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edco Energi Mining Internasional (MEMI), a subsidiary of Medco Energi Internasional, announced that it would produce 500,000 tons of coal by the end of this year from its mine site in Nunukan, East Kalimantan.

MEMI chief executive officer (CEO) Arie Wibowo Ariotedjo said on Wednesday that this year the company had allocated US$18 million for capital expenditure, but as it had not started production, the fund absorption was still very low.

“We’ll sell the coal to China because the calorific value is high, around 7,000 kilo-calories. The market for such coal is limited therefore we sell it through a major European trader,” he told reporters at the Energy and Mineral Resources Ministry, refusing to identify the trader.

In 2009, MEMI acquired two coal mining companies, PT Duta Tambang Rekayasa and PT Duta Tambang Sumber Alam which have been mining areas of 1,700 hectares and 4,800 hectares respectively both in Nunukan.

According to MEMI’s official website, the first 500,000 tons of production will come from the PT Duta Tambang Rekayasa site. The other site is currently in the exploration stage and is expected to begin production in 2014.

Arie said that the two mining sites had potential reserves of 16 million tons with 8.3 million tons of proven reserves. He added that the company was still trying to add reserves by exploring the sites.

“We aim to produce 1 million tons of coal in 2014,” he said.

Indonesia, the world’s largest thermal coal exporter, produced 275 million tons of coal in 2010 and aims to increase production to 340 million tons in 2011, of which 20 percent will be allocated for domestic needs.

In the first quarter of this year, Indonesia produced 188 million tons of coal, the Indonesian Coal Mining Association’s (APBI) data shows. APBI estimated that this year’s production might exceed the target.

The production increase resulted from the shutdown of Japan’s nuclear power plants following an earthquake and tsunami in March. The disasters have made coal the favored energy resource to replace nuclear.

APBI also said that this year’s price was much better than last year’s, reaching US$120 per ton for coal between 6,300 and 6,500 kilo-calories. Last year the average price was only $90 per ton.

Coal producers in Indonesia were now aiming to increase their production, APBI said, targeting Bangladesh, India, Pakistan and Turkey where many coal-fired power plants were being set up.

Starting 2014, the government of Indonesia will officially apply a ban on low-grade coal exports. To anticipate the regulation, APBI revealed that two coal upgrade facilities were ready to be installed in South Kalimantan and South Sumatra in 2012 and 2014.

The upgraded brown coal (UBC) process can increase the calorific value of coal from 4,500 kilo-calories per kilogram to 6,100 kilo-calories per kilogram.