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Planting the seeds for Indonesia's future

Article - September 3, 2012
The young and dynamic PT Apple Coal (Indonesia) is committed to investing substantially in Indonesia despite the current turbulence of the sector. Trading 2.8 million tons in 2011, Apple Coal is set to grow into a fully-integrated coal trader - targeting 10 million ton per annum capacity, offering pit-to-power plant solutions
Coal traded below $90 per ton in June 2012 for the first time since August 2010. Harry Su, Head of Research at Bahana Securities, has predicted that this will fall further to an average of $88 per ton for the second half of the year. The industry is changing, having undergone a transition away from long-term contractual agreements and towards ‘on the spot’ consumerism allowing for repeated bargaining and index referencing.

However, traders are well aware of the inherent volatility within their business, as they must quickly become accustomed to the fluctuations relating to logistics costs that far surpass the price volatility of the commodities they trade. Whilst speculators may point at the imminent development of China’s railway infrastructure or the introduction of advanced technologies such as High-Voltage Direct Current (HVDC) as a threat to players within Indonesia’s coal sector, the situation remains – coal is available in abundance, transported easier than any of power-related resource, and is both easier and less expensive to produce.

Indonesia is experiencing an energy-intensive period of development, and with more than 50% of electricity generated from coal in 2012, has initiated a long-awaited shift away from oil as its main source for energy; a popular occurrence for coal companies. Last year, general mining companies listed on the Indonesian Stock Exchange (IDX) ranked first in terms of transaction volume and frequency, of which coal mining companies constituted 70%. However, there has been significant confusion this year in relation to the government’s policies regarding coal. Ministerial Decree no.7/2012 – which requires miners to apply for a ‘clean and clear’ status in order to obtain a specific export permit and a 20% export tax – was believed by many to be applied to coal as well as the other 65 mineral commodities. While this was dispelled recently to a great sigh of relief from the coal industry, a looming export ban on coal of low calorific value is still a grave concern. 

Considering the extent to which Chinese and Indian companies are buying coal falling within the 5,100 kcal/kg and 5,700 kcal/kg category currently, and the fact that they have recently begun to purchase coal with a calorific value lower than 4,000 kcal/kg, such a ban could receive strong opposition.
“Our plan is to be a company that operates right from the pit of the mine to the boiler
of the power plant.”

Nischal Jain, Chairman of Apple Coal

Despite such uncertainty, Apple Coal has forcefully continued its expansion in Indonesia since commencing operations in April 2009. Operating as a subsidiary of Apple Commodities Ltd in Hong Kong, Apple Coal provides mining support and commodity trading services to its parent company’s nine mines – six of which are 100% owned by Apple Commodities.

“We traded 2.8 million tons in 2011 and target as much as 4.5 million tons this year,” explained Chairman Nischal Jain.  Apple Coal is aggressively expanding the services it offers. Currently operating in Indonesia under ‘Free On Board’ terms, the company shall commence ‘Cost & Freight’ in October of this year.

“Our plan is to be a company that operates right from the pit of the mine to the boiler of the power plant,” says Mr Jain.

While personally dedicated to establishing a long-term presence in Indonesia, Mr Jain sympathises with those disappointed with the current regulatory framework.

“The government is attempting to encourage investment in power generation while simultaneously limiting foreign ownership of the necessary resources. If I want to erect a power plant, I want to have control over the feedstock. However, the removal of PLN’s monopoly over power production clashes with another government policy relating to a required time-frame for the divestment of ownership within the mining sector,” he says.  

In light of the passing of the long-awaited land acquisition act, Apple Coal is particularly keen to invest in physical infrastructure, and has already commenced the groundwork for what will be an impressive coal logistics facility in Sumatra.
“By the end of next year we will have something that provides a universal service to others as well as for our own captive use,” says the Chairman. However, whilst wishing to develop the areas in which Apple Coal operates for commercial reasons, the company places importance on giving back to the local communities. Currently doing so through education-based initiatives for children and the provision of medicine for the elderly, in the future Nischal Jain hopes to add value to the land on which it operates – giving it back with the ‘addition’ of schools and hospitals.

Apple Coal is an innovative presence within the Indonesian coal industry, and envisions entering the renewable and alternative energy sectors in the future. “Right now, we are in advanced talks with an Asian company concerning coal gasification.

We are planning to be partners on their feedstock, and they will be investing in Indonesia in the coal gasification technology,” explains Mr Jain. “Furthermore, we are assessing potential solar power ventures in Sumatra and Kalimantan because that is where the power is needed the most.”

Currently obtaining its capital expenditure budget through promoter capital and equity partner participation, Apple Coal will certainly be undergoing an IPO – most likely in 2013