we can realize about 98 percent of (the full-year) target.  The lingering uncertainty factor is weather condition.

Based on historical data from 2014, we know that in the month of August there would be about 10 percent of operational days that we can’t operate due to bad weather.  September is good.  The operational days will be reduced again in October and December.  Hopefully, we can manage it.  During bad weather we have to suspend operations in the sea, but after the weather improves we have to work harder than average to compensate for the lost time.

What about efforts to increase sales in the domestic market?  How does the company see this?

We have made efforts during the past two years; making offers and communications.  We held formal meetings with potential buyers.  We have manage to maintain our customer, Lafarge Cement Indonesia (PT Semen Indonesia Group) in Aceh.

We have also supplied coal to the PLTU Nagan Raya (coal-fired power plant) located near our mine and have built good communications.  From the initial coal supply volume of 10,000 tons (per month), gradually it (the power plant) increased its coal demand from us to reach 20,000 tons as per July.   According to a study, they (the power plant) can optimize the consumption of Mifa’s coal to reach 50,000 tons per month, which represents about 40 percent of the plant’s total coal consumption.

The PLTU Nagan Raya power plant is currently being expanded through the development unit 3 and 4, which are expected to start commercial operations within the next three years.  The power plant operator has assured that it will not build a port to get coal supply from outside (Aceh), but will absorb coal from nearby mines, especially as proven coal reserves in West Aceh are estimated to reach 1 billion tons.

Lastly, we’re also planning to enter the downstream business by developing coal upgrading plants to reduce the water content of our coal and increase its calorific value.   We’re planning to cooperate with other companies.

In 2017, our coal was sent to Pertamina (state-owned oil and gas firm) and Pupuk Iskandar Muda (PIM, a fertilizer company) for possible use by the two companies.  At the time PIM needed additional energy supply for its fertilizer plant.  The coal has been tested in Europe.  Their technology is quite suitable to our coal.  Going forward this could be quite prospective.   We have conducted several meetings with the companies.

Inalum (state-owned aluminium maker) has also looked into the possibility of long-term coal supply.  And the PLN (state-owned electricity firm) has also conducted technical research of our coal in Japan, testing it with their technology (for possible use of the coal at PLN’s power plants).  We have also conducted a number of tests with Seman Padang (cement maker in West Sumatra) via a third party.

So Mifa will become supplier of the coal when this coal upgrading plant is realized?

The coal upgrading project will be located at Mifa (mine site).  Coal coming out from Mifa will in the future have higher calorie.  This will be a long-term business cooperation (with partners).

Looking at the various coal upgrading prospects, when will they be realized?

The planned project with Semen Padang will be ahead.  The pilot (coal upgrading) project has been installed at (Semen Padang’s) site.  Once it (the pilot project) is successful, the larger plant will be set up at our site.   They (Semen Padang) want to also invest (in the coal upgrading project) to also obtain gains from the coal upgrading project.  

So this project is realistic enough to be implemented within the next three years?

Yes.  Actually, the one with Semen Padang should be implemented sooner.

How much investment will be required to realize the planned higher production level?  

Direct investment for infrastructure including for (hauling) road improvement is around US$20 million.  To support the planned higher production level, we must ensure that the road condition is safe despite higher traffic.  The required funds will come from banks via our parent entity.  

How does the company see the industry challenges toward the end of the year?  What are your expectations from the regulator?

The main challenge until the end of the year is related to efforts in optimizing production level.  Our challenge is sustainability of operation.  A loss of one day of operating time will have far more serious impact this year with production target of eight million tons, compared to last year when production target was 5 million tons.  This is important because we have 24-hour operation. 

In our mining operation there are also expectations from various parties including our partners, local communities and local government.  Some in the public may perceive that increasing production translates into more profit.  But actually this is part of our efforts to cope with the declining trend in coal price.  This is what we’re trying to communicate via the media and other outlets.

The challenges for the coal industry going forward will be tougher.  The trade war between the US and China will slowdown global economic growth, which will of course also slows growth in the energy sector.  This will in turn lower demand for coal, which is still the main source of energy in the world.   But we’re still optimistic because of our commitment and the prime services we provide to customers both at home and overseas.  We hope coal price to improve.

There are also regulatory challenges ranging from domestic market obligation (DMO) policy to price cap of coal sold to PLN (state electricity firm) and from investment uncertainty to synchronization between central and regional government policies.  These are major challenges.   We hope that regulations would be able to accommodate all interests in a sense that the central and local government could get better (revenue) contribution, and the welfare of the local community also improves.  All these can only be realized if companies or investors can operate smoothly.

Coal or the mining industry must be properly managed to provide optimum benefits to all parties.  As such, the rule of the game must be made as perfect as possible.

Editing by Reiner Simanjuntak