Economic Conditions and Coal Industry in 2020

Throughout 2020, the COVID-19 pandemic has affected global economic conditions. Based on the World Economic Outlook report, the International Monetary Fund (IMF) predicts that global economic growth in 2020 will contract -3.5% with most countries in the world, including Indonesia, also experienced negative growth.

Based on data from the Central Statistics Agency (BPS), the growth of Indonesia’s Gross Domestic Product (GDP) in 2020, shows a significant contraction of -2.07%, compared to the previous year’s GDP of 5.02%. The government provides various economic stimuli in an effort to save the national economy. Bank Indonesia (BI) as the Central Bank has also issued an accommodative policy by lowering the BI 7-day repo rate. Throughout 2020, BI has lowered the BI 7-day repo rate 5 (five) times, from 5.00% to 3.75%. Despite the decline in economic growth, the Government has managed to keep the inflation rate at a low level of 1.68% with a relatively stable Rupiah exchange rate against the US Dollar from mid to late 2020.

The decline in global and national economic growth due to the COVID-19 pandemic in 2020 has a significant impact on the movement of the coal commodity price index. The average Newcastle coal price index (GAR 6,322 kcal/kg) and ICI-3 (GAR5000 kcal/kg) in 2020 were USD60.45 per ton and USD43.11 per ton, down 22% and 14% compared to the same period last year; USD77.77 and USD50.39 per ton.

The decreasing trend in the world coal price index has an impact on Indonesia’s Reference Coal Price (HBA). The Price of Reference Coal (HBA) released by the Directorate General of Mineral and Coal, Ministry of Energy and Mineral Resources of the Republic of Indonesia in December 2020 was USD 59.65 per ton, or 10% decrease from the HBA in December 2019 USD66, 30 per ton.

2020 Strategic Policy

In the midst of various challenges faced in 2020, PTBA continued to strive to encourage an increased performance. The initial step taken by the Company was to ensure operational readiness to face the COVID-19 pandemic. In order to reduce the spread of COVID-19 in the PTBA work environment, and as a follow-up to the Ministry of SOE’s policy to contribute, in order to support the Government’s strategic steps to overcome the COVID-19 pandemic, PTBA has formed a special team that is responsible for making effective prevention and handling efforts against the spread of COVID-19.

At a time when economic growth is expected to increase amid the COVID-19 pandemic, PTBA will still prioritize the domestic market, especially the PLN Group to provide optimal support for the supply of domestic energy needs. Nevertheless, this does not close the opportunity for PTBA to expand its export market share, especially when the price index rebounds at the end of 2020.

Another strategic policy implemented in 2020 was increasing the capacity of rail transport. The Company has collaborated with PT Kereta Api Indonesia (Persero) to develop the carrying capacity of coal products owned by the Company, with a large carrying capacity, which would provide a balanced ability to increase production volume.

In 2020, the development of coal transportation on the existing railroad from Tanjung Enim to the Kertapati Pier with a target of 5 million tons has been completed and will be increased again towards the target of 7 million tons by 2021.

Meanwhile, the development of coal transportation on the existing railway line from Tanjung Enim to Tarahan Port and the development of coal transportation for the new railway line along with the new Kramasan and Tarahan II pier facilities are in the process of carrying out the work.

PTBA has also signed Head of Agreement (HoA / Master Agreement) with PT Pelabuhan Indonesia II (Persero) to develop the capacity of transporting coal and/or other commodities through rivers and ports in South Sumatra. This coal transportation development cooperation is carried out to succeed the goal of developing the economic corridor of South Sumatra as a national energy barn.

In addition to the development of the coal transportation, the Company also continues to develop the downstreaming of low-calorie coal products through the downstreaming development of gasification project, which is carried out by converting low-calorie PTBA coal into Dimethyl Ether (DME).

In the coal to DME mine gasification/downstreaming project, PTBA is working with Pertamina and Air Products, and the progress of the project development until the end of 2020 is already in the finalization stage of the Cooperation Agreement.

The company is also trying to make other efforts to add value to coal, through the coal downstreaming to activated carbon where PTBA has signed a Head of Agreement (HoA) with activated carbon producers and suppliers PTY, LTD (ACT) based in Australia at the end of 2020.

Comparison between 2020 Target and Realization

The COVID-19 pandemic has caused the coal demand in 2020 to experience a decline due to the lockdowns in various parts of the world or restrictions on economic activities, thereby reducing the need for electricity has an impact on the reducing of the coal demand. The decline in coal demand was also accompanied by a downward trend in coal prices that began in the first quarter and managed to rebound in the fourth quarter of 2020.

Despite facing quite tough challenges in 2020, the Company was still able to maintain a good performance. In 2020, the coal production was 24.84 million tons or decreased from the previous amount of 29.07 million tons, and slightly below the target set in the RKAP Amendment for 2020, which was 25.11 million tons.

Meanwhile, sales in 2020 were 26.12 million tons or decreased from the previous year of 27.79 million tons. This 5% sales achievement exceeded the 2020 target of 24.86 million tons.

The composition of sales in 2020 was 54% for the domestic market share and 46% for exports. This shows the Company’s commitment to continue meeting the needs of the domestic coal market, which is mostly used for industry and power generators.

In terms of financial performance, the Company was still able to record a proud performance amidst the economic and business slowdown as a result of the COVID-19 pandemic, by booking revenues of IDR17.33 trillion, net profit of IDR2.39 trillion, and an EBITDA of IDR4.38 trillion.

As of December 31, 2020, the Company’s total assets amounted to 24.06 trillion or an decreased of 7.82% from the previous year of 26.10 trillion.

Obstacles, Challenges, and Solutions

As previously described, the conditions in 2020 for the coal industry were quite a challenge. In the midst of a significant decline in demand and the coal price index, the Company is targeted to continue to grow well and be able to continue contributing to the national demand for coal.

For that purpose, the Company has implemented a number of strategic policies in order to maintain its performance. Among other things are, implementing sustainable operational excellence and market expansion to efficiency efforts by continuing to reduce business and production costs through the implementation of mining design optimization.

Business Prospects in 2021

We all hope that 2021 will be better than 2020 and will be a year of economic recovery, along with increasing access to the COVID-19 vaccine and vaccination activities.

In the World Economic Outlook report, the IMF predicts that global economic growth in 2021 will reach 5.50% and 4.20% in 2022. Meanwhile, Indonesia’s economic growth in 2021, as predicted by Bank Indonesia, will be in the range of 4.30% -5.30%.

The global and national economic recovery in the next year is projected to have an impact on the coal commodity, both in terms of demand and price index. Estimated Domestic Coal Consumption (DMO) in 2021 according to data from the Indonesian Coal Mining Association (APBI) was 137.50 million tons or an increase of 4.17% compared to the estimated DMO in 2020 (COVID-19 Pandemic Revision). Meanwhile, the coal price index, which has increased since Q-IV 2020, is projected by several parties to continue to have a strengthen.

With the aforementioned conditions, PTBA is optimistic to face 2021, including by setting production and sales targets for 2021, which are 29.52 million tons and 30.72 million tons, which are above the 2020 target. In addition, PTBA is still focusing on working on the downstreaming projects, completing a number of CFPP projects and coal transportation projects with a total capital expenditure (capex) allocation in 2021 of IDR3.84 trillion, this Capex allocation is higher than the 2020 capex of IDR2.77 trillion.