The ICMA reported that various Indonesian coal miners’ cash flow had turned negative so generated cash from production could not cover their operational costs.
An important shift has been detected in Indonesia.
“Whereas previously, due to the sharp drop in global coal demand [especially from China] Indonesian coal miners had increased production rates to maintain a healthy cash flow [thus exacerbating the global oversupply and putting more downward pressure on coal prices], we now see these companies cutting production volumes – and some smaller miners have even stopped production altogether – as a last resort after other strategies to enhance cost-efficiency have already been employed,” the association said.
Benchmark coal prices in Asia have fallen about 20% over the last year, which ICMA said had caused “serious financial troubles” for players in the sector.
Sjahrir said that Indonesian coal production may fall to between 350 and 400 million metric tons this year from 458 million tons in 2014 as the Chinese slowdown was “worse than expected”.
“This decline is an unusual situation considering that the country’s coal output has been growing for at least 30 years,” the ICMA said.
While Indonesian coal output had already fallen by 21% yoy to 97Mt in Q1 of 2015, stripping ratios and the removal of overburden have continued to decline by 15-20% indicates that Indonesian coal output will fall further over the balance of 2015.
Thomson Reuters has revealed that the free cash flow of the 15 largest listed Indonesian coal miners and contractors on the Indonesia Stock Exchange (IDX) averaged $US10.7 million ($A13.53 million) in Q4 2014 – the lowest since the Q1 2014.
“Several of these companies, such as Indo Tambangraya Megah and Golden Energy Mines, are plagued by negative free cash flows and now need to stabilize their businesses by other means that simply produce and sell more coal – as this will backfire by exacerbating the global oversupply – to increase EBITDA figures on income statements,” the ICMA said.
“To make matters worse, the Indonesian government will nearly double coal royalties in May 2015 as the government seeks to generate more revenue from its natural resources in order to obtain funds for structural economic and social development.
“Big Indonesian coal players are now eager to diversify into other businesses such as power generation.”
This has been evidenced by Golden Energy Mines’ parent company Sinarmas Group planning to invest $700 million in the construction of two coal-fired power plants in Indonesia, while Tambang Batubara Bukit Asam is currently conducting a feasibility study for the construction of power plants in Vietnam and Myanmar.
Adaro Energy partnered with Japanese investors J-Power Electric Power Development Co Ltd and Itochu Corp to construct a $4 billion coal-fired plant in Batang, Central Java – and construction is set to start soon despite land acquisition problems and fierce resistance from environmental groups.
“This public-private partnership (PPP) project is regarded as one of the most controversial infrastructure projects in Indonesia as environmental activists want the government to move away from coal as source for power generation,” the ICMA said.
“However, due to the cheap price of coal in combination with its abundant presence in Indonesia, it has become attractive for the government to construct coal-fired plants.
“President Joko Widodo targets to build additional power plants with a combined capacity of 35,000 megawatts over the next five years.”
