INTERVIEW: RI faces tougher competition from China in world coal market

Indonesia?s overseas coal market share is being threatened by the increasingly agressive market penetration by other coal producing countries. Noke Kiroyan, president director of East Kalimantan-based coalminer PT Kaltim Prima Coal (KPC), commented on this matter in his recent interview with Bisnis Indonesia daily. Following is the excerpt of the interview:

Q: How do you view the future of coal as a source of energy?

A: I should say that people have become more creative to produce substitute products that can reduce the economic value of certain products or raw materials. For instance, if in the coming decades people can invent new technologies to utilize solar energy en masse and economically, surely coal which so far has been used as a source of energy could loose its economic value.

Q: How competitive is Indonesian coal in the world market?

A: Indonesia produces quite good sub-bituminous coal which is especially used as a source of energy for generating electricity. As Indonesia is geographically located near major coal markets in Asia, transporting its coal to the markets is relatively less costly. But, how far individual coal producers can compete in the markets depends on their production costs.

Q: You once said that Indonesia?s coal industry is facing serious threats from China, which has turned up as the world?s largest coal producer. Why is this a concern?

A: Firstly, we should be aware that China is the world?s largest coal producer with its annual output reaching 1.2 billion tons, compared with Indonesia?s 100 million tons. Fortunately, China?s domestic demand is quite big, so it exports only around 100 million tons per year.

Consequently, we need to carefully monitor any steps taken by China because they can impact world coal supply. From year to year, China has taken integrated measures at national level to increase the competitiveness of its coal.

Coalmines in China are located in hinterland provinces which require reliable transportation and logistical networks to smoothen coal transportation to ports.

The Chinese government is working together with coal producers to improve its railway systems and resolve bottlenecks at its ports.

Q: What should Indonesia?s coal producers do in order to compete with others in the world market?

A: We have to improve the management of our coal industry so as to keep down production costs. The management capability of our coal producers is seriously tested in the current situation.

At the national level, we have to develop better coordination between government officials from coal producing regions and those from the central government and the coal industry. This is aimed at keeping under control or eliminate factors negatively impacting coal prices.

In short, integrated approaches are needed to enable Indonesia?s coal industry to survive competition, especially with China.

As far as I know, China?s coal producers work closely with its government, and this helps increase the competitiveness of China?s coal on the world market.

In Indonesia, each party follows its own way because there is no coordination at national level. The Ministry of Energy and Mineral Resources actually is not the only institution responsible for the development of our coal industry. I think the Ministry of Finance and the Ministry of Industry and Trade need to maintain coordination with coal producing provinces and regencies.

Q: Where is the position of KPC in Indonesia?s coal industry landscape?

A: KPC is not Indonesia?s largest coal producer. It ranks second in terms of production volume. With annual production of 18 million tons, KPC is the only coal producer exporting all of its coal.

Possibly, KPC is the company with the highest exposure to the international market. Its exports mainly go to Japan (30 percent), while the Asia Pacific region as a whole absorbs more than 50 percent of KPC?s coal exports. We also have regular buyers from Europe, the United States and Brazil.

The majority of KPC?s customers, mainly from Japan, have maintained business relationships with KPC since it started commercial operation in 1992.

There is mutual trust and loyalty between KPC and its customers, notably Japan.

In developed countries, our customers also give great attention to the reputation of KPC in environment management and work safety.

Judging from government awards that we have received, I can say that KPC is one of Indonesia?s best miners in terms of environment management and work safety. This is one reason why international buyers have trust in us. (*)