BANPU Overseas Investment Experience Akaraphong Dayananda and Amarit Suwunsawet August 22, 2013
Outlines 1. Introduction - Rationale for overseas expansion 2. Overview of Banpu business 3. Overseas expansion experience: Indonesia and Mongolia • Country information • Business environment • Opportunities and threats assessment • Lessons learnt 4. Conclusion 2
Outlines 1. Introduction - Rationale for overseas expansion 2. Overview of Banpu business 3. Overseas expansion experience: Indonesia and Mongolia • Country information • Business environment • Opportunities and threats assessment • Lessons learnt 4. Conclusion 3
Rationale for overseas expansion 1. As a resource-deficit country and a need to grow in the field of trade, especially exports, we need to go out. In going out, make sure that we can manage our investment and manage potential risks 2. Some businesses will benefit, some will face more competition and need to make adjustment. However, from economic foundation, we can compete to sustain and expand. 3. Overcome difficulty of market accessibility . Through free flows of investment and services, we can have access to concession of land area and to human resources to do businesses, which, if we don’t do it, someone else will definitely do. 4. Reap total benefit for the expansion in aligning with the local country’s policies . Agriculture sector, for example, also offers energy products, such as sugar, palm oil. 5. More investment opportunity and investment protection . Accessing to the market without any form of country agreement will be a problem. AFTA alone is not enough. AFTA still lacks elements of liberalization, facilitation, and it does not specify services investment, or investment protection. 4
Outlines 1. Introduction - Rationale for overseas expansion 2. Overview of Banpu business 3. Overseas expansion experience: Indonesia and Mongolia • Country information • Business environment • Opportunities and threats assessment • Lessons learnt 4. Conclusion 5
Overview of Banpu : The Evolution 6
Map of BANPU Group: Current locations Hunnu (100%) Luannan (100%) WESTERN OPERATIONS NORTHERN OPERATIONS 100 MW CHINA Zhengding (100%) 48 MW Zouping (70%) Newstan Lochiel Gaohe (45%) 70 MW Charbon (95%) (100%) (COD2013) 1.2 Mt Hebi (40%) Inglenook (95%) Awaba (100%) 0.6 Mt 0.8 Mt Airly (100%) Myuna 0.5 Mt (100%) Hong Sa (40%) Neubecks (50%) 1.6 Mt Angus Place (50%) (COD 2015) Mandalong Mannering THAILAND 1.6 Mt (100%) BLCP (50%) (100%) Ivanhoe (100%) Springvale (50%) 5.1 Mt 673 MW 0.7 Mt (mine under 1.5 Mt Kitadin – Tandung Mayang (65%) rehabilitation) (COD 2H11) Trubaindo (65%) 4.7 Mt Indominco (65%) Clarence (85%) Bharinto (64%) 9.7 Mt 1.8 Mt Kitadin (65%) (COD 2H11) 1.2 Mt Jorong (65%) INDONESIA 0.9 Mt AUSTRALIA Coal mine Coal mine project Coal-fired power Centennial (100%) Coal-fired power project 15.2 Mt *2011 Equity production basis ** Comprise EMB and TDM 7
Outlines 1. Introduction - Rationale for overseas expansion 2. Overview of Banpu business 3. Overseas expansion experience: Indonesia and Mongolia • Country information • Business environment • Opportunities and threats assessment • Lessons learnt 4. Conclusion 8
Geography and location : Indonesia Area: Total : 1,904,569 sq km Country comparison to the world : 15 Land : 1,811,569 sq km Water : 93,000 sq km Population : 251,160,124 (July 2013 est.) Country comparison to the world : 4 Real GDP growth rate: 6.2% (2012 est.) Land boundaries: Total : 2,830 km Border countries: Timor Leste 288 km, Malaysia 1,782 km, Papua New Guinea 820 km Natural resources: Petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile soils, coal, gold, silver 9 Source : CIA as of August 13, 2013
Indonesian coal potential *) including 41 billion tons U/G Medium ( 5,100 – 6,100 cal/g, gad) Very High ( >7,100 cal/g, gad) High ( 6,100 – 7,100 cal/g, gad) Low ( < 5,100 cal/g, gad) 10 Source : Geological Agency, 2011
General view of Indonesian coal industry • No.1 - largest thermal coal exporter in the world • Large coal resources and reserves but majority is in low to medium quality. Uncertain coking coal potential • Most of coal resources deposit in Indonesia are within forestry areas • Majority of coal production came from big mining companies which own coal contract of work (CCOW) concession from the Indonesian Government • Coal will be the important source of the country energy mix. By the National Energy Policy, coal in the energy mix will be increased from 18.8% in 2008 to 33% by year 2025 Result in significant growth in domestic demand. 11
The changing face of Indonesian energy mix Indonesian national energy policy on “Energy Mix” toward 2025 is to increase share of coal usage for domestic use to 33% by 2025. Power sector will be key factors in increasing domestic coal usage. 2025 2008 Biomass, Nuclear, Coal Liquefaction Hydro, Solar 2% 5% Oil Geo-thermal 5% 20% Hydro Geo-thermal 5% Bio-fuel 1.6% 2.7% 28.6% Oil Gas 48.4% Gas 30% 33% Coal 18.8% Coal 12
Law and Regulations : Indonesia RECENT CHANGE IN REGULATION IMPACT AND MITIGATION The government issued new rules in March 2012 Impact evaluation on the worst-case scenario. Consult with the industry association. barring Foreign companies from owning >49% of Keep close contact with the Government offices certain mines (including coal) A public company would be deemed as to monitor the situation. FOREIGN domestic investment company according to OWNERSHIP OF Indonesia's BKPM (the Indonesia Investment 49% Coordinating Board) Starting from May 2012, a 20% tax is levied on Impact evaluation on the worst-case scenario. Consult with the industry association. exports of 65 types of unprocessed metals, Keep close contact with the Government offices including metal ore and gold and excluding coal Companies without plans to build processing to monitor the situation. 20% EXPORT TAX facilities in Indonesia will be banned from ON RAW METAL exporting Not applicable to large mining companies ORE EXPORT operating under Contracts-of-Work (CoW) with the government and unlikely to apply to coal mining companies 13
Environment and Community Most of the coal resources are within the forestry area Environmental evaluation by local and central government and tougher consequence for non-compliance action Mine closure plan should be completed before mine operation commences Community and CSR issues 14
Financial Aspects Infrastructure limitation making higher investment cost Higher production cost due to high fuel price, high stripping ratio etc. Limited mining area and more expensive land compensation Degrading quality and no “low hanging fruit” Tax (Non-tax state revenue, forestry fee etc.) 15
Culture and Integration Cultu tural ral Managem gement ent Different t Cross Cultural al Manage gement t Localiz alization ation Cultu ture & Integr grat ation ion Awareness • Personnel nnel Attitude de i.e. Thai vs vs Indone nesian ian • Religio ion n i.e. Buddhism hism, Muslim, Christ stianit ianity • Culture re and Social Traditio ion 16
Culture and Integration Cultu tural ral Managem gement ent Differ erent ent Cross Cultural al Manage gement ent Localiz alization ation Cultu ture & Integr grat ation ion Awaren eness • Build up ‘BANPU Spirit’ Innovation ovation Integr egrity ity Care Syner ergy gy • Implement ‘BANPU Spirit’ in all operating countrie tries • Use ‘BANPU Spirit’ as Behavior Appraisal 17 17
Image and Expectation Govern rnmen ent t Custom omers Local al Shar areh ehold older ers How to build Community ity accept ptan ance? e? Employee Creditor tors Tradin ing Counte terpa rparties ties 18
Image and Expectation Policy • Good Citizen en How to practica cally lly imple lement nt and refle lect ct • Support ort Govern rnmen ent t them as Polic icy BANPU’s Image? • Contribu ribution tion to community ity at large • Communic ication tion 19
Government Relations Program Tsunam ami i relief to Aceh, Indon ones esia ia 20
Community Development Program Partic icip ipated ated in muslim religio gious day for all villag ages es around d the minin ing g area Donate ated d for the floodin ding g victim ims 21
Career Development Program Supporte orted d the trainin ing g on environ ironment t and ocean anic ic agric icultu ture Agric icultu lture re Demo-plot ot 22
Educational Support Program Compute ter Lab Donation ion Education tional l Tools for kinder ergarten rten 23
Geography and location : Mongolia Area: 1,564,116 sq km Population: 2,869,521 (Dec 2012 estimate) Capital city: Ulaanbaatar (literally, “ Red Hero ” ) Population:1,2 ml Real GDP growth: -12.3% in 2012, Nominal GDP-USD10 billion Corporate tax rate: - 10.0-25.0% Natural Resources: Coal, copper, molybdenum, silver, iron, phosphates, tin, nickel, zinc, wolfram, gold, uranium, and petroleum 24
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