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em>Amid the fall in global coal prices, state-owned coal miner PT Bukit Asam (PTBA) is working on a number of cost-efficiency programs in order to be able to stay competitive in the international coal market.

PTBA president director Milawarma recently talked with The Jakarta Post’s Raras Cahyafitri about these programs including the company’s plan to become an energy company instead of simply a coal miner. Below are excerpts from the interview.

Question: What is PTBA’s short-term program in order to stay competitive in the global market?

Answer: Our target is to further cut mining costs, so that we can better compete in both local and international coal markets. On one side, PTBA is increasing its production capacity and at the same time reducing its cost per ton of coal produced.

We are also working on improving our coal transportation systems by expanding the existing port and coal railway system to reduce freight costs.

With the current low coal prices, we also have to operate our mining operations more efficiently such as by imposing tight monitoring on the operation of heavy equipment in order to cut fuel consumption.

We are also working on the reduction of costs for the supply of spare parts and other services. If we previously used imported products, we now use spare parts of a similar quality from local sources and bring them close to our mining sites. In addition, we also try to reduce energy costs by optimizing our own power plant.

How about PTBA’s business expansion plan?

PTBA, which was previously engaged only in coal mining operation, is now expanding into the power generation business to become an integrated energy company.

We started by building our own coal-fired power plant (PLTU) of 3x10 MW [in Tanjung Enim, South Sumatra]. We are expecting our 2x8 MW [in Tarahan port, Lampung] will be finished next year.

We later decided to become an independent power producer in cooperation with other companies. In 2006, we took part in a consortium to build the PLTU Banjarsari coal-fired power plant, which will have a capacity of 2x600 MW in South Sumatra. We will also develop a 2x600 MW coal-fired power plant in Peranap, Riau in cooperation with Malaysia’s Tenaga Nasional Berhad and PT PLN. The electricity from the power plant will be sold to PLN and the Malaysian company.

Building a coal-fired power plant is quite strategic for PTBA which has massive reserves of medium and low calorific value coal.

Medium and low calorific coal account for about 60 percent of our total coal reserves .

What is PTBA’s target in shifting its business?

Obviously we seek higher returns. Our turnover totaled about Rp 10 trillion (US$1.03 billion) last year and will reach about Rp 13 trillion this year. With a selling price of between 6 and 7 US cents, operating a coal-fired power plant is quite profitable for PTBA. If we are able to produce 4,000 MW of electricity, our turnover from electricity will be more than what we’re making from coal production at present.

What other businesses does PTBA want to develop?

We will continue to develop coal-related businesses. For example, we also plan to develop Coal Bed Methane (CBM) fields. We also plan to expand into underground mines in our concessions in South Sumatra.

 We want to enter underground mining and are assessing it, particularly in South Sumatra because our concessions in the province hold coal reserves of good quality. However, we have to be sure the underground mines are safe, so that the mining explosions that often take place in China can be prevented.

How competitive is Indonesia’s coal in the global market?

Indonesia’s geographic location is quite strategic in the world’s coal market, compared to other larger coal producers.

With its relatively close distance to the world’s major coal buyers such as Japan, Taiwan, South Korea, South China and India, which absorb about 80 percent of the world coal market, Indonesia is able to better compete with other producers due to lower shipping costs as compared to Australia, for example. The shipping distance from Indonesia to these buyers is almost a half of that from Australia.

Indonesia’s coal is more competitive even to those produced in China. Coal producers in China also have transportation problems as most of the mining sites are located in the middle of the country while the users are mostly in the south.

Moreover, almost 80 percent of China’s coal is produced from underground mines, which generally have higher operating costs. We are now prioritizing export of high calorific value coal, particularly to Japan and Taiwan, which prefer low fly ash content coal as they have no large sites to dump the ashes. They are keen on PTBA’s coal due to its low fly ash content.

How about competition from the United States?

Unlike Indonesia, the coal production in the US is not so large in terms of volume, because many companies have changed their focus to the production of shale gas. They cannot compete with Asian miners due to the distance factor.

Shale gas is indeed a new potential energy and is environmentally friendly but its production is not so easy.

Moreover, if we talk about resources, people will look at the ease and availability. Coal is easy to mine and has a lot of reserves. Therefore, in economics of scale, coal will remain a primary energy source that cannot be ignored.