Adaro Signed Three New Barging Contracts to Improve Efficiency and Lower Costs
On November 18th 2010, Adaro signed three new innovative long-term barging contracts to support growth, improve efficiency and reliability and lengthen the maturity of contracted barging volumes.
Following a tender process and negotiations, Adaro simultaneously signed contracts using the same terms and conditions, with three of its six existing contractors, PT Pulau Seroja Jaya ("PSJ"), a subsidiary of SGX-listed Seroja Investments Pte Ltd, PT Mitra Bahtera Segara Sejati ("MBSS") and PT Mandiri Abadi Maritim ("MAM").
PSJ is partly owned by two of Adaro Energy's group of four key shareholders, Edwin Soeryadjaya and Sandiaga Uno, which both own a minority interest in Adaro Energy. Both MAM and MBSS are not related parties.
The arrangement will optimize the utilization of the existing and future barge fleet. Rather than select a single winner to fulfill Adaro's anticipated additional barging tonnage, Adaro split the volumes amongst the three winning bidders, and structured a competitive environment, where additional future tonnages will only be awarded to the best performing contractor.
To get additional future tonnages the contractors must demonstrate progressive reduction in annual fuel consumption and cycle times, and improved availability, while simultaneously maintaining high and sustainable safety standards. Due to the competitive terms of the new barging contracts, Adaro expects the freight rate of those coal tonnages will decrease by up to 15%
This deal follows the acquisition in 2009 of Adaro's barging and ship loading contractor, Orchard Maritime Logistics Pte Ltd ("OML"), which
completed Adaro's long planned goal to vertically integrate the coal supply chain from 'pit to port'. Acquiring OML, a 15 year contractor of Adaro, helped lower freight and handling costs by 6% in 2009. The majority of the assets of OML have been restructured to PT Maritim Barito Perkasa ("MBP"), a national shipping carrier bearing domestic license, to comply with the cabotage law. The deal was also done in order to enable Adaro to better understand the barging business to improve reliability, to lower risk and to negotiate better deals.
Pulau Laut Fuel Terminal
The Pulau Laut Fuel Terminal Project is aimed at ensuring a guaranteed and lower cost fuel supply for Adaro's operations, while at the same time developing liquid bulk-based traffic for IBT from fuel storage and delivery.
On September 1st, 2009, Adaro Energy through its subsidiary, IBT, signed a BOOT (Build-Own- Operate-Transfer) agreement with PT Shell Indonesia. The Pulau Laut Fuel Terminal project was completed during the first quarter of 2010 with total investment of US$40 million which was borne by both Shell and IBT. Shell financed US$24 million to build a fuel storage terminal with capacity of up to 80,000 kiloliters while IBT financed the remaining US$16 million to build other shared facilities such as fuel tanker inloading and fuel barge outloading systems. PT Shell Indonesia selected Lloyd Pte Ltd Singapore as its EPC contractor to construct the fuel tanks, and IBT selected Inti-Duta Consortium to modify the existing jetty facility and piping for fuel loading and unloading. Shell will own, maintain and operate the Fuel Storage Facility until it is transferred to IBT in 2022, or earlier if agreed by both parties.
On May 3rd 2010, the first Adaro fuel barge
berthed and loaded fuel successfully from IBT terminal for transport to Adaro's river port at Kelanis on the Barito River. The fuel jetty can accommodate vessels of up to 48,000 DWT with an installed terminal capacity to load vessels or barges at a maximum rate of 4x250 m3/hour which will be adjusted depending on the capability of the vessels or barges.
The Pulau Laut Fuel Terminal was officially opened by Shell, in co-operation with IBT, on August 27th, 2010. This project is an example of Adaro's continual efforts to further integrate and improve efficiency of its coal supply chain as it reduced procurement cost in 2010, mainly due to lower transportation cost. In addition, the completion of Pulau Laut Terminal project also helped boost vessel traffic by 32% to 95 vessels in 2010 as fuel tankers and fuel barges began using the terminal.
Overburden Crushing and Conveying System
One of the key challenges and major input costs to economically and reliably boost production at the Tutupan pit is the overburden hauling and handling. Overburden removal becomes more expensive, both for contractors and Adaro, as the pit gets deeper and hauling distances increase. Therefore, Adaro initiated a program to install a crushing and conveying system to move overburden which will reduce the fleet of trucks necessary to transport overburden and at the same time lower fuel consumption.
After continuing to work on the preliminary design of the system during 2010, Adaro Energy through its subsidiary, PT Adaro Indonesia, signed contracts with FLSmidth and PT Wijaya Karya (Persero) worth in excess of US$175 million on March 25th 2011. The contract comprises an out of pit crushing and conveying system entailing FLSmidth ABON sizers, RAHCO overland conveyors, and RAHCO mobile stacking conveyors. The system has a capacity of 12,000 tonnes per hour and an annual overburden volume of 40 million bank cubic meter. The contractual elements regarding construction, supervision and management as well as field service will be supplied by FLSmidth Indonesia. The overburden crushing and conveying system is expected to commence by the first quarter of 2013 to secure Adaro's unbroken track record of continuous growth.
Adaro is also reviewing the potential of installing additional conveyors as part of its overall strategy to further increase efficiency and lower dependency on oil. Meanwhile, the Over Land Conveyor (OLC) project was put on hold. The OLC project was expected to reduce operating costs by US$1-2 per tonne compared to the use of trucking, however this project becomes less significant as E 4000 (Wara) continues to receive robust demand in the markets and deliver healthy margins.