Volume 3, No. 8 August 2024 (1831-1848)
p-ISSN 2980-4868 | e-ISSN 2980-4841
https://ajesh.ph/index.php/gp
Valuation Real Option for Investment Project Addition Source Supply Power in Coal Processing
Plant ABC Mine Operation PT XYZ
Dwi Chandra Syaputra1*, Taufik Faturohman2
1,2Institut Teknologi Bandung, Bandung, West
Java, Indonesia
Email : dwi_chandra@sbm-itb.ac.id1*, taufik.f@sbm-itb.ac.id2
ABSTRACT:
Real options appraisal in investment projects provides a
robust framework for decision-making under uncertainty, especially in the
context of large-scale industrial operations. This research focuses on real
options appraisal for an investment project in a coal processing plant at PT
XYZ's ABC mine operation. The need for this research arises due to the inherent
uncertainty of fossil energy sources, regulatory changes, and technological
developments that significantly impact the viability and profitability of
mining projects. The main
objectives of this study are to evaluate the feasibility of different
investment strategies for the ABC mine operation using real options appraisal
and to determine the impact of various uncertainties on project profitability.
The methodology used was a combination of qualitative and quantitative
analysis, including scenario planning, sensitivity analysis, and the use of
Monte Carlo simuDEFon to model the potential outcomes and risks associated with
different investment options.
The expected outcomes of this research include a comprehensive valuation model
that incorporates uncertainties specific to the coal industry and provides
actionable insights for PT XYZ's investment decisions. The model aims to decide
on expansion projects with reference to constraints optimising
the timing and scale of investments in ABC mine operations, thereby improving
the company's ability to navigate investment project feasibility and regulatory
changes.
Keywords: Real
Options, Investment Strategy, Coal Industry, Uncertainty, Managerial
Flexibility, CAPM, Monte Carlo SimuDEFon.
INTRODUCTION
Coal
remains the world’s second largest primary energy source today, after oil, and
the largest source of electricity. Coal’s future will depend heavily on the
small but significant group of countries – China, India, Indonesia, Pakistan,
Bangladesh, the Philippines and Vietnam – that account for 70% of global coal
consumption and most of the world’s new coal power projects.
President
Joko Widodo’s government aims to phase out coal mining activities by 2030,
gradually closing all coal-fired power plants by 2050 and transitioning to
renewable energy sources. This transition will likely lead to a considerable
decline in coal demand, resulting in reduced mining operations and subsequent
job losses within the coal industry.
The
Indonesian government should take economic factors into account when moving
away from coal, especially with regard to jobs and
regional economies. Additionally, it must carefully manage this transformation
while taking the environment and economy into account. Two conventional energy
businesses could work together to find better solutions based on environmental
factors. This could entail constructing hybrid power plants, which incorporate
energy from fossil sources but are centralized, or co-investing in projects.
From
a regulatory perspective, Indonesia already has UU No.11/2020 about Job
Creation Law, to create an conducive business
ecosystem without ignoring` standards safety and security values, and
environmental sustainability. In addition, the Indonesia Investment Authority
(INA) has also been established which will provide alternative investment
facilities for the development of a green economy.
“The
Indonesian government will also implement a carbon pricing policy in the form
of a carbon cap and trade, as well as a carbon tax scheme in 2023. This policy
will set an upper limit on carbon emissions in certain sectors and introduce a
trade and carbon tax scheme. We hope this policy can provide benefits for the
industry converting its energy into renewable sources," Coordinating
Minister Airlangga explained.
Electricity
generation remains a key issue for Indonesian policy-makers.
Millions of households are still without access to electricity, and large
investments are needed to supply reliable power for households and industries
across the country.
Indonesia,
one of the largest developing countries in the world, is facing challenges in
the electricity sector. The state-owned electricity company Perusahaan Listrik
Negara (PLN), which is responsible for electricity supply, is suffering from
oversupply. Several complex factors have contributed to the situation,
including the 35 gigawatt coal-fired megaproject
announced in 2015. This was revealed by the Executive Director of the Institute
for Essential Services Reform (IESR), Fabby Tumiwa in
the Business Compass programme on the topic 'PLN
Excess Electricity, the State Should Not Lose' on Wednesday (11/10/2023).
With
over 270 million in popuDEFon and as one of the
global leaders in manufacturing, Indonesia is facing a substantial electricity
demand. The industrial and transportation sectors have emerged with the highest
electricity consumption in the country, driven by the need for power for production
and mobility. Over the years, Indonesia’s per capita electricity consumption
has also steadily increased. As an emerging economy, Indonesia’s electricity
demand is expected to rise significantly, particularly in the industrial and
household sectors.
PLN's
power capacity in the Tanjung Redep system in East Borneo Regency, East
Kalimantan, is 33,700 kW with a peak load of 24,888 kW, which is still a
surplus of 8,812 kW. PLN's plan to merge the system with the Tanjung Selor system in Bulungan
district, East Kalimantan, has the potential to improve household and
industrial customer services without the worry of a deficit with a reserve of
21,309 KW.
Indonesia
is one of the largest thermal coal exporter countries in the world. According
to the data from 2022, Indonesia is the second largest coal producer globally
and the largest thermal coal exporter
Indonesia’s
economy lives and breathes coal. In 2022, the Southeast Asian country exported
450 million tonnes of coal, which is more than 100
times the annual consumption in Denmark, placing the country at the top of the
list of coal exporters worldwide. At the same time, Indonesia, a country
renowned for its white sandy beaches, volcanos, partying backpackers and
spiritual yoga, used more than 100 million tonnes of
coal to create enough electricity for the national grid
PT
XYZ, the main entity of the company's subsidiary, diversified its market in
2022 as a strategy to optimize opportunities to increase sales and reduce
dependence on the main market, especially China. PT XYZ successfully gained new
market share in Poland through this strategy and will continue to diversify its
markets to ensure the sustainability of its marketing efforts. The handling and
processing of coal obtained by PT XYZ at the ABC Mine Operational site uses
diesel power generation from 4 units of 500 kVA generating engines using 35%
vegetable liquid fuel, and this is the only power plant for operations. The
single power generation system has been used since the beginning of the mine
operation, when the single system of coal processing operational power sources
is very sensitive to the continuity of coal processing operations.
The power supply performance difficulties at PT XYZ's
ABC Mine Operations pose substantial hurdles that affect operational efficiency
and financial sustainability. The existing reliance on a single power supply
system is causing inadequate availability, which in turn leads to operational
downtime and higher expenses. In order to guarantee
uninterrupted operation of PLN, it is crucial to investigate options that can
enhance the reliability of power supply. It is necessary to conduct a
comprehensive analysis of proposed scenarios, such as the introduction of a
dual power supply system, to determine their practicality. An extensive
feasibility analysis, which includes the use of capital asset pricing models
and risk assessment, will generate the essential data required to make
well-informed investment decisions for upper management. This analysis will
guarantee the long-term sustainability and profitability of PT XYZ's activities
beyond 2027.
This research methodology offers a systematic way to
tackling the power supply issues faced by PT XYZ's ABC Mine Operation. The
objective is to combine decision analysis, financial valuation, and risk
assessment to provide practical insights that assist in making well-informed
investment decisions. This will ultimately improve operational efficiency and
sustainability in response to increasing coal demand.
The
ABC Mine Operation of PT XYZ is encountering operational difficulties as a result of an inconsistent power supply system. The
study will utilize a mixed-approaches approach, combining qualitative and
quantitative research methods to gain a comprehensive understanding of the
problem and its consequences.
RESULTS
AND DISCUSSION
Regarding
the economic performance aspect, the Company has diversified its new market to
Bangladesh, India, and Malaysia. In the midst of favourable
market conditions, the Company has succeeded in penetrating the Polish market
by taking advantage of the coal sales growth momentum when some countries in
the European region are now actively importing coal from various producing
countries, including from Indonesia, as an effect of the disruption of energy,
coal, and gas supplies from Russia to Europe.
When
coal prices rise in 2022, the company's management will see the chance to boost
output. The plan is based on life of mine (LOM) production data, as displayed
in the table below.
Table
1. Data production Life of
Mine (LOM) revision 30 PT XYZ
|
Revision
30 |
2023 |
2024 |
2025 |
2026 |
2027 |
|
DEF |
8.443.000 |
11.700.000 |
13.300.000 |
2.750.000 |
660.000 |
|
PQR |
13.976.000 |
17.000.000
|
19.000.000 |
19.500.000 |
19.500.000 |
|
ABC |
3.291.000 |
4.000.000 |
4.000.000 |
3.000.000 |
2.340.000 |
|
RST |
4.300.000 |
6.050.000
|
5.900.000 |
7.500.000 |
7.500.000 |
|
Total |
30.000.000 |
38.750.000 |
42.200.000 |
32.750.000 |
30.000.000 |
Facing
the situation of coal market diversification with its successful entry into
Poland in 2022, where AMO sites still rely on a single system using diesel
power plants with biofuel blends that are prone to operational disruptions. The
company is considering ways to improve reliability by upgrading the single-system
diesel power plant or exploring a hybrid system that combines with a
subscription electricity supply to PLN, which could be a potential solution.
Including exploring options to purchase PT PLN's excess coal-generated
electricity is included in the power grid management solution.
In
industries with continuous operation, no outages are allowed for the
electricity supply, but this depends on the circumstances, so it can be
summarized in the key performance indicator that availability should be 100% or
performance availability (PA) 100%, whether with a single electrical supply
system or redundant electrical supply systems.
Table
2. Musts and Wants
Decision-making parameters
|
No |
Business Requirement Plan |
Musts and Wants Scenario |
Weight |
|
1 |
Performance Availability (PA) 100% Power Supply full load |
Musts |
Go/Not |
|
2 |
24 Hours electricity operation (No Shutdown) |
Musts |
Go/Not |
|
3 |
Operational expenditure (Opex) <=
Existing |
Wants |
6 |
|
4 |
Small capital expenditure (Capex) |
Wants |
5 |
|
5 |
Duration finish project |
Wants |
4 |
|
6 |
PESTEL positive impact |
Wants |
3 |
|
7 |
Easy operation and maintenance |
Wants |
2 |
|
8 |
Durability investment |
Wants |
1 |
Data parameters and
assumptions
This
subchapter should outline the research design, data collection and input
limitations to answer the research questions and problems identified in the
problem analysis subchapter. This is to ascertain the parameters used to reach
the implications of the findings, highlight the strengths and limitations of
the research, and suggest avenues for future result.
Data power capacity existing
Existing
generation capacity compared to the existing load to see the real situation of
the ABC Mine Operation site power supply. This is a consideration for business
strategies to maintain sustainable production operations, one of the input
parameter considerations.
Table
3. Power Demand &
Installed by grouping load distribution
|
Group
Distribution Load |
Power
Demand |
Power
Installed |
Load |
|
|
1 |
Crusher
1 (CR-08) |
196,17 |
342,55 |
57,7% |
|
2 |
Crusher
2 (CR-10) |
179,18 |
459,25 |
39,0% |
|
3 |
BLC |
184,18 |
196,55 |
93,7% |
|
4 |
Utility |
34,74 |
244,97 |
14,2% |
|
|
Total |
594,27 |
1243,32 |
47,8% |
in
a practical context, Load Power Demand is how much power is needed at any one
time, while Load Power Installed is how much power the system or instalDEFon can provide. Keep in mind that installed power
is not always the same as the power used or needed.
Table
4. Power demand and installaed based on power factor (pf)
|
No |
Group Distribution
Load |
Power Demand |
Power Installed |
Load |
|
1 |
Total Power factor
(0,85) |
699,14 |
1462,73 |
47,8% |
|
2 |
Total Power factor
(0,6) |
990,45 |
2072,20 |
47,8% |
Table
5. Characteristics of
generator sets
|
Qty |
Generator Set
Installed |
Power Rating |
COP |
Possible Power (kW) |
|
4 |
Komatsu EGS630 |
1200 |
70 |
840 |
A
single power supply system falls under the category of continuous operation
power (COP) rating for industries in continuous production. Prime and
continuous power ratings are very similar. However, continuous power ratings do
not allow for varying loads or overload capability. A generator rated for
continuous power can be run for an unlimited number of hours per year, but not
as close to max capability as a prime power generator. They should be run at
about 70% of the maximum rating on average, and never overloaded.
Fuel diesel
The
mandatory biodiesel programme was implemented in 2008
with a biodiesel blend level of 2.5%. The biodiesel content gradually increased
to 7.5% in 2010. In the period from 2011 to 2015, the percentage of biodiesel
was increased from 10% to 15%. Then on 1 January 2016, the biodiesel content
was increased to 20% (B20). The mandatory B20 programme
is well underway with incentives from BPDPKS for the PSO sector. And from 1
September 2018, the incentives were extended to the non-PSO sector.
The
Government of Indonesia The Ministry of Energy and Mineral Resources promotes
the Mandatory Biofuel Program through Minister of Energy and Mineral Resources ReguDEFon No. 32 of 2008 concerning the Provision, Utilisation, and Administration of Biofuel as Other Fuel as
last amended by Minister of Energy and Mineral Resources ReguDEFon
No. 12 of 2015.
Performance Availability (PA) required
Performance
availability (PA) in the Indonesian mining industry refers to the efficiency
and effectiveness of mining operations in terms of production output and
resource utilisation. It measures the industry's
ability to maintain consistent mining activities and meet production targets.
Performance
Availability (PA) is benchmarked against market sales and mining company
performance indicators by regulators such as the Ministry of Energy and Mineral
Resources to monitor industry compliance with reguDEFons
and ensure sustainable and responsible mining practices. And the company set an
availability performance of 93%.
In the meeting with
PLN regarding the electricity subscription plan, the availability of existing
performance could not be agreed upon. However, we conveyed in the meeting that
we hope PLN can fulfil the expected performance availability (PA) of 90%. Nevertheless,
all these things still need to be studied for their benefits, especially for the production of coal crushers.
Production capacity coal crushing
The
performance availability standard at PT XYZ for the production unit, especially
the Coal Processing Plant (CPP), is 93% in terms of time per month or per year.
The year is 365 days, the month is 30 days, and the operating time is 24 hours.
So, the performance availability value is as follows:
There
are two crushers, each with a capacity of 650 Tonnes
per hour (Tph) and 800 Tonnes per hour (Tph) and a
Barging Loading Conveyor of 1500 Tonnes per hour
(Tph). Maximum production per year:
From the
above calcuDEFons, it is found that with a business
strategy plan, production of up to 4 million per year is still within the
maximum production limit.
WACC PT XYZ
WACC
is necessary for companies because it provides a comprehensive view of the cost
of capital, which is essential for evaluating financial performance, making
investment decisions, and determining the value of a company. It is a critical
metric for both financial analysts and company management in making strategic
financial decisions.
Table
6. References WACC calcuDEFon
|
Parameters |
References |
Range |
Value |
|
Risk-free rate
Indonesia |
Indonesia
Government Bond PHEI |
4 years |
6,8754 |
|
Equity risk premium |
Damodaran |
Data 2022 |
7,38% |
|
Default spread |
Damodaran |
Data 2022 |
2,07% |
|
Beta |
Unlevered PTBA Pefindo |
2022 |
0,991 |
%
However,
the company's internal policy is set at 12%.
Capital Expenditure (Capex)
Investment
is more about system planning to achieve 100% performance availability, if the
system uses existing then it needs to add 1 unit of generator ready when one of
the existing generators is carried out maintenance. If the system planning uses
2 electricity supply systems by subscribing to PLN, so that the existing
generator as a backup system when PLN does maintenance.
Table
7. Generator set Capital expenditur.
|
No |
Item description |
Price (IDR) |
|
1 |
Generator set Prime
500 kVA / Stand By 550 kVA |
Rp.
1.050.000.000,00 |
|
2 |
Tax (PPh) 11% |
Rp. 115.000.000,00 |
|
3 |
Oil Genuine set @2
Drum |
Rp.
16.174.092,00 |
|
|
Total in IDR |
Rp.
1.181.174.092,00 |
|
|
Total in USD |
$. 78.745 |
Table
8. PLN subscription system Capital expenditur
|
No |
Item description |
Price (IDR) |
|
1 |
Project system
support for tapping PLN |
Rp. 3.071.767.446,00 |
|
2 |
Tax (PPh) 11% |
Rp.
115.000.000,00 |
|
3 |
Uang jaminan Langganan |
Rp.
249.750.000,00 |
|
4 |
Self-investment
Distribution Network 1,2 Km |
Rp.
904.151.421,00 |
|
|
Total in IDR |
Rp.
4.225.669.446,00 |
|
|
Total in USD |
$.
281.711,30 |
Development analysis using
Kepner-Tregoe
Table
9. Kepner-Tregoe "Musts and Wants" Decision-making
|
Musts (No) |
Single system |
Addition |
Addition subscription PLN |
|
1 |
Not Go |
Go |
Go |
|
2 |
Go |
Go |
Go |
Table
10. Kepner Tregoe "Wants" Analysis
|
Wants (No) |
Single system |
Addition |
Addition subscription PLN |
|||
|
|
Rating |
Score |
Rating |
Score |
Rating |
Score |
|
3 |
- |
- |
4 |
24 |
5 |
30 |
|
4 |
- |
- |
4 |
20 |
2 |
10 |
|
5 |
- |
- |
4 |
16 |
2 |
8 |
|
6 |
- |
- |
1 |
3 |
5 |
15 |
|
7 |
- |
- |
2 |
6 |
4 |
8 |
|
8 |
- |
- |
3 |
3 |
4 |
4 |
|
Total |
72 |
Total |
75 |
||
Considering
that the selection of a backup or redundant power supply system provides
several advantages over a single power supply system, if an unexpected event of
equipment failure or network failure may disrupt a single power source,
Redundant systems provide an additional layer of protection that can reduce
downtime, which can lead to lost productivity. The financial analysis
parameters that will be discussed will determine the true cost difference
between various alternative investment opportunities.
Making
assumptions for project investment analysis involves considering various
factors that can impact the outcome of the project. By presuming as much factual information as feasible and variables that are
thought to have a direct influence, researchers take parameters into
consideration. Project planning, risk management, and decision-making are all
based on these presumptions. While some factual assumptions are disclosed,
others are kept under wraps because the corporation owns the entire set of
data.
Data parameters and limitations
The
parameters used for project investment analysis can be used as a limit for
project implementation. The specific parameters used will vary depending on the
level of detail required for the analysis. The debt-to-capitalization
ratio is 0% or none, while the equity-to-capitalization ratio is 100%. This is
because PT XYZ does not do debt in actual capital expenditure, but the cost of
debt is calculated based on government bond coupons.
The
risk-free rate is a basic concept in financial analysis, which is often used in
investment analysis or valuation. It represents an investor's expected return
on an investment that contains no risk. The yield used in this calcuDEFon is government bonds used as a proxy for the
risk-free rate. The equity risk premium is the compensation expected by
investors for the additional risk they take when investing in the stock market,
and the data used in calculating the company's weighted average cost of capital
(WACC) uses Damodaran data.
The
incremental calcuDEFon here is used to help
understand how changes in operating expenditure can affect the finances of
capital expenditure. It is also used to determine how changes in costs or
benefits can affect investment decisions.
Operational
existing
PT
XYZ's internal policy limit regarding performance availability is 93%, where
100% of total hours of operation in a month period is reduced by 7% of downtime
for maintenance scheduled; this means that the overall internal acceptable
scheduled downtime unit is 7% and an estimated time of about 50 hours out of
720 hours per month. While the limit of PT XYZ's internal policy related to
performance reliability is 97%, where 100% of working hours in a month period
are reduced by 3% of stop time while operating, this means that from the entire
stop time unit that can be accepted internally is 3%. The estimated maximum
time is around 20 hours from 670 hours per month.
Table
11. Expected parameters subscript PLN to supply power
|
Subsciption
payment PLN |
|
|
|
0. Investment Capex |
$316.017,65 |
|
|
1. Productivity |
90% |
|
|
PA |
100% |
|
|
PR |
100% |
|
|
UA |
7.884 |
Hour |
|
HM/Year |
657 |
Hour |
|
HM/Month |
1.110 |
kW |
|
Power supplied |
90% |
|
|
2. Maintenance Cost PLN |
|
|
|
Schedule
maintenance |
0 |
USD |
|
Unschedule maintenance |
17.593,94 |
USD |
|
|
|
|
|
Assumption
Maintenance per Year |
8.797 |
USD |
|
Subsciption
payment I3-TM |
|
|
|
Tarif Waktu Beban Puncak (WBP) |
Rp1.608,67 |
IDR/kWh |
|
Tarif Luar
Waktu Beban Puncak (LWBP) |
Rp1.090,78 |
IDR/kWh |
|
Tarif kVar |
Rp1.114,74 |
IDR/kWh |
|
|
|
|
|
Price/kWh (IDR) |
Rp1.477,36 |
IDR |
|
Price/kWh (USD) |
$0,100 |
USD |
|
Minimum kWh per Month
requirement (IDR) |
Rp180.385.503,38 |
IDR |
The
productivity expected from the company is 90%, and this was conveyed during the
agreement meeting with PLN. However, PLN has its own clause because it is a
state-owned enterprise, so the value is an expectation from management that is
not binding on the agreement.
Incremental cost
Table 12. Total cost compared
to achieving 100% Performance Availability (PA)
|
Description |
Unit |
2024 |
2025 |
2026 |
2027 |
Total |
|
Coal Production |
Mio.ton |
4.000.000 |
4.000.000 |
3.000.000 |
2.340.000 |
13.340.000 |
|
Existing 4 Genset |
$/year |
624.833 |
668.879 |
558.808 |
486.161 |
2.338.681 |
|
PLN |
$/year |
262.570 |
262.570 |
199.127 |
157.254 |
881.522 |
|
Add 1 Unit |
$/year |
704.567 |
668.879 |
558.808 |
486.161 |
2.418.415 |
Incremental
cash flow Identification is based on incremental cash flows, which means there
is a difference in cash flows with and without the project. This includes
estimating all incremental costs associated with the project, including capital
expenditure, operating costs, and financing costs, and estimating the value of
the project at the end of the operational period.
It
focuses on the project's specific impact on the company's overall cash flow,
providing a more accurate picture of its profitability. Develop an Incremental
Cash Flow Timeline that shows the incremental cash flows for each year of the
project's life. For evaluation and decision-making, calculate the net present
value (NPV) to indicate what the project is expected to create.
Summary Capital budget analysis
The
table below contains financial data regarding the capital budget analysis of
the investment model. The data contains specific financial data, projections,
or parameters related to the investment model. The initial investment or
capital expenditure (CAPEX) set indicates the capital required at the start of
business development. The operational or financial evaluation period is set at
42 months, which is approximately 3.5 years. The residual value of 65%
referring to the internal policy indicates that the project has potential
end-of-life value, which affects the overall financial return. The key
financial parameters WACC and the corporate tax rate are critical for
evaluating the net present value (NPV), internal rate of return (IRR), and
other project financial metrics.
The
Cash Flow Analysis uses the concept of incremental cash flow within the FCFF
(Free Cash Flow to the Firm) framework to assess the impact of the project on
the company's overall free cash flow. Analyse the
impact of the project by calcuDEFng the changes in
each component due to the project and adding them up. By summing up these
changes, you can estimate the project's overall impact on the firm's FCFF. If
the incremental sum is positive, it indicates that the project is expected to
increase the company's overall free cash flow.
Table
13. Result in capital budget analysis Non-GRK
|
NPV ($) |
1.171.481 |
|
|
IRR |
6,80% |
|
|
Payback |
16,31 |
Month |
|
PI |
4,71 |
|
|
Discounted Payback |
16,43 |
Month |
The
NPV of $1,254.82 indicates that the project is expected to create value for the
company over its lifetime. The IRR is 7.04%, which is acceptable. If the IRR is
higher than the required rate of return, the project is considered acceptable.
The payback period is 16.10 months. The payback period is the time it takes for
the project's cumuDEFve cash flows to equal the
initial investment. A shorter payback period is generally considered favourable. This suggests the project is financially
attractive.
Risk Analysis
Sensitivity
analysis variables can help in assessing how these changes in NPV may affect
the expected level of an investment. By changing each variable by 20% and
observing how the change affects the model results and gives a rough idea of
the risks and factors that might affect the investment results.
Table 14. Sensitivity
analysis variable Swing 20%.
|
No |
Sensitivity
Analysis |
-20%
Swing |
Current
Assumption |
+20%
Swing |
|
1 |
Fuel Price ($) |
14,40% |
12,00% |
9,60% |
|
2 |
PA (Performance
Availability) |
80% |
90% |
100% |
|
3 |
Coal Production |
2.668.000 |
3.335.000 |
4.002.000 |
|
4 |
Capex ($) |
379.221,18 |
316.017,65 |
252.814,12 |
|
5 |
WACC |
14,40% |
12,00% |
9,60% |
Table 15. NPV sensitivity
analysis – Non-GRK (Greenhouse Gases)
|
No |
Sensitivity
Analysis |
NPV
-20%
Swing |
NPV
Current Assumption |
NPV
+20%
Swing |
|
1 |
Fuel Price ($) |
908.213,76 |
1.188.650,52 |
1.469.087,27 |
|
2 |
PA (Performance
Availability) |
1.031.182,58 |
1.188.650,52 |
1.346.118,46 |
|
3 |
Coal Production |
1.070.626,68 |
1.188.650,52 |
1.306.674,35 |
|
4 |
Capex ($) |
1.159.615,69 |
1.188.650,52 |
1.217.685,34 |
|
5 |
WACC |
1.181.003,60 |
1.188.650,52 |
1.196.508,79 |
Table 16. NPV sensitivity
analysis - GRK (Gas Rumah Kaca)
|
No |
Sensitivity
Analysis |
NPV
-20%
Swing |
NPV
Current Assumption |
NPV
+20%
Swing |
|
1 |
Fuel Price ($) |
991.553,36 |
1.271.990,11 |
1.552.426,86 |
|
2 |
PA (Performance
Availability) |
1.114.522,17 |
1.271.990,11 |
1.429.458,05 |
|
3 |
Coal Production |
1.153.966,28 |
1.271.990,11 |
1.390.013,94 |
|
4 |
Capex ($) |
1.242.955,29 |
1.271.990,11 |
1.301.024,93 |
|
5 |
WACC |
1.263.903,63 |
1.271.990,11 |
1.280.300,06 |
Figure 1. Tornado
chart sensitivity analysis GRK & N-GRK
Interpretation
of Risk Analysis WACC and Capex show reDEFvely small
changes in NPV, indicating that the project is not very sensitive to
fluctuations in these variables. Coal production and PA have a moderate impact
on NPV. Changes in production volumes and performance availability
significantly affect project profitability, but not as drastically as changes
in fuel prices, which pose the most significant risk to the project's financial
stability. The risk management recommendation from the analysis is that fuel
prices have a high sensitivity, so business strategies related to performance
availability from PLN electricity supply can be used to reduce the use of
diesel fuel. Optimizing Performance and Production focuses on schemes to
maximize coal production efficiency to maintain potential negative impacts.
When reviewing capital and financing costs, although WACC and Capex are not
very sensitive, optimizing these costs can still provide financial benefits and
improve overall project resilience.
Monte Carlo
We
typically use Monte Carlo simuDEFon to obtain a more
thorough and accurate view of the risk and uncertainty in the investment model
after completing sensitivity analysis. Sequential application of these two
complementing strategies can lead to a greater understanding of risk and
uncertainty in financial models, despite their differing goals and methods.
To
represent and comprehend risk in a more realistic scenario where some or all
variables vary simultaneously, enter the Monte Carlo simuDEFon
by assigning random values to selected variables and see the variation of the simuDEFon's output.
Researchers
have limited data due to internal corporate restrictions or data collection
limitations. Therefore, they have chosen to employ the triangular distribution,
which can illustrate uncertainty since it displays a relatively steady and
understandable distribution.
Table
17. Scenario Analysis
|
Variables |
Min |
Most Likely |
Max |
|
PA (Performance Availability) |
80% |
90% |
100% |
|
Capex ($) |
347.619 |
316.018 |
284.416 |
|
Coal Production |
3.001.500 |
3.335.000 |
3.668.500 |
|
WACC |
13% |
12% |
11% |
|
Fuel Price ($) |
0,23 |
0,56 |
1,03 |
The
histogram, by including the carbon tax variable (GHG), shows that the result of
the probability of NPV < 0 = 0.0%. This indicates that the simulated NPV
value is greater than zero. A high probability of NPV greater than zero
indicates a positive return on investment. While the histogram does not include
the carbon tax variable, the probability of NPV < 0 has a value of 0.1%. This
means there is a small risk (0.1%) that the Net Present Value (NPV) of the
project or investment will be negative. While there is a possibility that the
investment or project may result in a negative NPV, the probability is very
low. However, consideration of the investor's or project management's risk
tolerance and other factors such as strategic objectives, environmental impact,
and so on are useful for risk assessment in financial forecasting or investment
analysis.
The
distribution's symmetry and tails can be inferred from the values of skewness
and kurtosis. The kurtosis value from the two histograms above is low, below 0,
indicating that there are fewer extreme findings (outliers) in the data. On the
other hand, the skewness value indicates how much the NPV distribution is
skewed or biased to one side. The right tail of the distribution has a higher
weight when the skewness value is larger than zero. Stated differently, there's
a higher chance of a really favourable
result.
The
assessment of real options for the investment project to re-arrangement the
power supply source at the coal processing plant at PT XYZ's ABC Mine Operation
involved a strategic plan from analysis to implementation. The real options to
expand were selected initially with the goal of 100% power supply performance
availability, not ruling out other options if once analysed
they were financially unprofitable.
The
option will be abandoned if there is no benefit from the power supply's
availability performance (PA), which cannot possibly be achieved 100%. The
option to wait if the analysis of the option to expand has the benefit of 100%
power supply performance availability (PA), but the financial analysis is not
good because there are factors that affect it. These two options were chosen
after going through the stages of criteria analysis and financial risk
analysis.
1. Diesel
Power Plant (4 existing Gensets) + 1 additional ready unit:
a. Description:
Utilize the existing 4 diesel gensets to supply electricity to the coal
processing plant but additionally invest in 1 genset unit to replace the
existing unit under maintenance.
b. Pros:
Small capital expenditure, Flexibility in operation due to in-house control
function, quick instalDEFon and construction, and
self-power supply.
c. Disadvantages:
High operating costs due to fuel and maintenance costs and subject to carbon
tax when enforced by the government in October 2024 or early 2025.
2. PLN
(State Electricity Company) Subscription:
a. Description:
Subscription to PLN for electricity supply so that the existing diesel genset is
a backup power supply.
b. Pros:
Potentially lower operational expenditure and stable electricity supply and not
subject to the carbon tax that will take effect in October 2024.
c. Disadvantages:
Large capital expenditure to build the infrastructure from the ground up to the
electrical system. Savings due to the difference in dependence on external
resources.
Implementation Plan
& Justification
PT
XYZ immediately implements the plan to achieve 100% Performance Availability
(PA) in supplying operational electricity to AMO (ABC Mine Operation),
specifically at the coal processing plant, by investing in additional power
sources and subscribing to PLN (Perusahaan Listrik Negara).
Implementation
of development scenarios for business plan strategies by looking at available
data such as existing electricity systems, supply capacity, fuel prices and
coal production plans. Tools such as Kepner-Tregoe are used to analyse the criteria required for development and ensure
they are met.
Ensuring
100% PA will guarantee a sustainable and reliable power supply, which is
critical for AMO's operations. This investment prevents potential downtime and
operational losses due to blackouts.
Combining
the two electricity supply systems also helps reduce the environmental impact
of using diesel fuel in generators used for operations. Compliance with
government reguDEFons on carbon tax gives the company
an advantage to choose to subscribe to PLN as it reduces carbon emissions from
operations.
It
can, therefore, be concluded that implementing a plan to achieve 100% PA in
supplying electricity to AMO by investing in additional supply resources and
subscribing to PLN is critical for the company's operational reliability,
cost-effectiveness, environmental sustainability and regulatory compliance.
This implementation plan should be implemented as soon as possible to ensure a
continuous and reliable electricity supply to AMO.
This
implementation plan provides an overview of the implementation strategy based
on a sequence of steps from idea to handover to ensure the success of the
investment. Following timelines and establishing clear communication among
stakeholders helps achieve the goals and outcomes of the investment project.
Completion of the investment project on time and according to plan, effectively
mitigates the risks of achieving the investment project's objectives and
outcomes with return on investment (ROI).
CONCLUSION
The conclusion of this study indicates that PT XYZ faces
challenges in coal processing operations affecting sales and marketing
sustainability, particularly due to market diversification into Poland as a new
market share. The current single diesel-powered system cannot achieve 100%
availability performance (PA), resulting in downtime during maintenance and
high operational costs driven by price fluctuations. Therefore, restructuring
the power supply system is identified as the primary solution. Through a real
options approach, PT XYZ considers two main options to achieve 100% PA:
expanding the diesel power plant by adding an additional generator unit or
subscribing to PLN (the State Electricity Company). The analysis shows that
subscribing to PLN with the existing diesel generator as backup is more
advantageous, offering lower operational costs, stable electricity supply, and
compliance with upcoming carbon tax regulations. Risk analysis and Monte Carlo
simulations demonstrate a high probability of financial viability for the
project. The implementation plan for this investment is carried out in phases,
focusing on investment objectives, feasibility assessments, and risk
management, with reliable power supply being critical for operational
efficiency and long-term cost savings.
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|
Dwi Chandra Syaputra, Taufik
Faturohman (2024) |
|
First publication right: Asian Journal of Engineering, Social and Health
(AJESH) |
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