Ashok Mitra, PT. Kaltim Prima Coal - Investment Consideration and Methods for Kalimantan Infrastructure Projects
 

Ashok Mitra, PT. Kaltim Prima Coal - Investment Consideration and Methods for Kalimantan Infrastructure Projects

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Ashok Mitra, PT. Kaltim Prima Coal delivered the presentation at IMM’s 2014 Kalimantan Coal Conference. ...

Ashok Mitra, PT. Kaltim Prima Coal delivered the presentation at IMM’s 2014 Kalimantan Coal Conference.

The IMM’s Kalimantan Coal Conference brings together 120+ senior executives, decision makers from government, mining, infrastructure, shipping and supply sectors to discuss new policies and strategies for tackling the current and emerging issues within the burgeoning Kalimantan coal sector.

For more information about the event, please visit: http://www.immevents.com/kalicoalconference13

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Ashok Mitra, PT. Kaltim Prima Coal - Investment Consideration and Methods for Kalimantan Infrastructure Projects Ashok Mitra, PT. Kaltim Prima Coal - Investment Consideration and Methods for Kalimantan Infrastructure Projects Presentation Transcript

  • Investment Consideration and Methods for Kalimantan Infrastructure Projects By: Ashok Mitra Chief Financial Officer PT. Kaltim Prima Coal September 2013
  • Introduction – Global Economic and Financial Crisis   Global economic and financial crisis slowing down flow of Foreign Direct Investment (FDI) and start bottom out in the latter half of 2009. Global FDI Quarterly Index, 2000 Q1 – 2010 Q1 Source: World Investment Report; United Nations Conference on Trade and Development (Unctad) 2010-2012 Note: Graph using base 100; quarterly average 2005
  • Introduction – Global Economic and Financial Crisis (continued)   Global economic crisis negatively impact Trans National Companies’ (TNCs’) Performance and Investment plan. Profitability and Profit levels of TNCs, 1997–2009 Source: World Investment Report; (Unctad) 2010-2012
  • Global Investment Prospect   Despite strong impact of the global financial and economic crisis on Trans National Companies’ (TNCs’) investment program, significant divestment of TNC’s foreign assets has not been made, and companies remain committed to expanding their presence abroad. Source: World Investment Report 2011; Unctad Top Host Economies for FDI in 2011–2013 Note: Number of times the country is mentioned as a top FDI priority by respondent TNCs.
  • Global Investment Prospect (continued)   Modest Recovery starting mid 2010 grow optimism on Global economic performance as indicated by predicted increase of FDI. Global FDI Flows, 2002–2009, and Projections for 2010–2012 (Billions of dollars) Source: World Investment Prospect Survey; (Unctad) 2010-2012
  •   Concern for Indonesia’s uncertain and unattractive regulatory policies are top of the list for the Miners today   Country ranked last in 2012 by Fraser Institute Survey of attractiveness for Mining   Export Ban   Lack of clarity in authorities between central and regional government.   Requirement under 2009 Mining Law to renegotiate CoW and CCoW   Divestment criteria for foreign companies to divest 51% within 10th year of commercial operation   Presidential election 2014 – uncertainty surrounding it.   Heightened labor activism   Environmental issues   Land compensation   Shortage of talent Investment Risk Profile
  • KPC Location
  • KPC Among Other Major Coal Producers in Kalimantan
  • Capital Investment Decision Making Process Corporate Goal Strategic Plannning Investment Ideas / Needs Preliminary Screening Financial Appraisal, Quantitaive Analysis, Project Evaluation / Analysis Qualitative Factors and Judgement Accept / Reject Execution Monitoring, Control, and Review Continue, expand or abandon Project Post Implementation Audit ACCEPT REJECT OUT   Following weakening of global Coal price in the recent times, the need for new investment in Coal mine Industry must carefully be analyzed to ensure Capital Investment gives expected return.
  • Qualitative Factors Need to be Considered for a Capital Investment International Risk Assessment Input Market General Economic Condition Industry Condition Historycal Experience Objectives, Priorities Regulatory Governance Regulatory Rules/ Policies Structure Behaviour Performance Corporate Governance Legitimacy, credibility Institutional Conditions
  • Assessing Economic Feasibility of a Capital Investment – Current/Common Methods   NPV analysis   Payback Period   Internal Rate of Return   Sensitivity Analysis 1.  Discounted Cash flow 3.  Monte Carlo Simulation 5.  Decision Tree Analysis   Provide distribution of projected NPV of the Cash flow to identify variability/standard deviation of result.   Calculate Expected value of NPV Scenarios by using (defined) probabilities of NPV outcomes.
  • Limitations of Current/Common Economic Feasibility Analysis of Capital Investment Discounted Cash Flow & Monte Carlo Simulation Methods: 1.  Both current approaches are deterministic approach which do not address uncertainty. 2.  Both methods uses fixed path outcomes; which does not take into account management’s flexibility to change the course of the project 3.  Difficulty in accessing the risk of the project. Higher discount rate usually use to capture the riskier project.
  • Limitations of Current Economic Feasibility Analysis of Capital Investment (cont’d) Decision Tree Analysis Method: 1.  Probabilities of success used to calculate the NPV outcomes are subjective which are possible to be skewed as per analyst & management favor. 2.  Difficulties in determine the appropriate discount rate to discount the cash flow within the decision tree. Management judgment still play an important role to capture issues which could not be calculated in the analysis (e.g. risks, flexibilities) to overcome the limitations arise from the above three current/common methods.
  • Case Study: Economic Analysis for Construction of an Overland Conveyor at PT KPC Background: Construction of 2nd OLC from Coal Processing Plant to Coal Terminal is intended to replace coal transportation by using 30/40 tonne dump truck. Data & Assumptions: •  OLC length : 13 kms •  Power Demand : 4 MW •  Road length: +/- 15 kms •  Power price : 11.56 c/kwh
  • Cost Model: 2nd OLC PT. KPC Coal Trucking Cost $/t 1.67 Road Maintenance $/t 0.725 Total Trucking Cost $/t 2.39 OLC Mtce + Operating Cost $/t 0.025 Capital Cost $M 130.00 Tax Rate 45% Discount Factor 10% Year 0 1 2 3 4 5 6 7 8 9 10 11 12 Total Coal Conveyed Sangatta kt 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 - 360,000 Capital Cost $M 52.00 65.00 13.00 Potential Loss of Saving Coal trucking Cost $M - - 25.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 475.02 Road Maintenance $M - - 10.87 21.74 21.74 21.74 21.74 21.74 21.74 21.74 21.74 21.74 206.58 Total Trucking + Road Mtce Cost $M - - 35.87 71.75 71.75 71.75 71.75 71.75 71.75 71.75 71.75 71.75 681.60 OLC Mtce + Operating Cost $M - - 0.37 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 6.99 OLC Operating Hours khr - - 3.57 7.14 7.14 7.14 7.14 7.14 7.14 7.14 7.14 7.14 OLC Power requirement kwh/t - - 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 OLC Power Unit Cost $/t - - 0.110 0.110 0.110 0.110 0.110 0.110 0.110 0.110 0.110 0.110 OLC Power Cost $M - - 1.65 3.30 3.30 3.30 3.30 3.30 3.30 3.30 3.30 3.30 31.38 Total OLC Cost $ - - 2.02 4.04 4.04 4.04 4.04 4.04 4.04 4.04 4.04 4.04 38.36 Potential Cost Saving $ - - 34 68 68 68 68 68 68 68 68 68 643.24 Depreciation $ - - 6.84 13.68 13.68 13.68 13.68 13.68 13.68 13.68 13.68 13.68 Profit Before Tax $ - - 27.01 54.02 54.02 54.02 54.02 54.02 54.02 54.02 54.02 54.02 513.24 Tax Calculation Tax Rate 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% Tax Expense - - 12.16 24.31 24.31 24.31 24.31 24.31 24.31 24.31 24.31 24.31 Tax Payment - - 12.16 24.31 24.31 24.31 24.31 24.31 24.31 24.31 24.31 24.31 Cash Flow Capital $ (52.00) (65.00) (13.00) - - - Cash Cost Saving $ - - 33.85 67.71 67.71 67.71 67.71 67.71 67.71 67.71 67.71 67.71 - Tax payment $ - - - (12.16) (24.31) (24.31) (24.31) (24.31) (24.31) (24.31) (24.31) (24.31) (24.31) Net Cash Flow $ (52.00) (65.00) 20.85 55.55 43.40 43.40 43.40 43.40 43.40 43.40 43.40 43.40 (24.31) 282.28 Cummulative Cash Flow (52.00) (117.00) (96.15) (40.59) 2.81 46.20 89.60 133.00 176.40 219.80 263.19 306.59 282.28 Discount Factor 1 1.100 1.210 1.331 1.464 1.611 1.772 1.949 2.144 2.358 2.594 2.853 3.138 Discounted Cash Flow $ (52.00) (59.09) 17.24 41.74 29.64 26.95 24.50 22.27 20.25 18.40 16.73 15.21 (7.75) Net Present Value $ 114.08 Internal Rate of Return 16.1% Payback Period (after commissioning) years 2.56
  • Cost Model: 2nd OLC PT. KPC – Result and Sensitivity Analysis Parameters Unit Result Net Present Value $M 114.08 Internal Rate of Return (after Tax) % 16.06 Pay back Period (After commissioning) Years 2.56 Using Discounted Cash flow method, the project shows very attractive return, as it is reflected in its NPV, IRR & short payback period. Tornado diagram to identify parameter’s sensitivity reveals that the project is sensitive to tax rate, discount factor, capital cost and project duration, & less sensitive to fuel price & electricity price
  • Thank you..