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Accessing infra. developments to unlock mining potential. revised
 

Accessing infra. developments to unlock mining potential. revised

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Indonesia Mining Impetus gain through Infrastructure

Indonesia Mining Impetus gain through Infrastructure

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  • A. COAL INDUSTRY PROMINENET CONTRIBUTOR TO GDPMineral Resource Spectrum of Indonesia – Focus on CoalConsumption Nodes That Could Drive DevelopmentB. SPILL OVER OF INFRASTRUCTURE Role of Infrastructure In Enabling Growth of EnterprisesSatellite Impact Of Energy EconomicsC. GROWTH THROUGH MINIG INDUSTRYLocal Governments Role In Catalyzing Regional Progress Through Mining IndustryInfrastructural Impacts On Mining Industry As Seen In China, Australia, India and Other EconomiesIndonesia Has A Potential To Emerge As A Regional Example For Building Infrastructure To Unleash Minerals / Resources
  • Coal resources dominant in Sumatra and Kalimantan During the last two decades while Kalimantan was driving the growth, Sumatra is expected to be the growth centre going forward
  • Pivotal for Asian Boom
  • ASEAN's energy sector obviously presents enormous opportunities and requires huge resources. An ASEAN Forum for Coal has been formed to promote the use of clean-coal technology for rural electrification, private investments in the development of coal resources, and trade in coal within ASEAN. In compliance with the leaders' directives, the ASEAN Energy Ministers, in their 17th meeting last July, adopted the ASEAN Plan of Action for Energy Cooperation 1999-2004. For the first time, all ten Southeast Asian countries are involved in ASEAN energy cooperation.The ASEAN Plan of Action for Energy Cooperation covers six areas -- the ASEAN Power Grid, the Trans-ASEAN Gas Pipeline, coal, energy efficiency and conservation, new and renewable sources of energy, and energy policy and the environment.
  • http://www.asean.org/aadcp/repsf/docs/03-002ExecutiveSummary.pdf
  • http://www.bain.com/Images/BAIN_BRIEF_8MacroTrends.pdf
  • http://www.pwc.com/en_GX/gx/mining/pdf/mine-2011-game-has-changed.pdfImagine we are in supply constraint world and few companies are dictating the prices
  • - Vale, Moatize coalfield 11m tones Coking coal & coal to Beira on the refurbished Sena line via a new rail link
  • http://magazine.mining.com/issues/0810/RailTransportMongolianMining.pdfChina important partner in mine & railway development projects everywhere
  • Cost factorsRail transportation costs over a distance of 1 500 km from the coal mines in the east to the electricitydemand centres, such as Delhi, Mumbai or Chennai, are typically INR 1 300 per tonne of coal(USD 30/t) (IR, 2006). The mine‐mouth cost of coal is in the range USD 15/t to USD 20/t. The energycontent of washed Indian coal for power generation is typically 18 MJ/t, vs. 26 MJ/t for importedcoal. So in harbour locations on the west and south coasts, imported coal may cost INR 90/GJ(USD 2/GJ), vs. INR 180/GJ (USD 4/GJ) for indigenous coal.For more inland locations, costs are closer to parity, while on
  • http://businesstoday.intoday.in/story/gujarats-power-sector-turnaround-story/1/21750.html“Mr. Modi feared that a bankrupt power utility could derail his vision for the state," Saurabh Patel, Gujarat's Industries and Power Minister
  • http://businesstoday.intoday.in/story/gujarats-power-sector-turnaround-story/1/21750.html“Mr. Modi feared that a bankrupt power utility could derail his vision for the state," Saurabh Patel, Gujarat's Industries and Power Minister
  • http://www.dmo.or.id/dmodata/9Berita/2012/Indonesia%20-%20PR%20-%20RELEASED.pdf
  • http://www.dmo.or.id/dmodata/9Berita/2012/Indonesia%20-%20PR%20-%20RELEASED.pdf
  • http://www.dmo.or.id/dmodata/9Berita/2012/Indonesia%20-%20PR%20-%20RELEASED.pdf
  • http://www.dmo.or.id/dmodata/9Berita/2012/Indonesia%20-%20PR%20-%20RELEASED.pdf
  • [BRAND LOGO NEEDS TO BE UPDATED]
  • Big opportunity for private investmentthrough PPP (Rp 668,34 Trillion or 34.7%).Old thinking : infra – by using govt. fundNew thinking : infra – co-op between private and govt through PPP

Accessing infra. developments to unlock mining potential. revised Accessing infra. developments to unlock mining potential. revised Presentation Transcript

  • Assessing need forInfrastructure Development to unleash Growth Potential Ganeshan Varadarajan President Director, PT Adani Global
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • 1 Resource Spectrum : COAL Indonesian Coal Distribution Map Indonesia’s total coal reserves ?
  • Resource Spectrum : COAL Indonesias Coal Resources by Quality 1 Medium CV 5000 – 7000 Kcal / kg 2. Low Ash, Low Sulphur : One of the ‘Cleanest Coal’ in world 3. Coal deposit tend to be close to surface with thick seam : Low cost mining possible 4 Open mines and accessible rivers/seas mean low production costs  The Coal reserves of Indonesia has its own advantage, to attract consumption Indonesia Sources: Ministry of Energy and Mineral Resources Indonesia,
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • Development Based on Consumption Indonesia Leading The Region • Largest economy in South East Asia • GDP size US$834 billion (2011) • Fourth largest population in world • Third fastest growing economy in Asia • BRICS has extended to include Indonesia, Member of N-11 • It has surpassed Australia as a net exporter of coal (thermal) • South East Asia’s only member of G-20 As third largest democracy, Indonesia’s potential will be realized with politicians proactivness Source : Center For Global Development
  • Development Based on Consumption Regional Consumption • The consumption arising from highly interlinked world • Interchange of trade between emerging markets, especially ASEAN • China and India will make 70% of the worlds total incremental growth in coal • Indonesia has been already largest Steam Coal exporter of the world • Indonesia is closer to India & China, This means avg. 5-10 $ less cost per tonnage Indonesia’s Coal is exposed to the right market, highlighting its competitive advantage
  • Development Based on Consumption Indonesian Coal Export Market Over Time• Robust growth rate to be 9.1 % between 2010 and 2015 vs a 6.0% growth rate for the whole export space• This will lead to more than a third of the export market by 2015, more than quintupling its market share from 1993• Barring any unfavorable regulation changes in foreseeable future Source : Government data, Reuters, RBS Forecast
  • Development Based on Consumption Domestic Thermal Coal Consumption • The consumption is run of population and amplified by industrialization • Domestic consumption should grow by 22% over the 5 years, faster than 9% production growth •ENERGYSUPPLY ENERGYSUP LY MIX 2010 MIX 2019  Fundamental outlook for Indonesian electricity generation by Coal couldn’t have been better Source : PLN, IEA Energy Counsel
  • Development Based on Consumption Indonesia Energy Generating Capacity Paradox Despite the relative abundance of natural stores of resources, results in per capita capacity is the lowest in its region  To support economic growth electrification ratio at least 90% by 2019 i.e around 190 GW from current 30 GW Source : Indonesian Electricity Guide 2011, PwC
  • Development Based on Consumption Lessons from History• Low Take Up • Primarily due to lack of Distribution Infrastructure E.g : Coal transportation routes, energy transmission network • This is necessary to bring feed stock with the generating assets and to consumer • Especially in region outside Java and East Kalimantan• Difficulty in obtaining land for Infrastructure Building • Hurdles in getting land clearance and land use right• Lack of Robust regulatory framework • Need of project based financing in international market place
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • Infrastructure for Enterprise Growth Infrastructure & Competitiveness Source : WEF 2011 Competitiveness report Source : The World Bank, June 2011 • 15th largest market size factor highlights Indonesia’s growth potential • Infrastructure performance within ASAN Countries: - Electrification ratio : 11 out of 12 : High level of blackouts - Road & Ports network : 8 out of 12 : higher costs of inter-island cargo tranport • Infrastructure weakness is one of major concern for firms operating in Indonesia and if fixed growth will reach to higher trajectories
  • Infrastructure for Enterprise Growth Link Between Mining and Infrastructure Development PORTS Infrastructure improve access to markets, increase • Indonesia’s largest archipelago is an investment through productivity and stimulate economic growth. important trade region in world Mining Industry • Connectivity between region should be developed to expand and accelerate economic development Electricity Road Ports ROADS / RAIL • Provision of reliable infrastructure is needed to support distribution of goods and services across the country Regional Business • Road improve access to markets, increase Development Competitiveness productivity and stimulate economic growth
  • Infrastructure for Enterprise Growth Energy Opportunity in Indonesia• Indonesia lags severely behind its Southeast Asian peers which average in the mid-90% region• To support economic growth electrification ratio at least 90% by 2019 Source : IEA’s World Energy Outlook 2010 In End 2011 is expected to be 74% as per PLN Sources• Indonesia will exhibit the fastest electricity growth over the next 15 Baseline Scenario for Electrification generation - outlook 2025 years, generating 4x more Scenario 2010 Twh 2025 Twh % Growth electricity by2025, most of it from coal. Indonesia 166 480 298 Thailand 156 305 95 Malaysia 116 238 105 Source : IEA , RBS Forecast This further confirms coal will be the primary energy source and ASEAN energy sector presents enormous opportunities which requires additional resources
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • Satellite Impact of Energy ASEAN Energy Interconnection  Intra-ASEAN linkages in energy sector offer much potential benefits, both in themselves and as a component of ASEAN economic integration  The cooperation is shifting from simply connecting physical infrastructures to regional power market ‘Beyond the barriers, energy security and market access are bounding elements between ASEAN countries
  • Satellite Impact of Energy Benefits with ASEAN Interconnection  The scope for Indonesian GDP benefiting from introduction of power trading across the archipelago and into ASEAN is seen as very substantial  Indonesia is a country that is currently not making efficient use of its energy resource – Coal Source : Preparing for Electricity trading in ASEAN , Year 2005
  • Satellite Impact of Energy Mine Mouth Power Plant 1. Coal is subject to transportation costs in which coal hauling costs is almost 80% of total costs 2. Hence for Coal suffers from lack of infrastructure or higher hauling costs i transmission Mine Power Plant hauling 3. Transport by electrical transmission has fixed cost – hedge against rail costs, facilities, competitive pricing  Enabling access to diverse resource through transmission, can deliver resources from remote location in order to increase energy output
  • Satellite Impact of Energy Energy Ecosystem
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • Local government to Enable growth PPP to Bridge Infrastructure Financing Need The remaining Rp. 978 trillion (69%) financing gap is expected from sources like PPP Government funding capacity Rp. 451 trillion (31%) Source : Morgan Stanley South East Asia Report Public finances under strain, private sector will play a decisive role, couple with local support
  • Local government to Enable growth Environment for PPP Working with all stakeholders to create environment for implementing PPP projects State / Regional Government Legal and regulatory Framework Land Acquisition Guarantee Fund Infrastructure Fund (PT PII) Fund (PT IIF) P3CU Private Investor Financial SYNERGY Institution/Lender To Promote Infrastructure Development Growth Through PPP
  • Local government to Enable growth Share of PPP’s in Regional Development Source : Director for Public Private Partnership Development Note : Preparation means Pre-FS, FS, Tender, Land acquiring PPP to inject greater efficiency in various type of infrastructure
  • Contents Infrastructure to unleash Growth Potential (1) Resource Spectrum : Focus on Coal (2) Development based on consumption (3) Infrastructure for Enterprise Growth(4) Satellite Impact of Energy(5) Local governments to Enable Growth(6) Infrastructure to Unleash Resources
  • Infrastructure to Unleash Resources Drive for Infrastructure  The four year TSR of emerging market has more than doubled with that of traditional market  This links to wider economic story of mine related growth in emerging markets  Mining companies are looking to vertically integrate to get better control over the price of production inputs and to provide future growth E.g Huadian, China and TATA ,India As mining industry is a long term game, many emerging mining company’s plan to integrate vertically and many will continue to integrate Infrastructure. As companies do this, government can come into picture and can align their national objectives with infrastructural needs Source : PwC, Mine 2011 Game has changed, Year 2011
  • Infrastructure to Unleash Resources Lessons from Other Economies Mozambique Governments planned infrastructure development for mining industry Mozambique plans to become a major player in the seaborne metallurgical coal export market within a 5- to 7-year horizon, assuming infrastructure is in place
  • Infrastructure to Unleash Resources Lessons from Other Economies Mongolia : - Rail transport has become the primary method of moving heavy and bulk freight in Mongolia - 28% of mined coal is exported by rail transport - Some 1,500 new jobs will be created for Mongolians in addition to increased opportunities in support services and new industry Railway infrastructure puts Mongolia churning to untapped markets across China and Russia
  • Infrastructure to Unleash Resources Lessons from Other Economies Queensland Port Expansion Year 2011 – 2015+ (Mtpa) AUSTRALIAN PORTS HAVE RESPONDED TO ROBUST ASIAN DEMAND WITH EXTENSIVE INFRASTRUCTURE IMROVEMENT PROGRAMS
  • Infrastructure to Unleash Resources Lessons from Indian Power Sector Electricity demand in India India’s planned energy activities  Rail transportation costs over a distance of 1 500 km from the coal mines to demand centers are typically USD 30/t. The mine‐mouth cost of coal is in the range USD 15/t to USD 20/t  Harbor locations, imported coal may cost half to indigenous coal from East India  Thus, For Indian coal per se the most vital area of energy infrastructure is ports and transmission
  • Infrastructure to Unleash Resources Lessons from Gujarat Local Government 1. The Local government had taken scrupulous care to ensure that the state electricity regulator - unlike in most states - remains truly independent of political pressures 2. Abundant power is major USP of Gujarat amongst many other states in India At times the cost of transporting coal equals the cost of the coal, they shifted to Port-Mouth Power plant
  • Infrastructure to Unleash Resources Mineral Infrastructure INDONESIA COAL MINE RAIL / BARGING / ROAD PORT TRANSMISSION POWER PLANT PORT
  • Infrastructure to Unleash Resources Indonesia’s potential to lead infrastructural growth Moody’s upgrade rating from Ba1 to Baa3 They suggest ratings may further get upgraded if Indonesia progress in addressing infrastructure bottlenecks that contribute to an increase in potential growth; this will also invariably add to governments borrowing capacity
  • Infrastructure to Unleash Resources Indonesia’s potential to lead infrastructural growth SCENARIO : Low growth 2010 2011 2012 2013 2014 GDP growth (%) 3.5 4.5 5.5 5.5 5.5 Budget deficit (%GDP) -1.6 -1.4 -1.1 -0.9 -0.8 Public dept to GDP ratio (%) 32.9 32.2 30.8 29.3 27.8 GoI gross financing needed (IDR trillion) 221 223 216 218 248 SCENARIO : Business As Usual 2010 2011 2012 2013 2014 GDP growth (%) 5.4 6.0 6.2 6.2 6.3 Budget deficit (%GDP) -1.6 -1.4 -1.1 -0.9 -0.8 Public dept to GDP ratio (%) 31.9 30.8 29.2 27.6 26.0 GoI gross financing needed (IDR trillion) 224 228 223 226 258 SCENARIO : Big Push 2010 2011 2012 2013 2014 GDP growth (%) 5.6 6.4 6.8 7.0 7.2 Budget deficit (%GDP) -2.6 -2.4 -2.1 -1.9 -1.8 Public dept to GDP ratio (%) 32.8 32.4 31.5 30.4 29.2 GoI gross financing needed (IDR trillion) 284 298 304 324 375 SCENARIO : Bigger Push 2010 2011 2012 2013 2014 GDP growth (%) 5.6 6.5 7.1 7.4 7.6 Budget deficit (%GDP) -2.6 -2.6 -2.6 -2.6 -2.6 Public dept to GDP ratio (%) 32.8 32.6 32.1 31.5 30.9 GoI gross financing needed (IDR trillion) 284 307 343 388 463
  • Infrastructure to Unleash Resources Indonesia’s potential to lead infrastructural growth Strategy on Infrastructure Development in Five-year National Development Plan 2010-2014 • Supporting the improvement of real sector competitiveness • Enhancing Public Private Partnership: – Shifting government role to be facilitator or enabler. – Focus on service sustainability through efficient and effective investment • Dual Track Strategy: –Developing infrastructures which accelerate goods and information flow – Encouraging industrialization program through regional centers development in 6 Priority Economic Corridors
  • Infrastructure to Unleash Resources Indonesia’s potential to lead infrastructural growth “To create a self-Sufficient, advanced, just, And prosperous Indonesia” - MP3EI Vision 2025
  • Closing Remarks Mineral resources Natural archipelago Challenge Economic Growth- The natural archipelago and economic growth challenge can be addressed. If bottleneck can be eradicated with the help of investment in infrastructure such asports, rail, energy transmission but requires better policy frameworks to attractinvestment and align economic returns with investor risks- The government of Indonesia needs to promote mine mouth power to utilizeabundant low rank coal to achieve growth in remote regions of Indonesia- Although investment currently dominated by public sector, there is a strong urgetowards private sector (IPP, PPP, Corporate etc.)- The provision of quality infrastructure is a necessary element of any strategy foreconomic integration and sustainable development in Indonesia
  • T HANK YOU ! Q & A THANK YOU Ganeshan Vardarajan Tel. 062 8822 828 907 Email. ganeshan@ptadaniglobal.com
  • Mr. GANESHAN VARADARAJAN President Director, PT Adani GlobalAddress: Graha Mustika Ratu, Floor 3rd, Gatot Subrato Kav 74-75, Jakarta South 12780 Telephone : 021 – 29226401 Email : ganeshan@ptadaniglobal.com
  • INDOENSIA INFRASTRUCTURE DVELOPMENT NEEDS7% growth target requires: Central Government budgetRp 1.923,7 Trillion (about US$ can only cover 29.1 % of total161.8 billion) of investments investment need.during 2010-2014. Source : Morgan Stanley South East Asia Report