Release: Fitch: Indonesian coal production growth rate to slow

(Jakarta/Singapore-21 November 2008): Fitch Ratings has today commented in a just published special report, "Indonesian Coal Production Growth Rate to Slow," that it expects the country's coal production output to grow at a lower rate than previously expected, due to delays in production ramp-up and the fall in economically mineable reserves, given the decline in coal prices.

Indonesian coal production growth had been strong in the past, recording a compound annual growth rate (CAGR) of 16.8% during 2003 to 2006. Continuing growth in 2007 was halted by heavy rainfall in Kalimantan, lowering the CAGR to 12.2% during 2003 to 2007. The growth rate in 2008 has been further hindered, as a number of Kalimantan-based producers have reported slow mining progress, due to unseasonably wet weather and shortages in mining equipment in H108.

In the report, Fitch notes that as liquidity dried up beginning H208, companies that had not secured funding will likely cut back on their discretionary capex - which may impact their production ramp-up schedule. Moreover, with the lower coal price, some reserves that had initially been economically mineable are no longer viable.

With slower production growth and potential new domestic demand, in view of the Indonesian government's plan to build an additional 10,000 megawatts of power generation capacity by 2010, Indonesia's coal export volume may grow at a lower pace as compared to production in the medium-term. Fitch expects foreign interest to acquire coal mines to secure their coal supplies in the long-run, and will likely re-emerge given the lower valuation of coalmines as compared to earlier this year. Nevertheless, uncertainty in the domestic regulatory environment will likely be the key deterrent of possible transactions.

The special report, "Indonesian Coal Production Growth Rate to Slow" which also details the structure of the Indonesian coal mining industry, is available on 'www.fitchratings.com'.(end of release)