Business

Monday July 4, 2011

A billionaire and the amazing story of coal mining in Indonesia

Singular Vision - By Teoh Kok Lin


KIKI Barki is veteran Indonesian coal miner and a billionaire.

A friendly and very pleasant gentleman, I had the pleasure of meeting him when he gave a speech to welcome a business delegation organized by Malaysia Chinese Chamber of commerce (ACCCIM/KLSCCCI) and HSBC bank to Jakarta at the end of May.

The most interesting part of his speech was when Barki related how in the late 80s, he signed a long term contract to supply coal from one of his mines to an Asian electric company, when coal prices were less than US$20 per tonne.

The world's coal prices subsequently increased significantly, before his shipments were ready; to add to his misery, cost escalated at the same time. He knew he was in dire straits, even before deliveries begin.

To uphold his reputation as a trusted businessman, Barki said he made his first delivery, and then told the buyer that his losses would mount with every shipment. While he would not renege on his contract, he would nevertheless quickly go bankrupt.

Listed on Forbes: Barki’s stake in coal mining company Tanito Coal group vaulted him to 2011 Forbes magazine list as the 11th richest man in Indonesia with an estimated fortune of US$2bil.

The only way out (for both) was for the buyer to sign another supply contract at the then market price, to give his company an average price that they can survive on. Fortunately, the buyer agreed, the company survived and Kiki Barki persevered.

Today Kiki Barki's stake in coal mining company Tanito Coal group vaulted him to 2011 Forbes magazine list as the 11th richest man in Indonesia with an estimated fortune of US$2bil.

While this may be an interesting snippet from an entrepreneur's success story of perseverance, guts and luck; it is also an amazing story of the phenomenal growth of coal mining in Indonesia, which is electrifying (literally) many parts of Asia.

This amazing story takes off in 1988, when Indonesian coal mining shifted from being predominately a small government owned enterprise (largely in Sumatra) to mainly big privately owned companies with mining concessions, run largely according to international standards (mainly in Kalimantan, with the then untapped rich coal deposits).

During this 23 years period, exports of Indonesian coal increased by an astonishing 30% a year from 4.4 million tonnes in 1988 to 80.8 tonnes in 1999; and then by more than 13% a year from 58.3 tonnes in 2000 to 198.0 tonnes in 2010.

Today, Indonesia is the world's top exporter of thermal coal (Australia is distant second). Exports of mineral fuels (mainly coal) amount to US$18.5bil in 2010 (vs. US$6bil in 2006); contributing to Indonesia's total trade balance of US$22.1bil in 2010.

Indonesia's top two coal export markets are also the world's fastest growing, big and energy hungry economies of China and India; both countries imports 95 tonnes and 58 tonnes of Indonesian coal respectively in 2010, and are expected to increase to 118 tonnes (+24%) and 106 tonnes (+83%) respectively by 2015. Other major export markets are Japan, South Korea, Taiwan and Malaysia.

Indonesia's success of course starts with being blessed with large deposits of high quality thermal coal deposits in Kalimantan and then private investments played crucial roles.

It is fortunate too that the largest Kalimantan coal mines are close to major rivers and ports (so that coal can be barged, railed and transported cheaper to export terminals in the coast), and being geographically closer to major Asian markets by sea makes Kalimantan coal mining viable.

This means Indonesias coal exports to China for example, has a significant price advantage into southern Chinese ports, when compared with the landed costs of domestic coal (for example from Inner Mongolia) into the same southern Chinese ports.

Indonesia's coal mining success story is no doubt also due to Indonesia's improving political and economic stability in the past decade that raised investor confidence.

With investor confidence, many private mining companies could raise more capital to invest in new mines and transport infrastructure such as roads, barges and rails.

The future for Indonesia coal mining will likely become brighter with two major pending improvements.

First, Standard and Poor's signalled it may raise Indonesia's sovereign debt rating to investment grade citing strength in the economy, which the government expects to grow up to 6.5% in 2011, the fastest pace in seven years. More Indonesian companies will then find it relatively easier and cheaper to raise capital.

Second, Indonesia's land acquisition reform bill will likely be passed by lawmakers sometime this year.

This reform bill will resolve difficulties in land acquisitions that have hindered the pace of infrastructure developments vital for industrialization and continued economic growth (Indonesia's 2010-14 development plan has US$220bil in infrastructure development).

In Indonesia, the government is paving the way with the right fundamental changes for businesses to succeed.

In these challenging times, it is easy to be bullish on Indonesia, when you see government policies and private companies move with the same economic imperatives, to the equal benefit of all.

  • Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd

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