As coal companies move to increase production in response to stepped-up demand and high global prices, foreign investors have been snapping up minority stakes in many Indonesian ventures.
The Indian Braj Binani Group, an industrial conglomerate, recently announced negotiations were underway to buy a coal mine from Berau Coal, an Indonesian producer with annual production of around 40m tonnes. The estimated price of the deal is over $100m.
China's second-biggest coal company, China Coal Energy, has also been actively studying purchases in Indonesia, although no moves have yet taken place. Shenhua Energy, another Chinese firm, is expected to announce the acquisition of coal mines in Indonesia shortly.
Meanwhile, local company Indika Energy, which owns 46% of coal producer Kideco, announced on April 15 it plans to launch an initial public offering (IPO) on the Indonesia Stock Exchange in early June.
"There is keen foreign interest in the coal industry in Indonesia," Bob Kamandanu, president director of Berau Coal, told OBG. "Not only have we seen strong interest on the part of investors for the IPOs of several coal companies in 2007, but many coal producers regularly receive offers from investors to buy out their companies."
With demand for energy steadily rising in China and India, two of Indonesia's key export markets, coal companies are looking to boost production. Berau, for example, announced on April 9 an upgrade programme that aims to double output to 30m tonnes by 2013, at a cost of between $100m and $120m.
"The Indian market is driving a lot of the demand for coal, given the requirements of their independent power projects," Kamandanu told OBG.
With IPOs on the bourse bringing in Rp17.5trn ($1.9bn) in 2007, there is clear potential for businesses to raise the capital needed for further expansions.
"Since commodity prices have been rising, nowadays mining companies are very profitable," Aditya Sumanagara, president director of local mine group Aneka Tambang, told OBG. "IPOs are launched to fund expansions of mining activities and the investment comes mostly from overseas."
The publicly traded Bumi Resources sold 30% stakes in two of its mines, Kaltim Prima Coal and Arutmin, to India's Tata Power for $1.3bn in April 2007. Meanwhile, Adaro, the second-largest coal producer in Indonesia, has said it is planning to launch an IPO in September.
With estimated reserves of 64bn tonnes, Indonesia is the second-largest exporter of coal in the world, after Australia, according to the World Coal Institute. The Indonesian Mining Association expects overall production to reach 218m tonnes in 2008, up from 205m tonnes in 2007. Some of this has been designated for domestic power generation, in an effort to meet the estimated 7% growth in yearly electricity demand over the next few years - PLN, the state electricity company, plans to construct 35 power plants by 2010, and favours the cheaper coal over other fuels. However a majority of the country's production, around 150m tonnes per year, will be exported.
As local companies tap the reserves of foreign investment, both directly and through the capital markets, it is becoming clear that production increases will continue for the foreseeable future.
