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Thursday, 09 September 10
INDONESIA SWAPS COAL FOR INFRASTRUCTURE - FT


As Asia’s major economies bound forward and their hunger for energy surges over the next decade, Indonesia is strategically positioned to take advantage as the world’s largest exporter of coal. It is also neatly placed geographically, on the doorsteps (well, almost) of China and India.

Rudi Vann, a leading coal analyst at Wood Mackenzie, told beyondbrics he expects Indonesian coal production to rise nearly 90 percent to 480m tonnes by 2020. By striking deals to sell it in exchange for infrastructure financing, Indonesia is using the resource to fix its own crumbling roads, ports, bridges - and its power plants too.

As you might expect, the competition to secure Indonesian coal is being led by China and India, as the FT reports on Thursday. Companies from the two countries signed a series of deals in recent months to finance billions of dollars in Indonesian infrastructure projects in exchange for thermal coal.

The deals are reminiscent of the controversial minerals-for-infrastructure transactions that China has struck across Africa to secure supplies of that continent’s resources.

Indonesia is in desperate need of capital and has set the ambitious target of attracting $160bn in foreign investment over the next few years.

The most recent coal deal was in August, when Indian conglomerate Adani said it would spend $1.6bn on a railway line and coal terminal in southern Sumatra.

KPMG estimates India’s coal shortfall will reach 189 tonnes a year by 2015. Domestic supplies could soon be limited by tougher environmental regulations planned by Environment Minister Jairam Ramesh, who recently said a third of India’s coal reserves are in areas off limits to mining companies.

Chinese companies, already heavily invested in Indonesian coal mines, are looking for more acquisitions, but have also inked deals to build power plants. Vann noted that Indonesia has already exported more coal to China in the first half of this year than all of 2009.

The country’s production of thermal coal will likely rise by around seven per cent to 280 million tonnes in 2010, led by purchases from China, India, South Korea, Japan and Taiwan, the Indonesian Coal Mining Association said.

On top of flourishing exports, domestic Indonesian demand will also rise around eight per cent a year as it adds 10,000 megawatts of electricity-generation capacity from coal-fired power plants by 2016.
Source: FT



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