CHINA HAS ENJOYED an economic resurgence following the effects of the pandemic in H1-2020. Consumer goods spending in the first half of 2021 was up 23% year-on-year and, showing the scale of the recovery, also up 9% versus 2019. This has led to a strong rebound in the manufacturing and industrial sectors too and with it, a corresponding surge in power demand. With over 50% of the country’s power generation still fueled by coal and stockpiled inventories over 20% down a year ago, there is strong demand from China for imported coal. This has seen prices rise 140% year-on-year to around $149 per tonne in early August, its highest level for over 10 years. With prices still rising and the fact that non-coal power transformation investments are long-lead-time projects, Indonesia's coal mining sector is optimistic about the future for now.
With China accounting for around 27% of Indonesia’s coal exports and it looking for increased supply, “Indonesian coal miners can expect to benefit from the Memorandum of Understanding signed last year between Indonesia's Coal Mining Association (ICMA) and China Coal Transportation & Distribution Association to increase coal exports from Indonesia to 200 million tonnes,” says Hendra Sinadia, ICMA's executive director. As a result, coal miners now have the opportunity to expand their operations and to increase their coal exports to China. Among them is PT Indika Energy, Tbk. After two years of losses, running into millions of dollars, Indika is showing signs of improvement this year, with a profit of $12 million from revenue of $1.28 billion in the first half of 2021.
Indika's ability to generate profits is inextricably linked to Arsjad Rasjid's leadership and strategy since he took the helm in 2016, for the second time. However, Arsjad's path was not easy at first, as he undertook a significant turnaround at Indika in response to then declining coal prices. During the downturn, he took a back-to-basics approach, focusing on costs that could be reduced while maintaining the viability of revenue streams. As a result, Indika earned a profit of $335 million in 2017.
“I always believe that 'cash is king' during a crisis. The majority of business owners, as they look to quickly save costs, are quick to lay off employees. I feel we must ascertain which costs are absolutely necessary and which are not. I also believe human resources should be viewed as an asset rather than a cost,” according to Arsjad Rasjid, president director of Indika Energy.
Indika manages approximately Rp50 trillion in assets and has 609 million tonnes of coal reserves in Kalimantan. Its market capitalization is Rp7 trillion. Indika operates through three divisions: energy resources, energy services, and energy infrastructure.
Last year, Indika successfully generated 24% of its revenue from non-coal businesses, specifically engineering and construction under Tripatra and non-coal-related work under Petrosea. This is an effect of the increasing environmental, social, and governance pressures on the coal industry generally and in response to which Arsjad is seeking to increase Indika's non-coal income to be above 50% of total revenue by 2025. To achieve this, business diversification is the chosen path forward. “Business diversification has been Indika's goal for several years, but it will ramp up its efforts this year,” Arsjad says.
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