MEC Eyes Expanded Kalimantan Coal-Rail Project

Jakarta Globe, Reuters & Irvan Tisnabudi, April 15, 2010

MEC Holdings said on Thursday it is interested in expanding its planned railway project in East Kalimantan and wants to find more domestic buyers for its coal.

Based in the United Arab Emirates, MEC plans to invest $5.2 billion in infrastructure, including a smelter, railway and power plant, to support its coal mine.

MEC executive vice chairman Madhu Koneru said there was potential to expand the planned 130 kilometer railway, perhaps to 1,000 km.

“We are focusing on the [current] railway project, and that is long-time construction,” Koneru said, speaking on the sidelines of an infrastructure conference in Jakarta. “Technically, yes, there is potential [to extend the railway]. Commercially, yes, there is potential. We have planned for expanding the railway if it makes logical sense going forward.”

MEC has a license for a 5,000-hectare coal mine in East Kalimantan and has already finished exploration, Koneru said. The mine has nearly 2 billion tons of reserves and about 30 percent of production will go to the domestic market. The rest will be exported to India and China. Koneru said production would start about six to eight months before the railway begins operating.

The main customer for the domestic coal supply will be the planned joint-venture power plant between MEC and Indian state aluminum maker NALCO, which will supply power to their joint-venture alumina smelter, both near the coal mine. The power plant will cost $1.2 billion, with a capacity of 1,400 megawatts.

MEC’s mine is in an undeveloped part of East Kalimantan, with no road or river connections to a port. It will transport its coal by rail.

The $1 billion railway will have a capacity of 70 million tons a year of coal and will connect MEC’s mine to the coastal port in Bengalon, for export of the coal and import of other raw materials, Koneru said. MEC expects the railway to be operational and ready to deliver coal in 2011.

MEC, along with NALCO, also plans to invest $2 billion in the aluminum smelter, producing 500,000 tons a year, according to Mashael Al Naimi, MEC’s head of corporate communications.

NALCO will own 76 percent stake in smelter and MEC will hold the remaining.

Noeleen Heyzer, executive secretary of the UN’s Economic and Social Commission for Asia and the Pacific, said a public-private partnership (PPP) was the key to achieving MEC’s East Kalimantan project.

“PPP is key because the government can’t do it alone, and MEC certainly can’t do it either, so both parties need to cooperate for the good of the people,” she said.