The	  Indonesian	  Coal	  Industry	  	  	  Sunrise	  to	  Sunset:	  1988-­2020	  	  	  	  	  	  	  	...
 1.	  	  INDONESIAN	  BACKGROUND	   3	  Geography:	   3	  People:	   3	  History	   4	  Conclusion:	   4	  2.	  	  INDONES...
 	  1.	  	  Indonesian	  Background	  	  Geography:	  Indonesia	  comprises	  	  of	  17500	  islands	  straddling	  the	 ...
 The	  population	  can	  be	  divided	  into	  about	  300	  ethnic	  groups,	  each	  with	  cultural	  identities	  dev...
 2.	  	  Indonesian	  Coal:	  	  History:	  Although	   Indonesia	   has	   a	   long	   history	   of	   coal	   mining,	...
Between	  2000	  and	  2009	  domestic	  investors	  gained	  majority	  ownership	  of	  Indonesia’s	  coal	  producers	 ...
 	  Sumatra	  has	  known	  reserves	  of	  around	  64.00	  billion	  tonnes,	  located	  in	  three	  main	  coal	  basi...
 3.	  	  Customers:	  China:	  China	  has	  170	  billion	  tonnes	  of	  coal,	  and	  is	  home	  to	  the	  second	  l...
2011,	  4.4	  times	  the	  original	  designed	  capacity.	  	  This	  makes	  the	  lines	  and	  the	  rolling	  stock	...
international	  market	  rate	  (The	  Newcastle	  Australia	  Power	  Station	  rate).	  This	  has	  impacted	  sales	  ...
 4.	  	  Politics,	  Political	  interference	  and	  ownership:	  	  In	  2009	  the	  Indonesia	  Government	  introduce...
 5.	  	  Economics:	  Price:	  The	  prices	  in	  Asia	  for	  steaming/thermal	  coal	  are	  benchmarked	  against	  	 ...
Quality	  and	  Yield:	  Coal	  quality	  (measured	  in	  calorific	  content)	  and	  yield	  vary	  even	  across	  dif...
 The	   reason	   behind	   the	   cost	   effectiveness	   and	   success	   of	   the	   Kalimantan	   coal	  basins	  t...
 6.	  	  The	  future:	  1. The	  US	  is	  switching	  to	  shale	  gas	  energy.	  	  This	  has	  two	  effects:	  a. C...
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  1. 1.                The  Indonesian  Coal  Industry      Sunrise  to  Sunset:  1988-­2020                      Ross  Hilton    
  2. 2.  1.    INDONESIAN  BACKGROUND   3  Geography:   3  People:   3  History   4  Conclusion:   4  2.    INDONESIAN  COAL:   5  History:   5  Internal  Use:   6  Reserves:   6  Value  to  Indonesia:   6  Locations:   6  Quality:   7  Conclusion:   7  3.    CUSTOMERS:   8  China:   8  India:   9  Conclusion:   10  4.    POLITICS,  POLITICAL  INTERFERENCE  AND  OWNERSHIP:   11  Conclusion:   11  5.    ECONOMICS:   12  Price:   12  Cost:   12  Extraction  Process:   12  Quality  and  Yield:   13  Transportation:   13  Conclusion:   14  6.    THE  FUTURE:   15  Conclusion:   15  
  3. 3.    1.    Indonesian  Background    Geography:  Indonesia  comprises    of  17500  islands  straddling  the  Equator,  between  latitudes  11°S  and  6°N,  and  longitudes  95°E  and  141°E.    These  islands  have  a  total  land  mass  of  1,919,440  square  kilometers,  making  Indonesia  the  worlds  16th  largest  country.      Only  6000  of  the  islands  are  inhabited,  and  the  largest  are  Java,  Sumatra,  Borneo  (shared   with   Brunei   and   Malaysia),   New   Guinea   (shared   with   Papua   New  Guinea),  and  Sulawesi.  The  average  population  density  is  134  people  per  square  kilometer.      Indonesia  is  located  on  the  edges  of  the  Pacific,  Eurasian,  and  Australian  tectonic  plates   making   it   the   site   of   numerous   volcanoes   and   frequent   earthquakes.  Indonesia   has   at   least   150   active   volcanoes,   including   Krakatoa   and   Tambora,  both  famous  for  their  devastating  eruptions  in  the  19th  century.      Lying   along   the   equator,   Indonesia   has   a   tropical   climate,   with   two   distinct  monsoonal   wet   and   dry   seasons.   Humidity   is   generally   high,   averaging   about  80%.   Temperatures   vary   little   throughout   the   year;   the   average   daily  temperature  range  of  Jakarta  being  26–30  °C.    People:  Indonesia   has   a   population   of   237.6   million,   with   high   population   growth   at  1.9%.    This  population  is  expected  to  grow  to  around  265  million  by  2020  and  306  million  by  2050.    19 July 2010 24 PESD WP# 93Figure 1 Kalimantan and Sumatra are more favorably located to Asian markets than Australia.Source:
  4. 4.  The  population  can  be  divided  into  about  300  ethnic  groups,  each  with  cultural  identities  developed  over  centuries,  and  influenced  by  Indian,  Arabic,  Chinese,  and  European  migration  and  colonialisation,  and  from  ethnic  origins.    The  largest  ethnic   group   is   the   Javanese,   who   comprise   42%   of   the   population,   and   are  politically  and  culturally  dominant.  The  Sundanese,  ethnic  Malays,  and  Madurese  are   the   largest   non-­‐Javanese   groups.     Despite   this   wide   range   of   ethnicity   a  strong   sense   of   Indonesian   nationhood   exists   alongside   strong   regional  identities,  and  society  is  largely  harmonious      Although  there  are  over  740  languages  and  dialects  spoken  within  the  country,  the  official  national  language  is  Bahasa  Indonesian,  a  form  of  Malay  based  on  the  prestige  dialect  of  the  Johor-­‐Riau  Sultanate.  This  somewhat  simplistic    language  had  been    promoted  by  Indonesian  nationalists  in  the  1920s,  and  was  declared  the  official  language  on  the  proclamation  of  independence  in  1945.      Bahasa  Indonesia  is  the  language  of  business,  politics,  national  media,  education,  and  academia.    However  most  Indonesians  speak  at  least  one  of  the  local  languages  and  dialects,  often  as  their  first  language.  History  Indonesia  has  had  a  complex  history,  and  has  only  really  existed  in  its  current  form  since  direct  presidential  elections  were  introduced  in  2004.        Prior  to  this  Indonesia  has  a  history  of  virtual  dictatorships  and  external  religious  and  trade  influences:      2004  –  current:     Direct  Presidential  elections,  regional  autonomy  and  democratic  processes.    1998-­‐2004     Transition  to  current  state.    1968-­‐1998:     Military  led  New  Order  Administration  of  General  Suharto  1949-­‐1968:     Authoritarian  government  of  Sukarno    1800-­‐1949:     Dutch  Colonial  rule  as  the  Dutch  East  Indies.          1600-­‐1800:     Religious/political  influence  from  Arab  traders  1300-­‐1600:     Hindu/political  influence  under  Gadah  Maja.  700-­‐1300:     Srivijaya  naval  kingdom  and  Hindu  influences.      Conclusion:      The  fact  that  democracy  in  Indonesia  has  less  than  a  ten-­‐year  history  means  that  the  nation  and  its  people  are  still  adjusting  to  new  found  freedoms  and  responsibilities.      
  5. 5.  2.    Indonesian  Coal:    History:  Although   Indonesia   has   a   long   history   of   coal   mining,   the   first   commercial  operations  only  commenced  in  1849,  when  NV  Oost  Borneo  Maatschappij  began  mining  in  Pengaron,  East  Kalimantan.  This  was  followed  by  exploiting  activity  in  Ombilin,  Sawah  Lunto,  and  Bukit  Asam  in  South  Sumatra.    The  discovery  of  oil  in  East  Java  in  1884,  which  was  cheaper  and  easier  to  move  by   pipe   from   remote   locations,   reduced   interest   in   coal   mining.     By   1924  Indonesia  was  producing  over  60,000  barrels  of  oil  per  day,  and  by  the  start  of  world  War  2  Indonesia  was  the  largest  supplier  of  oil  in  the  Far  East,  producing  180,000  barrels  a  day,  and  by  1960  this  had  risen  to  400,000  barrels  a  day.      The  coal  mining  operations  on  the  other  hand  remained  small  scale,  peaking  at  about  2  million  tonnes  in  1941,  and  mainly  supplied  the  shipping  industry.    As  ships   moved   to   oil   fired   engines   the   industry   declined   to   almost   nothing,  producing  just  200,000  tonnes  of  coal  by  1972.      The  political  interference  of  the  Sukarno  government  further  restricted  mining  by   discouraging   foreign   investment   (and   therefore   limiting   access   to   mining  technology).      This  changed  with  the  new  US  influenced  Soeharto  government,  who  introduced  the   Foreign   Investment   Act   of   1967   and   the   Mining   act   of   1967.     By   1973   oil  embargo   resulting   from   the   Yom   Kippur   war   tripled   oil   prices,   and   reignited  interest  in  coal  as  a  fuel,  especial  in  the  booming  Japanese  and  Taiwanese  nations  who  were  worried  about  reliance  on  oil.        This  relaxing  of  foreign  investment  and  interest  in  an  alternative  led  to  a  slow  but   steady   increase   in   coal   mining   activity   in   Indonesia,   initially   through   Rio  Tinto  Zinc  and  a  subsidiary  of  the  Shell  company.      Interest  in  Indonesian  coal  continued  slowly  through  the  1980s  and  by  1983  five  companies   had   obtained   rights   to   20   million   tonnes   of   coal   deposits.   These  mining   activities   were   licensed   under   two   agreements,   contracts   of   work    (CCOW)   between   the   Government   of   Indonesia   and   locally   registered   foreign  companies,  and  Kuasa  Pertambangan  (KP)  or  contracts  with  local  investors  that  could  be  issued  at  Regency,  Province  or  central  government  level.      By  1990  the  industry  was  enjoying  30%  growth  a  year,  and  by  1995  Indonesia  was  exporting  over  30  million  tonnes  of  coal  a  year.  By  the  end  of  the  decade  this  had   risen   to   almost   55   million   tones   a   year   as   they   supplied   the   booming  Japanese  economy  with  energy.      
  6. 6. Between  2000  and  2009  domestic  investors  gained  majority  ownership  of  Indonesia’s  coal  producers  with  the  support  of  the  government  of  Indonesia,  and  Provincial  and  Regional  governments  began  to  extend  their  influence  and  control  on  the  mining  industry.    The  local  ownership  and  increased  regulation  slowed  growth  to  12%  per  year,  but  despite  this  Indonesia  became  the  worlds  largest  exporter  of  steaming  coal  in  2005,  with  117  million  tonnes.    By  2009  this  had  risen  to  176  million  tonnes.    Coal  mining  operations  grew  to  keep  up  with  this  expert  demand.  From  less  than  5  million  tones  in  1988,  mining  grew  by  66  times  to  over  300  million  tonnes  within  less  than  25  years.    • Extracted  0.2  million  tonnes  in  1972  • Extracted  4.43  million  tonnes  in  1988  • Extracted  22.5  million  tonnes  in  1992  • Extracted  56  million  tonnes  in  2000  • Extracted  151.6  million  tonnes  in  2005  • Extracted  217  million  tonnes  in  2007    • Extracted  330  million  tonnes  in  2012    Internal  Use:  Only  82  million  tonnes  of  that  coal  is  used  internally,  about  24%.  The  rest  is  exported.  The  state  owned  power  generator  PLN  use  about  50  million  tonnes  of  the  locally  used  coal.    Reserves:  As  of  2012  Indonesia  has  known    Coal  Reserves  of  around  104  billion  tonnes,  with  some  22  billion  tonnes  of  proven  reserves    Value  to  Indonesia:  The  value  of  that  coal  to  Indonesia  • Rp  5.8  trillion  in  2007  • Rp  20.8  trillion  in  2012    It  is  interesting  to  note  that  although  coal  extraction  increased  by  only  52%,  in  five  years,    the  coal  revenue  went  up  by  358%.      Locations:  Indonesian  coal  deposits  are  widely  distributed,  but  the  largest  fields  are  found  on  the  Islands  of  Sumatra  and  Kalimantan.        52,44 M T51,92 M T0,014 M T0,23 M T0,002 M T0,15 M TRESOURCES104,76 BILLION TONRESERVE20,99 BILLION TON11,54 M T7,17 M TCoal Resources and ReservesDESCRIPTION REALIZATION PLAN2006 2007 2008 2009
  7. 7.    Sumatra  has  known  reserves  of  around  64.00  billion  tonnes,  located  in  three  main  coal  basins:  • Central  Sumatra  Basin    • South  Sumatra  Basin    • Bengkulu  Basin        However  only  10%  of  the  Sumatran  deposits  are  winnable  for  three  reasons:  • The  yield  rates  are  too  low  to  make  mining  economic  • The  quality  of  the  coal  is  low  • There  is  limited  transport  infrastructure  to  move  the  coal  to  port.      Kalimantan  has  known  reserves  of  around  60.00  billion  tonnes,  located  in  four  main  coal  basins:  • Tarakan  Basin  • Berau  Basin  • Kutai  Basin  • Barito  Basin    About  35%  of  the  Kalimantan  reserves  are  winnable.        There  are  also  small  reserves  in:    • Sulawaesi  (0.23b/t)  • Maluko  (0.002  b/t)  • Palua    (0.15  b/t)  • Java  (Jatibarnag  Basin)  (0.01  b/t)    Quality:  Indonesian  coal  is  predominantly  medium  quality  steaming  coal,  suitable  for  power  generation:    1%     Very  high  quality     (>7100    Kcal/Kg)  13%     High  quality       (6100  -­‐  7100  Kcal/Kg)  62%     Medium  quality     (5100-­‐6100  Kcal/Kg)  24%     Low  quality       (<5100  Kcal/Kg)    Conclusion:    Indonesia  is  now  a  world  leader  in  the  supply  of  steaming  coal.  
  8. 8.  3.    Customers:  China:  China  has  170  billion  tonnes  of  coal,  and  is  home  to  the  second  largest  reserves  in  the  world,  with  about  19%  of  the  entire  global  reserves.    Until  2009  it  was  a  net  exporter   of   coal,   and   coal   is   the   key   to   its   economy,   providing   77%   of   its   energy  requirement.    China  now  imports  around  180  million  tonnes  of  coal  a  year,  despite  having  its  own  huge  resources.        The   Chinese   coal   resources   are   located   in   the   western   and   northern   inland  provinces.  The  two  provinces  of  Shanxi  and  Shaanxi  and  the  autonomous  region  of  Inner  Mongolia  alone  account  for  nearly  70  percent  of  China’s  proven  coal  reserves  and  more  than  half  of  national  coal  output.      However   the   coal   consuming   centers   are   located   along   China’s   heavily   populated  eastern   and   southern   coastline,   and   coal   must   be   transported   long   distances   via  railways,  roads,  inland  rivers  and  via  coastal  shipping  from  the  west  to  the  east  and  from  the  north  to  the  south.    The  privatisation  of  the  ports  in  the  more  relaxed  Eastern  and  Southern  coastal  areas  in   the   1990s   allowed   the   development   of   high   capacity   modern   ports   capable   of  handling  high  volumes  of  imported  coal.    In   contrast,   the   more   restrictive   government   run   Ministry   of   Railways   refused   to  allow  foreign  investment  in  new  railway  lines  and  infrastructure,  especially  in  a  new  southbound   railway   lines.     As   early   as   1995   China   had   planned   to   open   up   the  railways  to  foreign  investment  and  increase  track  length  by  50%  from  50,000Km  to  70,000  Km  by  the  year  200.  The  plan  included  building  three  railways  linking  Shanxi,  Shaanxi  and  other  coal  production  centres  with  east  coast  ports.  (These  still  have  not  been  built).  Han   Zhubin,   the   Chinese   Minister   for   Railways   1992-­‐1998,   was   a   political  appointment  with  no  college  education.  His  power  came  from  being  one  of  party  leader   Jiang   Zemin’s   “Shanghai   Gang”.     Although   Zhubin   decided   to   issue   Railway  Construction  Bonds  in  1995  these  raised  only  moderate  funds  for  expansion.  In  2007  these  bonds  had  only  raised  60  billion  Yuan.    It  was  not  until  the  late  2000’s  that  substantial  expansion  funds  became  available  with  the  release  in  2008/9  raised  a  further  100  billion  Yuan  ($14.6  billion)  worth  of  Bonds.  By  2010  they  had  raised  700  billion  Yuan.  This  expansion  funding  came  too  late  and  coal  sent  from  local  mines  by  railway  has  fallen  from  70%  of  total  usage  to  below  50%  in  the  last  30  years,  whilst  imported  coal  has  gone  from  zero  to  around  40%  of  total  usage.    The  existing  lines  are  running  over  capacity  with  the  Daqin  Railway  line  transporting  440  million  tonnes  of  coal  in  
  9. 9. 2011,  4.4  times  the  original  designed  capacity.    This  makes  the  lines  and  the  rolling  stock  unreliable,  and  the  other  lines  are  also  struggling  to  keep  up  with  demand.  The  Houyue  railway  transported  184.13  million  tonnes  of  coal,  an  increase  of  3%  or  5.39  million   tonnes   from   a   year   ago,   and   the   Shuohuang   Railway   hauled   177   million  tonnes  of  coal  in  2011  and  had  a  target  for  2012  of  191  million  tonnes.      The  unreliability  of  the  overworked  lines  is  further  affected    by  the  weather,  and  bad  winters  can  severely  impact  rail  delivery.    The  result  is  that  local  coal  cannot  be  transported  to  the  user  regions  economically,  whereas   Indonesian   coal   can   be   shipped   straight   into   the   Chinese   ports.   The  completion  of  the  Shanxi  and  Shaanxi  railways  will  alleviate  some  of  these  problems.    However,  the  lack  of  investment  that  created  the  transportation  bottleneck  has  also  impacted  the  Chinese  mining  industry.    Many  of  the  mines  are  small,  and  are  owned  by  township  and  village  enterprises.  They  are  labour  intensive  and  low  productivity  underground   operations,   without   the   ease   of   open   cut   or   the   high   technology   of  longwall   seam   mining.     Where   the   resources   are   suited   to   open   cut,   in   Inner  Mongolia,  there  is  social  resistance  to  the  land  seizure  activities  required  for  mine  expansion.    Given  the  above  problems  China  has  little  option  but  to  continue  importing  coal  in  the  foreseeable  future.    India:  India  has  236  billion  tonnes  of  coal,  with  114  billion  proven  reserves,  about  6%  of   global   reserves.   Despite   these   reserves,   India   is   a   major   importer   of  Indonesian   coal.   In   fact   Indonesia   supplies   more   coal   to   India   than   it   does   to  China.    The  reasons  are  three  fold:    1. India  has  similar  but  less  pronounced  problems  with  transport  from  the  mines  to  the  consumers  as  China  has.  Although  India  has  a  well  developed  railway  network,  transporting  the  coal  from  the  mines  to  the  population  centers   adds   greatly   to   the   cost   and   puts   tremendous   strain   on   India’s  struggling  railway  system.      2. India   doesn’t   currently   have   the   mining   capacity   to   supply   domestic  demand  especially  as  the  Indian  coal  is  deep  underground  and  requires  complex  mining  technology  to  extract  it.      3. Indonesia  coal,  because  it  is  easy  (and  cheap)  to  win  and  is  mined  close  to  the   port,   is   far   cheaper.   Therefore   India   is   buying   cheap   coal   to  supplement  local  demand  and  subsidise  the  economy.      However  Indonesia  is  unhappy  about  selling  cheap  coal  to  subsidise  India,  and  in  2009  introduced  the  Mining  Act,  which  stipulates  that  coal  must  be  sold  at  the  
  10. 10. international  market  rate  (The  Newcastle  Australia  Power  Station  rate).  This  has  impacted  sales  to  India,  where  power  stations  had  forward  purchased  coal.    Conclusion:  For  technical  and  commercial  reasons,  Indonesia  has  become  a  major  supplier  of  coal  to  nations  with  larger  coal  deposits.  
  11. 11.  4.    Politics,  Political  interference  and  ownership:    In  2009  the  Indonesia  Government  introduced  the  Mining  Law  (Law  No.4  of  2009  on  Mineral  and  Coal  Mining  (Law  No.  4/2009)    This  covered  a  number  of  areas,  but  in  typical  Indonesian  legal  fashion,  it  only  did  so  at  a  high  level  and  was  open  to  wide  interpretation.      It  introduced  a  new  mining  licence  system  that  replaced  the  mining  authorizations  (Kuasa  Pertambangan,  or  KPs)  that  previously  were  only  available  to  wholly  owned  Indonesian  companies  as  well  as  contracts  of  work  (CoWs)  and  coal  contracts  of  work  (CCoWs).  This  (in  theory)  opened  up  the  Indonesian  mining  industry  to  foreign  ownership.  There  was  a  resulting  boom  in  interest  in  Indonesian  coal  mining.      However,  subsequent  regulation  No.23/2010  introduced  in  2010  clarified  this  ownership,  with  a  minimum  20%  level  of  domestic  ownership  required  through  divestment,  effective  5  years  after  the  commencement  of  commercial  production.    Even  worse,  the  procedure  that  must  be  followed  to  divest  shares  so  that  20%  local  ownership  could  be  achieved  is  complex.  The  divestment  shares  must  first  be  offered  to  the  central  and  the  relevant  regional  government.  If  the  central  government  or  the  regional  government  declines  such  offer,  the  divestment  shares  must  then  be  offered  to  state  owned  and  regional  entities  and  if  such  entities  decline,  then  offered  to  private  entities.      And  in  2012  with  the  new  GR24/2012  the  Indonesian  government  again  changed  the  law,  now  stipulation  that  foreign  owned  mining  operations  had  to  divest  51%  interest  by  the  10th  year  of  commercial  production.    These  legal  revisions  introduce  two  problems  for  mining:  •   Loss  of  controlling  interest  •   Lack  of  confidence  in  legislative  stability    Conclusion:      New  legislation  and  growing  national  identity  will  result  in  a  loss  in  investment  and  more  difficult  access  to  technology.    
  12. 12.  5.    Economics:  Price:  The  prices  in  Asia  for  steaming/thermal  coal  are  benchmarked  against    Power  Station   prices   at   Newcastle   Port,   Australia.     Prior   to   the   Mining   Act   of   2009  Indonesia  allowed  its  miners  to  sell  at  prices  well  below  this  standard.    This  was  possible   because   it   costs   Indonesian   large   miners   between   $30   and   $55   to  extract   a   tonne   of   coal   and   transport   it   to   a   port.   This   makes   it   the   cheapest  steaming  coal  in  the  world,  and  only  some  South  American  mines  can  match  the  price.    This  is  why  Indonesia  is  the  largest  coal  exporter  in  the  world.    It  is  about  price.      It  costs  Australian  miners  at  least  $80  to  extract  and  deliver  to  port  a  tonne  of  coal.     Chinas   domestic   price   of   coal   is   around   $98.5   per   tonne   of   coal,   due   to  difficulties  in  extraction  and  transportation      Cost:  The  three  determinants  of  cost  in  coal  mining  are  extraction  process,  quality  and  yield,  and  transportation.    Extraction  Process:  Coal  extraction  can  be  by  either  open  cut  or  underground  working.      In  open  cut  mining  an  open  quarry  operation  is  conducted,  utilising  a  large  hole  in   the   ground,   usually   terraced,   with   extraction   carried   out   by   blasting   and  loading  the  resulting  material  onto  dump  trucks.    It  is  simple  and  cheap,  but  uses  large  areas  of  land.        Underground  extraction  involves  subterranean  tunneling  using  complex  drilling  machines  and  long  wall  mining  equipment,  and  extraction  via  lengthy  conveyor  systems.        By  its  very  nature  underground  extraction  is  only  suited  to  high  yield  deposits,  with  the  underground  tunnels  targeting  high  yield  seams.  Open  cut  on  the  other  hand   is   more   suited   to   low   yield   deposits,   removing   entire   contents   and   then  extracting   the   coal   using   washing   technology   such   as   floatation   tanks   and  hydrocyclones.      Other  than  the  cost  differential  between  underground  and  open  cut  workings  the  technology   costs   are   reasonably   constant.   Both   processes   are   machine   and  technology   reliant   and   are   therefore   relatively   unaffected   by   human   resource  costs.    
  13. 13. Quality  and  Yield:  Coal  quality  (measured  in  calorific  content)  and  yield  vary  even  across  different  areas  in  the  same  mine.    The  most  profitable  mines  have  the  height  yield  of  the  highest  calorific  content  coal  per  tonne  of  extracted  material.        An  average  yield  for  an  open  cut  mine  would  be  about  1:1,  or  for  every  tone  of  coal  extracted  there  is  a  tonne  of  waste.    A  longwall  operation  has  a  far  better  recovery   yield   of   about   4:1,   recovering   four   tonnes   of   coal   for   every   tonne   of  waste,  due  to  the  targeted  nature  of  following  a  coal  seam.      However  the  coal  needs  to  be  separated  from  the  waste  (usually  shale)  in  all  but  the  highest  yield  deposits.      This  process,  called  washing,  is  carried  out  as  close  to  the  extraction  site  as  possible,  to  avoid  shipping  waste  material.        The  need  to  wash  even  all  but  the  best  yielding  underground  material  has  given  open  cut  mining  a  distinct  advantage  over  the  last  25  years.        The  calorific  value  of  coal  is  an  important  trade  off  between  quantity  and  quality.    The   highest   quality,   known   as   Antracite,   has   a   calorific   value   of   around   8,000  kcal/kg,    Bituminous  coal  has  around  7000,  Sub  Bituminous  around  5000  and  Lignite  around  4000.      High   calorific   coals   like   Swansea   Anthracite   were   specifically   mined   in   the  Victorian  era  for  the  Royal  Navy  due  to  its  high  energy  per  tonne  of  coal  on  the  ship.     It   was   also   valued   for   its   smokeless   properties,   both   from   a   naval  perspective  and  after  the  London  smog  of  1952  for  its  environmental  properties.        Modern  coal  fired  power  stations  are  far  less  fussy  about  the  calorific  value  of  the   coal   they   consume,   and   run   with   a   thermal   efficiency   of   around   35%,  requiring  around  0.4Kg  of  Bituminous  coal  to  produce  1Kw/h  of  energy.      A  typical  Australian  thermal  coal  contains  6,080  kcal/kg  of  usable  energy,    Transportation:  Transport  to  a  port,  and  shipping  costs  to  port  of  destination  are  proving  to  be  the  real  cost  determinants  of  coal  mining.    The  tonnage  and  volumes  are  high,  and   road   transport   is   prohibitively   expensive.   Only   rail   and   ship/barge  transportation   can   prove   cost   effective.   In   Australia   where   the   coal   is  transported  via  rail  the  transport  costs  account  for  around  25%  of  the  cost  of  a  tonne  of  coal,    compared  to  labour  costs  of  22%  and  operational  costs  of  21%.        At  $80/tonne  this  would  mean  around  $20  per  tonne  just  for  transport  to  the  port.        Rail  is  also  expensive  and  difficult  to  establish,  involving  engineering  feats  such  as   bridges,   cuttings   and   tunnels,   and   is   subject   to   complexities   of   government  and   labour   control.     Indeed   it   is   more   a   factor   of   the   establishment   and  investment  in  the  rail  network  than  the  actually  running  costs  that  provide  the  real  advantages.      
  14. 14.  The   reason   behind   the   cost   effectiveness   and   success   of   the   Kalimantan   coal  basins  therefore  relates  to  simple  factors.    Easy  open  cut  mining  alongside  the  extensive   river   networks   that   traverse   the   tropical   rain   forests   and   swamps  allow  the  coal  to  be  shipped  by  barge  to  one  of  23  coal  loading  terminals,  many  of  them  floating.  Eight  of  those  terminals  are  in  South  Kalimantan,  and  15  are  in  East   Kalimantan.   There   are   a   further   29   smaller   transition   or   temporary   coal  loading   facilities   operational   in   Kalimantan.   By   comparison   there   are   only   5  terminals   in   Java   and   8   in   Sumatra.     These   rivers   provide   free   and   prebuilt  transport  networks  out  to  the  open  ocean.      Conclusion:      Indonesia  currently  has  a  strong  competitive  advantage  though  low  cost  open  cut  coak  mining  operations  close  to  low  cost  transport  facilities  (rivers).    
  15. 15.  6.    The  future:  1. The  US  is  switching  to  shale  gas  energy.    This  has  two  effects:  a. Cheaper  energy  costs  and  high  unemployment  are  reducing  the  costs  of  manufacture  in  the  USA,  whereas  the  revers  in  happening  in  China.  Companies  are  now  starting  to  pull  back  from  China  manufacture  to  local  production.    (Apple  just  announced  that  some  of  its  products  will  now  be  manufacture  in  the  USA).  b. The  surplus  coal  from  the  switch  to  shale  gas  will  be  sold  cheaply  on  the  international  market,  competing  against  Indonesian  coal.    2. China  is  fixing  its  railway  problems.  China  will  strive  to  expand  rail  lines  from  Shanxi,  Shaanxi  and  western  Inner  Mongolia  to  Caofeidian  Port,  from  central  and  southern  Shanxi  to  Shandong  coastal  ports,  etc.  and  build  new  lines  from  Ordos  and  Shaanxi  to  central  China  like  Hubei,  Hunan  and  Jiangxi.    This  will  lift  local  carrying  capacity  to  3  billion  tonnes  by  2015.    This  will  greatly  reduce  the  cost  of  local  coal.    3. By  2015-­‐5  new  streamlined  and  cost  efficient  coal  mines  in  the  USA,  Australia,  Russia,  African  and  South  America  will  come  on  stream.        4. By  2018  at  current  extraction  rates,  the  easy  to  win  coal  in  the  Balikpapan  region  of  Indonesia  will  have  become  exhausted.    The  increased  transport  and/or  winning  costs  of  further  stocks  will  remove  the  price  advantage  that  Indonesia  currently  holds.      Conclusion:  It  is  therefore  hard  not  to  conclude  that  by  2020  the  Indonesia  coal  boom  will  be  over.