APBI 2017 Outlook and Goals

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1 APBI 2017 Outlook and Goals Pandu Sjahrir, Chairman of APBI-ICMA CEO Gathering Raffles Hotel Jakarta, 24 November 2016

2 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

3 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

4 Indonesia s Coal Production Forecasts Metric Tons APBI s Forecasts E 2017E 2018E 2019E Export (MT) Domestic (MT) Production (MT) Forecasts Comparison 2015A 2016E 2017E 2018E 2019E NEWC Price (US$/ton) Production (MT) APBI IDN Govt RPJMN Source: Various analyst reports 2015, GlobalCoal, Dir. Gen of Mineral & Coal MEMR Presentation Nov.2015, Bloomberg, internal analysis

5 Indonesia Coal Export Destinations ( ) Million Metric Tons China India South korea Taiwan Total Coal Export With economic slowdown in China, in 2014 India replaced China as largest coal importer Along with the economic slowdown in China, Indonesia s total exports also decreased Source: Central Bureau of Statistics Indonesia, 2016

6 Coal Contribution to Indonesia Economy Contribution to Indonesia s GDP Non-Tax Revenue from Mining (Non-Oil and Gas) IDR Trillion % % 3.0% 3.0% % % GDP from Coal Mining % of Total GDP IDR Trillion 3.5% % 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Other than being the most economical source of energy for electricity, coal plays an important role in supporting Indonesia s economy Government regulations are mainly aimed at increasing revenues (tax and non-tax) from the mining industry (non-oil & gas) and prevent illegal mining Source: Central Bureau of Statistics Indonesia, Budget (APBN) Realized

7 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

8 Indonesian Economy & Energy Demand GDP Growth (%) Electricity Consumption (TWh) FORECAST Electricity Consumption per Capita (KWh) % 6.0% 5.6% 5.0% 4.8% , ,089 1, , % 7.1% 7.5% 8.0% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% ,322 1,409 Energy plays fundamental part in economic growth process. Economic growth needs to be supported by sufficient Electrification Ratio (ER) Power consumption is related to productivity level of its population. As countries switch to manufacturing-based economies, power consumption per capita increases Source: PLN Business Plan (RUPTL) ; Central Bureau of Statistics (BPS); Note: PLN is State Electricity Utility , ,

Growing Power Demand As government pushes for infrastructure & industrial development, low electricity consumption and installed capacity levels create significant upside potentials in electricity

9 Growing Power Demand As government pushes for infrastructure & industrial development, low electricity consumption and installed capacity levels create significant upside potentials in electricity demand ASEAN Electrification Ratio Comparables Target 2019: >95% Energy Consumption per Capita (KWh) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-8,023 7,765 3,724 2,501 Brunei Singapore Malaysia Thailand 1, Vietnam Indonesia Phillipines Laos Cambodia Myanmar Indonesia is behind its ASEAN peers in Electrification Ratio (ER) Developed countries tend to have larger electricity consumption per capita Source: PLN Investor Presentation May 2015, RUPTL , MEMR, World Bank, Indexmundi

Financing) US$ 19 25 bln EQUITY US$ 8-11 bln As a means to increase ER from currently 88% to >95% in 2019, President Jokowi Administration committed to

10 35GW Electricity Plan 35 GW Power Program 57% 34% 9% Coal Fired Power Plant (CFPP) Gas & Steam Power Others ~20 GW ~12GW ~3GW PLN 2 GW IPP 18 GW Project Costs US$ bln DEBT (Proj. Financing) US$ bln EQUITY US$ 8-11 bln As a means to increase ER from currently 88% to >95% in 2019, President Jokowi Administration committed to add 35GW to existing installed capacity of 46 GW 57% of the total 35 GW power projects will come from CFPP and require significant participation from private (IPP). Total project cost to be borne by private sector / IPP : US$ bln Source: Internal calculations; RUPTL

11 CFPP Will Drive National Electricity Planned Year-End Capacity 2025 Installed Capacity Composition 35 GW Electricity Program Future Electricity Programs GW GW 113 GW GW 94 GW 97 GW 100 GW104 11% 13% GW 54 GW 67 GW 46% 30% GW 28 GW 31 GW 48 GW 53 GW 55 GW 55 GW 56 GW 56 GW 58 GW CFPP Others Total Renewables Gas Coal Others Total installed capacity will grow by 10% CAGR in the next 10 years. CFPP installed capacity will grow by 11 % in the same period By 2025, coal-fired power plants will make up 46% of all power plants in Indonesia Source: RUPTL

12 Coal Requirement for CFPP Forecast 35 GW Electricity Program Coal requirements for power (million tons) Installed coal-fired power plants (GW) 48 GW 53 GW 54 GW 55 GW 55 GW 56 GW 58 GW 26 GW 27 GW 31 GW 11 GW GW 15 GW 16 GW GW 23 GW CAGR: 21% CAGR: 21% Coal consumption has increased by 21% CAGR in past five years It is expected to continue to increase by another 21% CAGR from 2016 until 2019, if 20 GW of new CFPP capacity from 35 GW program is installed according to plan This assumes each MW requires tons of coal p.a. Source: PWC Report - Supplying and Financing Coal-Fired Power Plants in the 35GW Program, RUPTL

13 Coal s Dominance in Energy Mix of World s Largest Importers Energy Mix China Other Renewables 11% Other Renewables 15% Nuclear 2% Gas 6% Hydro 21% 2015 Energy Mix India Coal 60% Hydro 15% Nuclear 12% 2035 Gas 11% Coal 47% Other Renewables 15% Other Renewables 26% Nuclear 2% Diesel & Oil 8% Hydro 14% Source: International Energy Agency Coal 61% Nuclear 3% Hydro 15% Gas 10% Coal 44% Diesel & Oil 2%

14 More CFPP are still under construction. Demand for coal is here to stay.. Country Announced Pre Permit Development Permitted Announced + Pre Permit Development + Permitted Construction China India Turkey Indonesia Vietnam Japan Total Note: in GW Despite continued issues surrounding climate change, as well as rise in renewable energy, the world is still building more coal-fired power plants due to better accessibility and low price Source: Coal Swarm, Greenpeace (data as of July 2016)

15 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

16 Past Coal Price Fluctuation Provides Producers with Future Caution US$/ton US subprime mortgage crisis Fed fund rate hike uncertainty Collapse of commodities Significant price hike in last two months How long will it sustain? Will there be significant production ramp up? Although only a handful of coal companies in Indonesia experienced coal price boom in , many went through the cycle of coal price volatility in This should influence them to have more prudent and cautious stance in the event of future price recovery as seen of late

17 Falling Profitability & Investments EBITDA fell 74% since 2011, from US$ 6.5 bn to US$ 1.6 bn in 2015 Capital expenditure (capex) dropped by 79% since 2012 from US$1.9 bn to US$0.4 bn by end 2015 Mining industry is expected to decrease capex by further % in 2016; this may be approaching the level where investment is not sustaining reserves each year $ billion $121 $97 $85 $71 $ EBITDA Capex NEWC Price ($/ton) Source: PWC Report Supplying and Financing Coal-Fired Power Plants in the 35GW Program ; Bloomberg

18 Sterilization of Reserves Average strip ratio has plunged from 9.6x in 2011 to around 6.6x in Strip ratios have likely continued to fall in 2016 Mine plans are being modified, setting lower strip ratios and reducing reserves to be able to return to profitability This is likely to make future reserves more costly to extract, or even uneconomical to extract, which can result in sterilization of remaining reserves from the mine plan Industry Strip Ratio avg. = 9.6x 2015 avg. = 6.6x Adaro ITM BukitAsam Harum Bayan Toba Bara Baramulti Atlas 2011 SR 2015 SR Source: PWC Report; Annual Reports

19 Such Challenges Impact Decline in Mineable Reserve MoMER Data 24 PWC Survey 120 Coal Type Reserves (billion ton) % GAR Low % <4,700 Medium % 4,700 5,700 High 1.6 5% 5,700 6,700 Very High 0.9 3% >6,700 Total % $97 39% 29% $ Mineable Reserves(billion tons) NEWC Coal Price Data from MoMER as of 2012 suggests Indonesia has more than sufficient reserves of 32.4 bn tons Based on PWC survey, mineable reserves in 2015 were reported at 8.3 bn tons, contrasting MoMER figure of 32.4 bn tons Difficult to validate information, as MoMER does not publish detailed methodology and sources of data This was down by 29% from previously reported JORC of 11.7 bn tons in 2012 Decrease in NEWC coal price has reduced economically mineable reserves Source: MoMER Strategic Plan (Renstra), PWC Report Supplying and Financing Coal-Fired Power Plants in the 35 GW Program

Coal Consumption Forecast Switch to imports Coal Type 2015 2019 2024 2030 2050 DMO (Power) DMO (Others) 88 166 175 185 226 2 74 78 82 101 Exports 313 160 140 116 36 Total 403 400 393 383 363 By

20 Coal Consumption Forecast Switch to imports Coal Type DMO (Power) DMO (Others) Exports Total By end-2019, coal consumption for DMO (power) is expected to reach 166 mn tons We should see steady increase in coal consumption for DMO (power) going forward Coal consumption for is forecasted to be in range of million tons per annum Source: PWC Report; RJPMN (National Medium-Term Development Plan)

21 Uncertain Coal Supply Based on PWC s March 2016 report, current proven coal reserves are at 8.3 bn tons Assuming coal reserves of 8.3 billion tons, with annual production forecast of mn tons at current coal prices, current coal reserves will run out by 2036 This is less than 20 years into lifecycle of new CFPP (typically years from COD) Source: PWC Report ; RJPMN

22 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

23 1 3 Cost Based Pricing for Mine Mouth Power Producers Replanting Obligations in the Reclamation of Watershed Areas KEY ISSUES 2016 Increase in Non-Tax State Revenue for the Use of Forests Calculation on National Coal Price Benchmark 2 4

24 1 Cost Based Pricing for Mine-Mouth Power Producers Governing Regulation Key Issues Outcome MoEMR Ministerial Regulation 10/2014 Coal purchase price by mine mouth CFPP at cost plus 25% margin Coal purchase price by mine mouth CFPP determined by PLN 25% margin is not cost competitive enough to be borne by PLN and prevents producer from flexibility in setting its coal pricing Coal procurement process may take longer time to obtain PLN approval MoEMR Ministerial Regulation 24/2016 Revised coal purchase price at cost plus 15%-25% margin provides win-win solution to PLN and producers Price determined between mine mouth CFPP and coal supplier expected to simplify coal tender process

25 2 Higher Non-Tax State Revenues (PNBP) For Use of Forests Governing Regulation Government Regulation (PP 33/2014) New PNBP formula includes L-1 Area (buffer area) With new multiplier for L-3 calculation at 7 times Key Issues New formula for L-1 Area creates additional burden and can cause double levy for IPPKH holder, previously only for L-3 area (damage area) New multiplier for L-3 calculation becomes too onerous for IPPKH holder, previously 2 times Significant increase in PNBP by 100%-250% borne by IPPKH holder Action APBI is pushing for revision in PP 33/2014 and currently submitting to supreme court for judicial review to restore: PNBP formula only for L-3 Area (damage area) Multiplier for L-3 calculation at 2 times

26 3 Replanting Obligation for the Rehabilitation of Watershed Areas Governing Regulation Ministry of Forestry Ministerial Regulation P87/2014 New ratio for replanting obligation for rehabilitation of watersheds (DAS) area is 1:1 to total IPPKH area. IPPKH holder to determine their own rehabilitation area. Key Issues Previously, the ratio applied was only 1:1 to total L-3 area (damage area) only Previously it was part of government responsibility to determine location for rehabilitation area Higher rehabilitation cost and additional effort to search rehabilitation area Action APBI is pushing for revision in Ministry of Forestry Ministerial Regulation P87/2014 and currently submitting to supreme court for judicial review to restore: Ratio for rehabilitation of watershed (DAS) area is 1:1 to total L-3 Area only Government responsibility to determine location for rehabilitation area

27 4 Revision to Formula of National Coal Price Benchmark (HBA) Governing Regulation Key Issues Action Potential revision to Directorate General of Coal and Minerals Regulation 515/2011 proposed by MoEMR: Two price criterion for the HBA, a mid to high calorie coal price criterion and a low calorie price criterion Index formula adjustment in the calculation of HBA (prev. 25% ICI-1, 25% Platts, 25% NEX, 25% GC) Low calorie price criterion may drag down the overall HBA price Unclear of what impact the adjustment will have on HBA price APBI is actively involved with PT Coalindo Energy in ensuring that revision to such formula will provide the most beneficial outcome to the Gov t and domestic producers

28 Agenda 1 Indonesia Coal Industry Overview 2 35 GW Program & Coal s Role in Energy Security 3 Challenges Faced 4 Agenda Addressed in Goals

29 Cost Based Pricing Policy Example of how it works? Long-term cost-based price contracts between coal procurers (PLN and IPP) and coal miners. Price at which coal procurers purchase coal (approx. $36-38/ton) Long-term average mining cost (approx $30/ton) Fixed margin (15% - 25%) * * * * * Positive effects of policy to miners Provide predictable and stable returns for miners Recovery in investments, encourage life-of-mine planning and stabilize economically mineable reserves Incentive to invest in IPP Advantages to Government Protects against increase in price of coal Avoids domestic reserve crisis and need to import coal and/or switch to more costly alternatives Cost based pricing should not only be applied to mine mouth CFPP but to all CFPP s

30 APBI s 2017 Goals No Issues Relevant Regulation POLICY APBI s Proposal Action Plan 1. Cost Based Pricing Policy MoEMR Ministerial Regulation 24/2016 Cost based pricing to be applied across the board to all IPP tenders Long term coal supply contract (i.e. Min 5 years, more than 1 supplier) Extensive discussions with relevant Gov t institutions and all stakeholders on coal supply sustainability Actively involved in workshops, seminars and small group discussion to deliver APBI s proposal Media campaign 2. Higher PNBP for Use of Forest GR 33/2014 PNBP formula only for L-3 Area (damage area) Multiplier for L-3 area calculation at 2 times Submit judicial review to supreme court Cooperate with RHLBT Forum to secure Gov t support 3. Replanting obligation for rehabilitation of watersheds (DAS) area Ministry of Forestry Ministerial Regulation P87/2014 Ratio for rehabilitation of watershed (DAS) area is 1:1 to total L-3 area only Government responsibility to determine location for rehabilitation area Submit judicial review to supreme court Cooperate with RHLBT Forum to secure Gov t support

31 APBI s 2017 Goals No Issues Relevant Regulation 4. Revision plan to Formula of National Coal Price Benchmark (HBA) EVENT Directorate General of Coal and Minerals Regulation 515/2011 APBI s Proposal Assess prospects that revision to such formula will provide the most beneficial outcome to the Gov t and domestic producers Action Plan Conduct study with PT Coalindo Energy to come up with alternative recommendations to Gov t Coaltrans Event - Achieve better economic benefit for APBI Enhance stakeholder engagement Focus on high quality topics Renewal cooperation contract Ensure better quality of participants (focus on high level positions) Actively give inputs on major issues at hand

32 THANK YOU

Indonesia Coal Industry Update 2016

Indonesia Coal Industry Update 2016 JOGMEC Coal Investment Seminar Tokyo, 27 January 2016 CONTENTS 1 Indonesia Coal Industry 2 Coal as Key to Increase Electrification Ratio 3 Future Energy Mix CONTENTS