The document discusses Indonesia's role as the world's largest exporter of thermal coal despite having relatively small coal reserves. Indonesia is able to export cheap coal due to its open-cut mining methods and access to rivers for transportation, allowing it to undercut competitors like Australia and China. However, the mining boom is temporary as easy-to-access coal deposits near rivers will be exhausted by 2016-17, requiring more expensive transportation. New government regulations are also increasing coal prices and reducing exports.

1. Indonesian Coal
Sunrise to Sunset (part 1)
Ross Hilton (ross.hilton@uni.sydney.edu.au

2. Who has all the coal:
USA: 22%
Russia: 14.4%
China: 12.6%
Australia 8.9%
India 7%
Germany 4.7%
Ukraine 3.9%
South Africa 3.5%
Serbia 1.6%
Colombia 0.8%
Canada 0.8%
Poland 0.7%
Indonesia 0.6%

3. Who is the biggest exporter of thermal coal in
the world:
Indonesia
Who are Indonesia’s biggest customers:
India and China

4. Why is the 14th largest coal deposit nation the
biggest exporter and why do they sell to 3rd and 5th
largest deposit nation:
Price. Indonesia can sell coal loaded onto a ship for
between $30-50/tonne. Australian costs are around
$80/tonne. Chinese costs are around $98/tonne

5. Why is Indonesian coal cheap:
It is easy to win, in reasonable yield deposits
of reasonable calorific value, located on the
banks of the endless wide slow rivers of
Kalimantan.

6. Why is it east to win:
The Indonesians use open cut mines and coal
washeries, as opposed to longwall mining which has to
chase seams of quality coal.
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.

7. But:
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.

8. Why is it reasonable calorific value:
• A typical Australian thermal coal = 6,080 kcal/kg
• A typical Indonesian thermal coal = 5,500 kcal/kg
• A typical Chinese thermal coal = 5000 kcal/kg
• A typical Indian thermal coal = 4000 kcal/kg

9. Why are the rivers an advantage:
In Australia where the coal is transported via rail the
transport costs account for around 25% of the cost of a
tonne of coal. 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.
The Indonesian rivers are free, and they already exist. It
gives Indonesia a big competitive and cost advantage.

10. Why does China import coal:
China now imports around 180 million tonnes of coal a
year, despite having its own huge resources.
The problem is the coal is located in the western and
northern inland provinces, 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. This adds considerably
to the cost and the railways present a huge bottleneck.

11. In addition the Chinese mines are 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.

12. Why does India import coal:
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.
India doesn’t currently have the mining capacity to supply
domestic demand especially as the Indian coal is deep
underground.
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.

13. Why the Indonesian mining boom will end:
1. By 2016-17 the mines located near the main rivers
will have exhausted the easy to win coal resources.
They will have to move fresh deposits by truck or build
railways lines, both adding greatly to the cost. Already
Russia is negotiating to build a railway line in
Kalimantan to move 20 million tonnes of coal a year, at
a cost of $2.4 billion. This is bound to push up prices
to global levels.

14. Why the Indonesian mining boom will end:
2. Until 2009 the miners were domestic owned, and sold
coal at prices they set. This was usually far lower than the
regional spot price which is set at Newcastle Port NSW.
The Mineral and Coal Mining Law (No. 4/2009) changed
that, forcing miners to sell at a price set by the Indonesian
government. The price went up and the tonnage sold
went down. Indonesia is no longer relying upon its
competitive advantage of cheap production costs and are
in open competition with the rest of the world.

15. Why the Indonesian mining boom will end:
3. The government introduced a new law in 2012
GR24/2012 stipulating that foreign owned mining
operations had to divest 51% interest by the 10th year
of commercial production. For many mines that will
occur around 2008.