Garibaldi Thohir, President-Director, Adaro Energy: Interview

Interview: Garibaldi Thohir

What should be prioritised under the new government to boost mining sector performance and attract new long-term investors to the country?

GARIBALDI THOHIR: As regards coal mining, the priority needs to be establishing more independent power producers. By facilitating the construction of more power stations, the government will help improve the outlook for coal mining as well as solve the potential electricity crisis. As for other minerals, the government should prioritise value-added activities that are economically viable. Mining is a long-term, capital-intensive, risky, low-yielding business, so what miners need is certainty. Coal miners are also encouraged by the government’s goal of increasing power capacity by 35 GW, which would come mostly from coal-fired plants. Another priority is simplifying the process of land acquisition, and the new Law No. 2/2012 helps achieve this. Greater coordination is also needed at all government levels and agencies so that decisions and implementation are consistent. Mining companies do not oppose regulations: our business is one of the most regulated in the world, thus anything the government can do to reduce regulatory uncertainty is highly appreciated.

How do you expect coal export markets to evolve in light of the slowdown of growth in China?

THOHIR: Coal export markets are in a chronic oversupply due to many years of over-investment brought on by very high prices. The oversupply situation is slowly correcting. China’s slowdown has been expected for some time as its economy moves from manufacturing to consumption and services. The Chinese have been signalling that they want to preserve higher-quality and more sustainable growth. While the demand for coal in China is set to continue increasing, the slowing growth rate could lead to reduced coal imports.

Despite the slowdown, China is expected to add an average of 50 GW in coal-fired capacity to its power grid per year in 2011-17 and an average of 20 GW per year in 2018-20. The Chinese coal industry is evolving with major supercritical mine-mouth power stations being built, together with high-voltage, long-distance transmission lines from the mines to the coastal cities. In addition, overall Asian coal import markets are expected to grow over the next decade, in India and South Asia as well as South-east Asia and North Asia.

If demand is still growing, albeit more slowly, when do you expect equilibrium in coal export markets?

THOHIR: It is very hard to predict coal market conditions and prices, especially when we are nearing the bottom of a cyclical downturn. Such downturns are a process of discovery that develops as the causes are revealed. The tapering of oversupply has taken longer than expected due to take-or-pay contracts in Australia, which incentivise loss-making producers to expand their output, and to undocumented coal mining in Indonesia. Therefore, although we did see a reduction in coal output from Indonesia in the first quarter of 2015, production from Australia increased, so perhaps we have to wait until demand catches up, which we expect to happen in the not-too-distant future.

In what ways has the environmental impact of coal-related activities changed in Indonesia?

THOHIR: Coal-related activities in Indonesia are subject to environmental regulations at international standards. These are encapsulated in the environmental feasibility assessments required before mining can start, and in the monitoring programmes that follow. Indonesia enforces the protection of forest areas, the quality of water discharge and the reclamation of land to ensure a minimum impact of mining on communities and a maximum value to the community. These standards continue to evolve in line with global standards, and in some areas, such as community development, Indonesian coal miners are now world leaders. The use of coal in Indonesia provides low-cost energy, which is vital to the country’s economic growth, but it must be done with best-practice environmental technologies.