Adaro Energy’s strength is anchored on our robust business model: a vertically integrated coal supply chain, with subsidiaries involved in almost all aspects of our operations.
PT Adaro Energy Tbk (AE) is an integrated coal mining and energy company, with businesses spanning over eight pillars in the coal, energy, utilities and supporting infrastructure sectors. We strive to achieve our vision to be a leading Indonesian mining and energy group, providing reliable energy to support Indonesia’s growth by continuously improving and expanding our operations. We have subsidiaries involved throughout the coal supply chain, from pit to power which gives us full control over the costs and operations on the entire chain, while at the same time allowing for each subsidiary to operate independently and thus create competitive supply chain that produces optimum value.
We produced more than 58 million tonnes (Mt) of coal in 2019, making us one of Indonesia’s largest coal producers. Our main thermal coal product, Envirocoal, is uniquely positioned in the global seaborne thermal coal market due to its ultra-low pollutant content. We also produce hard coking coal product from our mines in Kalimantan and Australia, making us one of the few hard coking coal producers in Indonesia.
Even though coal mining remains the Adaro Group’s core business, we continue to develop other business pillars namely Adaro Services, Adaro Power, Adaro Logistics, Adaro Land, Adaro Water, Adaro Capital and Adaro Foundation, which directly and indirectly support the Adaro Mining pillar. Due to the coal industry’s cyclical nature, we aim for businesses under these seven other pillars to be able to operate independently, while enjoying the efficiency and reliability from our vertically integrated operations.
The Adaro Group’s Eight Business Pillars
AE is well aware of the cyclical nature of the coal industry, the volatility that ensues and its impact to AE’s business, so diversifying beyond coal mining is not only a viable, but also a wise decision to take. Over the years, AE has been adding business units and currently operates under eight pillars generally classified into coal mining and non-coal mining. Within each pillar, AE’s subsidiaries perform as independent profit centers and strive to keep expanding third-party business besides serving the Adaro Group. After these subsidiaries develop more established operations, and if it is determined that taking these subsidiaries public will create shareholders’ value, AE may list them on a public exchange.
Our vertical integration is focused on our long-established South Kalimantan Coal Co-operation Agreement (CCA) area, owned and operated by PT Adaro Indonesia, which is housed under the Mining Assets unit. Adaro Indonesia’s mining in South Kalimantan have historically accounted for the bulk of our revenue.
At the CCA site, Adaro Indonesia and several subsidiaries under Mining Services alongside third-party contractors handle work from mining and overburden removal activities to building and operating a conveyor system, haul road and barge-loading river port.
After the coal is mined and transferred to barges, subsidiaries under Logistics Services take care of transportation, handling our river and marine logistics activities in South Kalimantan and taking the coal to our offshore anchorage for trans-shipping or to our coastal storage terminal.
The final part of our vertical integration is Power. With the goal of delivering positive energy to help fuel Indonesia’s growth, Adaro Power aims to participate in various power generation projects and become a major contributor to the country’s electricity generation sector, using coal from our own concessions. We expect our Power division to play a key role as we continue to seek growth without taking unnecessary risks.
We intend that this vertically integrated model will be replicated in recent acquisitions we have made in other areas of Indonesia (which account for most of our subsidiaries that are still in development mode).
Our subsidiaries are also positioned as independent profit centers, and if it is determined that taking our subsidiaries public would create shareholder value, we may list them on a public exchange in the future.
See the flowchart above for a detailed explanation of Adaro Energy’s subsidiary structure.
The Benefits of Vertical Integration
As our business model gives us better control over our costs and risks, we are able to offer a better reliability of supply to our customers by reducing counterparty risk and the likelihood of disruptions to our operations and expansion plans. This in turn improves the marketability of our coal.
Having better control over our costs also means we are at the bottom end of the global cost curve. In addition, being located in Indonesia is a strategic advantage as it gives us close proximity to emerging economies in the Southeast Asia region, India and China.This allows us to supply coal to our primary markets in Asia at lower freight costs compared to coal producers in other countries such as Australia and South Africa.