Niche Profits
    Category: Riches from Resources By : Ardian Wibisono and Gloria Haraito Read : 1407 Date : Tuesday, May 05, 2015 - 10:06:02

    Ahmad Zamroni / Forbes Indonesia

    The tycoon Panigoro family is known for its oil and gas business, PT Medco Energi Internasional. But they now also operate a profitable coal business, the little known PT Medco Energi Mining Internasional (MEMI), which last year contributed 10% of Medco’s total profit of $10 million. Despite the coal sector’s slump, MEMI is selling its coal—branded as Medco Bara—at a nice margin. “We market our Medco Bara coal at a premium price, with an average of $69 per tonne or 12% higher than the current benchmark coal price,” says MEMI President Director Arie Prabowo Ariotedjo, 55.

    Through this strategy, MEMI hopes to have a net profit of $1 million this year or stable from last year. The secret to MEMI’s success, says Arie, is that Medco Bara has many advantages. For one, it has a relatively high 6,500 caloric content, and burns easily as it contains plenty of volatile matter and oxygen. Medco Bara also has low emissions due to a lower content of nitrogen, although it does have relatively high sulphur, averaging around 3%. He also claims that MEMI can offer consistent quality, reliability and transparent pricing compared to its peers.

    As Indonesian power plants require coal with sulphur below 1%, MEMI must export all its output, and sells its coal to international buyers, such as in China, India and now in Bangladesh. Most buyers are from the cement and fertilizer industry. “We have a niche market in that our product is best suited for the cement and fertilizer industry,” says Arie.

    Given market conditions, MEMI is not raising output but keeping production at 600,000 tonnes this year, the same as last year. MEMI was founded in 2006, but only started producing in 2012 (it took six years to do the preparatory work). It has two concessions—PT Duta Tambang Rekayasa (DTR) and PT Duta Tambang Sumber Alam (DTSA). Both DTR and DTSA are in North Kalimantan with total resources of 13.8 million tonnes and recoverable reserves of about six million. These resources are sufficient for 10 years of mining. To support the operation, MEMI operates and owns a port on the Sebakis river.

    DTR started production in February 2012. DTSA was slated to start in the third quarter this year. But Arie decided to postpone production there because of poor market conditions. MEMI faced a challenge early on as its timing was terrible—its operating IUP (the permit to produce) came at the end of 2011, when coal prices were softening. The mining area also presented technical difficulties, with dozens of faults and multi-thin layers of 30 cm to 1.2 meter.

    In the next future, MEMI would like to acquire other coal assets in Indonesia. Arie also sees opportunity in partnering with international investors. “We would like to be a local partner for foreign investors who are willing to enter Indonesia’s mining sector,” he explains. Arie is, however, worried about recent government moves in the sector. In the current climate, he would like the government to be helping coal firms to survive, not raising taxes and other duties on them. “The government should think about our difficulties and multiplier effects arising from regulations,” he says.