By Eddy Suprapto
Presidium of the Professional Society for Democracy
JAKARTA: PT Bukit Asam (PT BA) has implemented coal downstreaming as a strategy to increase added value, create jobs, and reduce dependence on raw coal exports. Key projects, such as the production of Dimethyl Ether (DME) and the development of chemical derivative products, aim to support national LPG substitution and strengthen the competitiveness of the Indonesian energy industry.
Despite its significant economic potential, PT BA faces technological, investment, and regulatory challenges that must be addressed to ensure optimal downstreaming and significant contribution to the national economy.
The national coal industry is currently facing global pressures related to the transition to clean energy and fluctuations in global market prices. To remain competitive in the energy industry, PT Bukit Asam Tbk (PT BA) is required to strengthen its competitiveness through technological advancements and the transformation of its energy products into more modern ones. One strategic step taken is downstreaming coal through the production of Dimethyl Ether (DME).
Background of Downstreaming
PT Bukit Asam Tbk (PT BA) was founded in 1981 and accumulated the assets of the Mahakam and Ombilin mining companies, which had been operating since the Dutch colonial era for approximately 100 years. However, PT BA’s business remained unchanged, remaining focused on coal extraction, transportation to ports, and sales to both domestic and international markets.
In line with the national mandate, coal downstreaming is now a necessity for PT BA, particularly through the development of coal gasification as a key project to support the substitution of national Liquefied Petroleum Gas (LPG) and the development of chemical derivatives such as urea, methanol, and syngas. However, PT BA’s coal downstreaming program faces several challenges, particularly in terms of technology and investment, resulting in slow progress.
The Dimethyl Ether (DME) project was agreed upon on December 10, 2020, with construction preparations scheduled for early 2021 and operations targeted for the second quarter of 2024. In this consortium, PT BA acted as the coal supplier, Pertamina as the off-taker, and Air Products and Chemicals, Inc. USA as the technology and funding provider.
However, the consortium disbanded due to various issues, which essentially revolved around the project’s economics. Ultimately, the DME project, as planned at the time, was delayed.
The Urgency of DME Technology Breakthroughs
To promote energy independence, the government issued Government Regulation No. 96 in 2021, requiring first-generation Coal Mining Contracts (PKP2B) coal mines to undergo downstream processing as a condition for permit renewal to a Special Mining Business Permit (IUPK).
To ensure this obligation is met, Minister of Energy and Mineral Resources Bahlil Lahadalia even stated that coal companies that fail to develop gasification risk losing their IUP (Mining Business Permit).
Given the progress made by similar companies in various other countries, this requirement is indeed mandatory. Coal downstreaming can be a key strategy to increase added value and reduce dependence on raw coal exports. The DME project is one important effort in this downstreaming process. Technically, DME is an alternative gas fuel to LPG and diesel that can be produced from coal through gasification and petrochemical conversion.
The development of the DME project can boost the added value of coal and make a significant contribution to the national economy. DME derivatives, such as methanol, can be further processed into formaldehyde, a raw material for resins, plastics, and other products, and acetic acid, used in the production of vinyl acetate and other products. DME also has the potential to be used as a fuel for transportation, industry, and power generation.
Countries such as the United States, Japan, and China have demonstrated the success of coal gasification into other products, including DME. China has even utilized DME for blending with household LPG and developing petrochemical derivatives. This technology forms the foundation for the development of coal downstream processing there.
Unfortunately, PT BA currently deems the DME project uneconomical. The project, which requires an estimated investment of around IDR 41.55 trillion, faces various challenges, including a long production chain, tiered tax burdens, and DME’s lower energy productivity compared to LPG. To make this project economically viable, government incentives in the form of subsidies, tax breaks, and regulatory certainty are needed.
In fact, investment concerns can be alleviated by examining the history of PT BA, which once managed the BA Development, Mining, and Transportation Project (P4BA) with a World Bank loan worth US$185 million.
This project involved changing the company’s status, managing the mine, and constructing a 406-kilometer railway. The railway, eventually known as the Panjang (Babaranjang) network, transported coal from Tanjung Enim in South Sumatra to Tarahan in South Lampung.
The World Bank also built a transport port and arranged for coal shipping from Lampung to the Suralaya PLTU. All of these major programs were funded by a World Bank loan in 1982, and PT BA remains resilient and healthy to this day.
With its extensive past investment experience, PT BA has a solid foundation to meet the challenges of a major DME project. Currently, PT BA holds approximately 6.8 billion tons of coal reserves, creating significant potential for increased value through downstream processing.
On the other hand, concrete government action is expected to facilitate licensing and provide tax holiday incentives in the form of tax cuts for up to 20 years. This reduction will continue after the tax holiday. Then, a 50 percent tax cut for two years will begin when the company starts operating.
Another important joint regulation implemented by the government is the exemption from import duties. Incentives directly reduce the tax burden, thereby achieving a return on investment as expected. This tax cut policy and other incentives will directly increase the project’s Internal Rate of Return (IRR), allowing for a prompt Final Investment Decision (FID).
Economic Value of DME Derivative Products
DME derivatives such as methanol have significant economic value, with a price of approximately $300–400 per ton, generating an annual economic value of $360–480 million. Formaldehyde, with a price of $500–600 per ton and assuming 30% of methanol production is used for formaldehyde, generates a value of approximately $180–240 million per year. Meanwhile, acetic acid, with a price of $600–800 per ton and assuming 20% of methanol production is used, generates a value of $120–160 million per year. The total economic value of DME derivatives can reach $660–880 million per year.
PT BA has implemented a downstreaming program through the DME project, with a production target of 1.4 million tons of DME per year. This project is expected to reduce LPG imports by up to 1 million tons per year and increase state revenue.
More importantly, this project will also increase energy independence, something that has invaluable economic value from a national perspective. Coal downstreaming also has the potential to increase added value, create jobs, and strengthen the competitiveness of the national coal industry.
Challenges and Recommendations
Despite its significant potential, coal downstreaming at PT BA faces several obstacles, including technology, investment, regulations, infrastructure, resource availability, human resource (HR) capabilities, and environmental risks. PT BA needs to enhance its human resource capabilities, improve its infrastructure, and ensure environmentally friendly downstreaming processes to serve as a model for other national mining industries.
With a downstreaming strategy, PT Bukit Asam can increase the added value of coal, reduce dependence on raw coal exports, and contribute more to the national economy.
To overcome these challenges, synergy between the government, industry players, and investors is essential. The government is expected to provide fiscal incentives, facilitate licensing, and provide regulatory support that supports the development of downstream processing. Furthermore, collaboration with investors in technology and investment cooperation can encourage more efficient and environmentally friendly technological innovation.
Thus, the downstream processing process will not only be economically beneficial but also contribute to sustainable development in the national energy sector. This transformation can serve as a model for other mining companies in managing natural resources sustainably and creating high added value.
