Truba Alam

Ferry Wong Indonesia

TRUB IJ
Initiation
(62 21) 5798 4662 Industrials/Construction 20 June 2007

S O W H A T ? T H E B N P P A R I B A S A N G L E

„ BNP is the only broker

covering the stock, but we
Net Profit 07 ....... IDR227b Target Price ....... IDR1,600 BUY
expect wider coverage
given the company’s large Diff from Consensus........ na Diff from Consensus ....... na
market cap. Recs in the Market
Consensus (mean) ...................na Consensus (median) ................ na
„ Average daily turnover has Consensus (momentum) ..........na Consensus (momentum).......... na Positive.......................................1
reached USD7.7m, which Neutral........................................0
puts Truba in the No. 7 spot Current Price....... IDR1,290 Negative .....................................0
on the JCI for liquidity. Upside/(Downside)................ 24.0 Consensus (momentum) ..........na

Sources: Thomson One Analytics; BNP Paribas estimates

We initiate coverage of Truba with a BUY rating and TP of IDR1,600/share. Truba is the only listed integrated power-
generation firm in Indonesia; its sound business model allows it to capitalise on rising energy demand. EPC (Engineering
Procurement and Construction) and IPP should be key earnings drivers. EPS should grow at 94% CAGR until 2010.

The power king

Strong business model with an integrated company Ferry Wong, CFA
We initiate coverage of Truba Alam Manunggal Engineering (Truba) with PT BNP Paribas Securities Indonesia
(62 21) 5798 4662
a BUY rating and target price of IDR1,600 per share. Truba has [email protected]
revamped its strategy to become a one-stop solution for electricity
needs, especially coal powered, in line with its vision to respond to Earnings Estimates And Valuation Ratios
engineering and power-generation challenges. Truba has a strong YE Dec (IDR b) 2006 2007E 2008E 2009E

business model because it: 1) is an integrated power-generation Revenue 972 2,312 9,388 10,559
Reported net profit 35 227 1,207 1,406
company; 2) is a beneficiary of Indonesia’s rising power demand; 3) has
Recurring net profit 35 227 1,207 1,406
a strong track record in EPC and strong relationship with Chinese
Recurring EPS (IDR) 2 14 76 89
partners; and 4) should have solid earnings growth in 2008-09. Rec EPS growth (%) — 554.5 431.6 16.5
Recurring P/E (x) 587.6 89.8 16.9 14.5
To be the largest integrated and most profitable IPP Dividend yield (%) 0.1 — — —
Truba will continue to focus on its operation as an EPC company. It also EV/EBITDA (x) 212.2 53.7 11.2 8.7
aims to become the largest and most-profitable integrated IPP in Price/book (x) 12.7 10.5 6.5 4.5

Indonesia by 2009. Truba’s future strategy is to: 1) tap into government ROE (%) 5.2 13.9 47.5 36.5
Net debt/equity (%) (43.5) (46.1) (64.9) 29.9
10,000MW projects and rising energy needs through EPC activity; 2) Sources: Truba Alam; BNP Paribas estimates
focus on IPP projects outside Java and Bali while remaining open to
acquisition opportunities; and 3) expand its coal mining and trading to Share Price Daily vs MSCI
ensure sufficient supply to its IPP business and to the market. Truba Alam
(IDR) (%)
1,600 Rel to MSCI Indonesia
600
EPC and IPP will be key earnings drivers
500
Given its strong competitive advantage, Truba will continue to focus on 1,100 400
both EPC and IPP as key strategies. In the near term, Truba will try to 300
get as many EPC projects as possible from the 10,000MW power-plant 600 200
project. EPC should be the main earnings driver in the short to medium 100
100 0
term, while IPP, future EPC projects and coal mining should be the main
Oct-06 Dec-06 Feb-07 Apr-07 Jun-07
drivers in the medium to longer term. Truba’s gross profit should break
down to 79% EPC, 7% IPP and 14% coal in 2008. Next results/event July 2007
Market cap (USD m) 1,873

Initiate coverage with a BUY and TP of IDR1,600 12m avg daily turnover (USD m) 7.7
Free float (%) 38
Truba’s net profit is expected to grow at 94% CAGR from 2007-10. With
Major shareholders PT Alam Manunggal (31%)
a USD1.9b market cap and USD7.7m daily turnover, Truba will soon be
PT Mandala Capital (27%)
included in the Indonesian MSCI country index. Our DCF valuation 12m high/low (IDR) 1,330/190
indicates a fair value of IDR1,657/share based on a WACC rate of 8.9% Source: Bloomberg

and terminal value of 3%. Our relative valuation indicates a fair value of
IDR1,392-1,740/share based on a 20% to 0% discount to the average
PE of comparable IPP companies in the region. This, coupled with a
strong business model and sound future strategy, leads us to initiate
coverage with a BUY call and TP of IDR1,600/share.
Please see the important notice on the inside back cover.
FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

Contents
Company background and stock performance .............................................................. 3
Strong and attractive business model 3

To be the largest integrated and most profitable IPP 3

EPC and IPP are the key earning drivers 4

Initiate coverage with a BUY and TP of IDR1,600 4

Strong and attractive business model............................................................................ 5

1) An integrated power-generation company 5

2) Beneficiary of Indonesia’s rising power demand 6

3) Strong track record in EPC with strong partners 10

4) Solid earnings growth in 2008-09 11

Future strategy — Focus on EPC and IPP .................................................................. 14

1) Tap into government 10,000MW projects and rising energy needs through EPC activity 14

2) Focus on IPP projects outside Java while remaining open to acquisition opportunities 15

3) Expand coal-mining and -trading divisions to ensure sufficient supply to its IPP business and
the market 16

EPC and IPP are key earnings drivers ........................................................................ 18

How to forecast earnings? 18

1) EPC: the backbone of earnings in the short term 19

2) IPP: Main revenue driver over the longer term 20

3) Coal mining/trading 21

4) Operations maintenance and alternative energy 21

Risks to the business................................................................................................... 22

1) Failure to get additional EPC/IPP projects 22

2) The government may not be able to successfully implement the fast-track programme 22

3) Increased competition from big players 22

4) Construction and start-up risks 22

Our valuation methods give fair value of IDR1,392–1,740/share ................................ 23

Discounted cash-flow valuation 23

Relative valuation 23

Key company information 24

Financial statements.................................................................................................... 26
Appendix: Indonesian power industry.......................................................................... 27

Indonesia Research Team

Ferry Wong, CFA Harry Su Helmy Kristanto
Head of Indonesia Research PT BNP Paribas Securities Indonesia PT BNP Paribas Securities Indonesia
PT BNP Paribas Securities Indonesia (62 21) 5798 4660 (62 21) 5798 4663
(62 21) 5798 4662 [email protected] [email protected]
[email protected]

Kim Kwie Sjamsudin, CFA Tjandra Lienandjaja

PT BNP Paribas Securities Indonesia PT BNP Paribas Securities Indonesia
(62 21) 5798 4665 (62 21) 5798 4661
[email protected] [email protected]

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

INVESTMENT THESIS

Company background and stock performance

Truba Alam Manunggal Engineering Tbk (Truba), established in 2001 and previously a Thin coverage due to newly
general contracting company, has revamped its strategy, becoming a one-stop solution listed, new industry but …
company for electricity/energy needs, especially electricity that is powered by coal. The
company went public in October 2006 with a local firm, Danatama Makmur, as its lead
underwriter. The stock has done well, rising by more than 130% since the beginning of
this year. There is only one local broker covering the stock since this is a new industry
and a new concept for most analysts in Indonesia. Nevertheless, we expect more
coverage given the size and liquidity of the company.

We brought this company to our Indonesian Infrastructure Day in Singapore and Hong … well received during our
Kong on 7-9 May 2007 and it was well received by investors – given Indonesia’s need Indonesian infrastructure
day in Singapore and Hong
to boost power/electricity generation over the next five years and its strong track record
Kong in May
in power plant construction, with strong Chinese business partners.

Alam Manunggal and Mandala Capital own 31% and 27% of Truba, respectively. We Strong local connection
believe the owner and the management have a strong local network and enough with experience
management team
connections to win majors deal in both the IPP and EPC businesses. Additionally, the
management team, lead by Arifin Wiguna (ex vice-president director at Indika group),
Shi Hong Chao (ex-China Huadian), Chua Thiam Joo (ex- Indika power) and FX Agus
Edyono (ex military colonel) have strong experience in the energy related sector, with
a strong network in the IPP sector. The commissioners consist of Hendrik Tee
(previously a managing director and Indika and Sinar Mas group), Sidarta Sidik
(director of Hutchinson CP, with a strong IT and engineering background) and
Siswanto (a retired brigadier general from the army).

Strong and attractive business model

Truba Alam Manunggal Engineering Tbk has revamped its strategy, becoming a one- The only listed power
stop solution for electricity needs, especially electricity that is powered by coal, in line generation company in
Indonesia with …
with its vision to answering challenges of engineering and power generation. Truba
has a strong business model and is supported by an integrated power generation
company with strong track record. It is the only listed power generation company in
Indonesia and offers a one-stop solution for electricity and energy needs.

Truba will also benefit from Indonesia’s rising power demand with low electricity … strong Chinese partners
consumption per capita. Truba’s subsidiary company, Truba Jurong Engineering, has and solid earnings growth
dealt with construction activity for more than 30 years through various scopes of work
and involvement with almost every power plant project in Indonesia. Since early 2006,
Truba has entered into partnerships with the three Chinese companies namely,
Shanghai Electric, Golden Corcord and Qingdao Jieneng Power Station Engineering.
As a result of this EPC and IPP divisions, we expect net profit to grow 94% CAGR from
2007-10.

To be the largest integrated and most profitable IPP

Truba aimed to become the largest integrated and most profitable IPP in Indonesia by For its IPP, Truba will focus
2009. Going forward, Truba will continue to aim at IPP market outside Java. Truba’s on the IPP market outside
Java and …
future strategy is as follows: First, Truba will tap in to the government’s 10,000MW
coal-fired power plant projects and rising energy needs through its EPC activity –
mainly through PT Truba Jurong Engineering. Although there are many players in the
construction field, one of the EPC activities, other these companies’ ability to
undertake all three EPC activities remains limited. Thus, Truba has competitive
advantage over its competitors.

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

Second, Truba is aiming to focus on IPP projects outside Java to strengthen its … expand its coal trading
position among small and medium-sized players, given the strong competition from big and coal mining activity
multinational players in Java. In addition, Truba has always opened to any acquisition
opportunity in the energy sector. Third, Truba will expand its coal trading and mining to
have sufficient supply to its IPP business and to the free market.

EPC and IPP are the key earning drivers

Given its strong competitive advantage, Truba will continue to focus on both EPC and EPC is the near term
IPP as its key strategy. In the near term, Truba will try to get as many EPC projects as earnings driver while IPP is
the medium term driver
possible from the 10,000MW power plant project. Over the medium-term, IPP and coal
mining will also play an important role for Truba’s profits and earnings. Over the longer
tem, Truba will also extend its business by providing operation and maintenance
services for other IPPs or companies that owns IPPs. In addition, it will continue to
focus on the development of energy sources, including alternative energy. Truba’s
gross profit should break down to 79% EPC, 14% coal, and 7% IPP in 2008.

Initiate coverage with a buy and TP of IDR1,600

Truba’s net profit is expected to grow 94% cagr from 2007-10. With USD1.9b market With USD1.9b market cap
cap (no. 19 biggest market cap in the JCI) and USD7.8m daily turnover, Truba will and USD7.8m, it will not be
too long before the
soon be included in the Indonesian MSCI country index. Looking at the market cap,
company is included in the
Truba should be at the no. 19 spot while looking at the liquidity it should be in the no. 7 MSCI country index
spot. As such, we believe it will not be too long before the company is included in the
MSCI country Index.

Exhibit 1: List Of Indonesian Companies In The MSCI Country Index

Mkt cap Turnover Mkt cap Turnover
No. Code Company (USD m) (USD m) No. Code Company (USD m) (USD m)
1 TLKM Telkom Indonesia 21,558.8 19.3 13 ANTM Aneka Tambang 2,785.0 11.3
2 BBRI Bank Rakyat Indonesia 7,889.4 7.0 14 AALI Astra Agro Lestari 2,437.2 1.6
3 BMRI Bank Mandiri 7,246.7 17.0 15 GGRM Gudang Garam 2,407.7 0.6
4 BBCA Bank Central Asia 7,239.3 5.2 16 UNTR United Tractors 2,343.0 4.2
5 ASII Astra International 7,224.0 9.9 17 INTP Indocement 2,282.9 1.4
6 INCO INCO 6,107.7 3.6 18 INDF Indofood 1,965.9 4.2
7 UNVR Unilever Indonesia 5,820.7 0.8 19 KLBF Kalbe Farma 1,371.2 2.8
8 PGAS Perusahaan Gas Negara 4,799.4 15.0 20 PNBN Bank Panin 1,363.3 1.3
9 ISAT Indosat 4,056.0 6.3 21 ENRG Energi Mega 1,168.0 1.5
10 BUMI Bumi Resources 4,025.5 8.7 22 BNII Bank Int'l Indonesia 974.4 2.4
11 BDMN Bank Danamon 3,997.1 2.9 23 BLTA Berlian Laju Tanker 912.0 3.9
12 SMGR Semen Gresik 2,891.0 0.8 24 RALS Ramayana 713.4 0.3
Sources: MSCI; Bloomberg

Truba is currently trading on 2008-09 P/E of 16.9x and 14.5x respectively. Our DCF Our DCF valuation indicates
valuation indicates a fair value of IDR1,657-share based on WACC rate of 8.9% and a TP of IDR1,600/share
terminal value of 3.0%. Our relative valuation indicates a fair value of IDR1,392 to
1,740/share based on a 20% to 0% discount to the average comparable PE. This
coupled with strong business model and sound future strategy led us initiate our BUY
call with a TP of IDR1,600/share (mid value between our DCF and relative valuation).

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

STRENGTHS AND STRATEGY

Strong and attractive business model

Truba Alam Manunggal Engineering, established in 2001 and previously a general- We believe Truba has an
contractor company, has revamped its strategy to become a one-stop solution for attractive business model
and …
electricity/energy needs, especially coal-powered electricity, in line with its vision to
answer the challenges of engineering and power generation. We believe Truba has a
strong and attractive business model because it: 1) is an integrated power-generation
company; 2) is a beneficiary of Indonesia’s rising power demand; 3) has a strong
relationship with Chinese partners; and 4) should have solid earnings growth in 2008-
09.

1) An integrated power-generation company

With its power plant and coal-mining operation, Truba is an integrated power- … is aiming to become a
generation company in Indonesia. The company has three subholdings: Maxima one-stop solution for all
electricity and energy needs
Infrastruktur, which is in the coal-mining and -trading business; Manunggal Power,
in Indonesia
which is in power generation; and Manunggal Infrasolusi, which has two subsidiaries,
Truba Jurong Engineering (Construction) and Manunggal Engineering (Engineering
and Procurement). Truba’s activities include: 1) engineering, procurement and
construction (EPC) services to build coal-fired power plants; 2) power
generation/independent power producer (IPP); 3) coal mining and trading; and 4)
power-plant operation and maintenance.

Exhibit 2: Truba’s Company Structure And Business Model

One stop solution for
Power Indonesian energy needs
Generation PT Truba Alam Manunggal Engineering Tbk
and Coal
Supply Operation & Maintenance

PT Maxima Infrastructure PT Manunggal Power

Coal Operations Power Plant

EPC

PT Manunggal Infra Solusi

EPC/Project Management

PT Truba Jurong Engineering PT Manunggal Engineering

Construction Engineering & Procurement

Source: Truba Alam Manunggal Engineering

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Power generation and coal supply

Truba is engaged in the power-generation and coal-supply businesses through its two Truba is mainly engaged in
subsidiaries: Manunggal Power (MP) and Maxima Infrastruktur (MI). The parent, Truba power generation such as
…
Alam Manunggal Engineering, is mainly engaged in the operation and maintenance of
power plants.

MP is responsible for engaging in power plants as an independent power producer … independent power
through individual project companies (PCs) and selling electricity to PLN (state-owned production …
electricity company) and third parties. The IPP business should become Truba’s
backbone as it provides a recurring stable revenue stream once a project is in place.
MP should play an important role in helping Truba minimise the EPC services’
unstable project-driven revenue stream. Five PCs signed power-purchase agreements
(PPAs) with PLN on 27 April 2007 amounting to 630MW.

MI started commercial operations in March 2006 and is responsible for coal … coal supply and …
procurement in support of power-plant projects. It also engages in coal-trading
activities. Currently, MI is supplying about 1m tonnes of coal.

Through Maxima Infrastructure, Truba owns a 90.1% stake in Manunggal Multi Energi … coal mining
(MME). MME owns a mining licence (Kuasa Pertambangan) in Muara Enim, south
Sumatra. Stage 1 exploration covering 230ha (out of 5,574ha) resulted in estimated
coal reserves of 55m tonnes. Stage 2 exploration is continuing. The company plans to
start production in 2008 with initial output of 1.0m tonnes per year.

EPC services
Through its subsidiary, Manungal Infrasolusi, Truba engages in the engineering, Truba has expertise in EPC
procurement and construction (EPC) business: through Truba Jurong
Engineering
Manunggal Engineering (ME): A newly established subsidiary responsible for
engineering and procurement activities. Truba Jurong Engineering (TJE) deals with
construction activity and was consolidated into Truba in December 2005. TJE has
engaged in construction activity for more than 30 years through various scopes of work
and involvement with almost every power-plant project in Indonesia. Through 30 years
of work, TJE has achieved some advantages, such as managing long-term
relationships with many project owners in various scopes of work.

EPC activities
There are many players in the construction field, one of three EPC activities, as Engineering, procurement
described in the chart below. But the ability of these companies to engage in all three and construction accounts
for around …
EPC activities – engineering, procurement and construction – remains limited:

Engineering Project design and planning … 1%. 59% and 40% of the
total project cost
respectively
Procurement Supplying all equipment and machineries necessary for the project

Construction Divided under civil and mechanical & electrical

Civil: Constructing the physical building and foundation
Mechanical & electrical: Wiring and Installing all equipment and system

2) Beneficiary of Indonesia’s rising power demand

Truba’s business will benefit from rising power demand in Indonesa. PLN is Rising power demand in
responsible for securing and distributing electricity in Indonesia, but this activity has Indonesia is not supported
by additional capacity
been stopped since the crisis hit Indonesia in 1997. There has been no significant
progress in installed capacity (only a 0.66% increase per year since 1999). PLN’s total

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

installed capacity is currently around 22GW, while the other three GWs are sourced
from IPPs. According to the World Bank, Indonesia needs to spend about USD27b on
new plants and transmission lines by 2012 to meet demand.

Strong demand will outstrip supply – per capita consumption is

among the lowest in Asia
We believe that low estimated consumption is more a function of limited available Demand is expected to
supply rather than a lack of demand. PLN estimates that only 54% of Indonesian grow faster than supply
given the …
households had electricity by the end of 2005. According to Indonesia Power’s most
recent estimates, electricity demand is expected to increase at a 9% CAGR from 2004-
10 while supply is only expected to grow at a 6.2% CAGR. The Java-Bali system is
expected to account for 80% of total demand.

With existing total system capacity struggling to meet current demand, Indonesia’s … low per capita
power deficit may escalate unless significant additional capacity is brought online. The consumption
Indonesian per capita consumption of electricity is among the lowest in Asia, so there
is potential for future growth in electricity demand as there is a lack of power
generation in Indonesia.

Exhibit 3: Electricity Consumption Per Capita

(MW/Capita) Indonesia is one of the
lowest in Asia in terms of
9
7.9 7.7 electricity Consumption for
8 7.5
per capita and …
7 6.2
5.7
6
5
4
2.8
3
1.7 1.7
2
0.6 0.5 0.5 0.5 0.5 0.3
1
0
Malaysia
Taiwan

Pakistan
Japan

Singapore

Korea

Hong

Thailand

India

Indonesia

Sri Lanka
Philippines
Kong

Vietnam
China

Sources: Economist Intelligence Unit, Energy Information Administration

Exhibit 4: Installed Capacity Per Capita

(KW/Capita) … installed capacity per
capita
2.5
2.1 2.1
2.0 1.7
1.6
1.5 1.2

1.0 0.7
0.4
0.5 0.3
0.2
0.1 0.1 0.1 0.1 0.1
0.0
Malaysia
Taiwan

Pakistan
Singapore

Japan

Hong

Korea

Thailand

China

Sri Lanka

India

Indonesia
Philippines
Kong

Vietnam

Sources: Economist Intelligence Unit, Energy Information Administration

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

In addition to that, there is also a problem with the electricity supplied by PLN – some Many blackouts in various
areas of the country have experienced blackouts due to the electricity deficit. These areas in Indonesia including
in the capital city, Jakarta
blackouts are due to many technical problems, such as aging power plants that cannot
operate efficiently or, even worse, damaged equipment. These blackouts cause many
industries to suffer substantial losses in the form of decreasing work hours and
damaged machinery. For instance, up to 50,000 small to medium enterprises in north
Sumatra are losing 60% of their daily productivity due to blackouts, which can be up to
six hours per day.

Exhibit 5: PLN Installed Capacity Development

(MW) No additional significant
capacity added post crisis
25,000 Post crisis
23,000
Pre crisis
21,000
19,000
17,000
15,000
13,000
11,000
9,000
7,000
5,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1H06

* Note: PLN only

Source: PLN

Most of PLN’s installed capacity is concentrated in Java (73%), with the remaining Electricity bought by PLN
27% installed outside of Java. The industrial sector takes the biggest chunk of from IPPs reached 20% in
2005
Indonesian electricity consumption (40%), while the household sector accounts for
93% of the total number of electricity subscribers. Due to the incapability of PLN to
meet estimated future demand of electricity, PLN has allowed IPPs to participate in
power generation since 1989. The electricity bought by PLN increased significantly,
given that there was no significant expansion after the crisis. Electricity bought from
third-party IPPs accounted for only 3% of total electricity produced in 1994, then rose
significantly to 20% in 2005.

Exhibit 6: Electrification Ratio

Number of Installed Peak Electricity Electrification Java consumed about 80%
of the total electricity and
customers capacity demand sales ratio
Indonesia’s total
(m) (MW) (MW) (GWh) (%)
electrification ratio is only
Java-Bali 23.4 16,361 14,827 85,390 57.9 54%
Sumatra 6.2 3,464 2,591 12,453 51.1
Sulawesi 2.1 850 563 3,314 51.7
Kalimantan 1.7 980 765 3,483 48.1
Other Islands 1.2 860 517 2,393 30.6
Total 34.6 22,515 19,263 107,032 54.1
Source: PLN

The government’s 10,000MW power-plant projects

The government plans to build 10,000MW coal-fired power plants, with all the plants Government will build
targeted to be completely installed by 2009-10. This project comprises a 6,900MW 10,000MW in coal-fired
power plants to switch its
coal-fired power plant to be built in Java (consisting of 10 projects), with the remaining
fuel-power generators
3,100MW to be built outside Java (consisting of 20 projects). This project will be
tendered to potential EPC contractors and awarded to EPC contractors who meet the
following criteria:

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FERRY WONG TRUBA ALAM TRUB IJ 20 JUNE 2007

ƒ Has the necessary technology and capacity to build the power plant;
ƒ Offers the lowest project cost;
ƒ Able to complete construction by 2009;
ƒ Able to provide the necessary financing to build the power plant (up to 80% of
investment cost).
The above criteria are necessary, considering the government’s limited budget.

On 5 July 2006, the Indonesian president issued Presidential Decree No. 71 Year Given high fuel costs, the
2006, which assigned PLN to speed up coal-fired power-plant development in government issued a
presidential decree to
Indonesia. So far, some local construction companies (private and stated-owned) have
provide financial
expressed an interest in the programme. The government has also shown its strong guarantees and expedite
support for this crash programme by providing a financial guarantee for PLN’s financial the process
statement and balance sheet.

Since investment costs are one of the most crucial points for winning projects in the Chinese companies have
Crash Program, Chinese investors are likely to win many projects as they offer been very aggressive in
bidding for EPC power-plant
substantially lower investment costs compared with their competitors from Europe,
contracts in Indonesia
Japan, Korea, India and the US. This can be seen from the pre-qualification tender
announced by PLN, in which Chinese companies dominate most of the projects.
Chinese companies are able to build power plants that cost only USD850,000-950,000
per MW, whereas competitors set the price at USD1.1m-1.2m per MW. Furthermore,
Chinese President Hu Jintao has stated his support for Indonesian coal-fired power-
plant projects and has asked China’s financial institutions such as the Exim Bank of
China and others to provide financial support for the projects.

Exhibit 7: Location Of The 10,000 MW Crash Programme

ST Meulaboh
Java accounts for the
2x100 MW
ST Sibolga Baru largest chunk of the
B-Aceh 2x100 MW
ST Sulut Baru projects (6,900 MW) …
ST Bengkalis 2x25 MW
2x7 MW
ST Pontianak ST Amurang Baru
ST Medan Baru Meda ST Selat Panjang 2x25 MW ST Ternate Baru
2x25 MW
2x100 MW n 2x5 MW Tarakan 2x7 MW
ST Singkawang
ST Tanjung 2x50 MW ST Jayapura B
Balai Karimun Minahasa 2x10 MW
Baru 2x7 MW ST Sampit Baru
ST Sumbar Pesisir 2x7 MW
Selatan 2x100 MW Gorontalo
Pontianak Kotamobagu
Padang Palu Sorong
ST Bangka Baru
2x25 MW
ST Air Anyer Bangka Mahakam Serui
2x10 MW Ambon
Bengkulu Jayapura
ST Mantung Banjarmasin
2x10 MW ST Palangkaraya
Sumsel- 2x65 MW ST Gorontalo Baru
ST Belitung Baru 2x25 MW
2x15 MW Lampung ST Indramayu
ST Asam-asam
2x300 MW ST Kendari
ST Tarahan Baru 2x65 MW
2x10 MW ST Ambon Baru
2x100 MW
ST Awar-Awar 2x7 MW
ST Suralaya Baru 2x300 MW ST Bone
ST Labuan 2x50 MW
2x660 MW 1x300 MW Kupan ST Timika
ST Teluk Naga g 2x7 MW
2x300 MW ST Rembang
Sumbawa
ST Pel Ratu 2x300 MW Bima
3x300 MW ST Lombok
ST Pacitan
Baru 2x25 MW
Total : 10.000
ST Tj Jati Baru 2x300 MW
1x600 MW ST Kupang Baru
ST Paiton Baru ST Bima
ST Ende 2x15 MW
2x660 MW 2x7 MW
2x7 MW

Bidding Process
Will be auctioned

Source: PLN

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Exhibit 8: Fast-Track Programme in Java And Bali

— Expected — … most of the commercial
operation will start in 2009
Capacity Total completion date
and 2010
Location Province (MW) capacity 2009 2010
Suralaya Banten 1x600 600 600 —
Labuhan Banten 2x300 600 300 300
Teluk Naga Banten 3x300 900 600 300
Jabar Selatan West Java 3x300 900 — 900
Jabar Utara West Java 2x300 900 300 600
Rembang Central Java 1x600 600 600 —
Tanjung Jati Baru Central Java 1x600 600 600 —
Paiton East Java 1x600 600 600 —
Jatim Selatan East Java 2x300 600 300 300
Tanjung Awar-Awar East Java 2x300 600 — 600
Total 6,900 3,900 3,000
Source: PLN

3) Strong track record in EPC with strong partners

Truba’s subsidiary, Truba Jurong Engineering, has more than 30 years of construction Truba has strong Chinese
experience on power-plant projects in Indonesia. Truba Jurong Engineering was partners for its EPC
projects
established in 1976 as a joint venture between Jurong Engineering of Singapore
and Tri Usaha Bhakti of Indonesia. Truba bought Tri Usaha Bhakti’s share in
Truba Jurong Engineering in December 2005. Since 2006, Truba has entered into
partnerships with three Chinese companies: Shanghai Electric, Golden Concord and
Qingdao Jieneng Power Station Engineering.

Trubas Jurong Engineering

Providing a comprehensive range of general and speciality services such as power Truba Jurong has a strong
and industrial construction, including turnkey-project management, TJE focuses on track record …
large-scale infrastructure and basic-industry installations such as power-generation
facilities, pulp and paper mills, petrochemical plants and refineries. Since its
establishment in 1976, TJE has become the leading power- and industrial-plant
contractor in Indonesia.

TJE has a wealth of experience undertaking and successfully completing projects in … having undertaken
almost every aspect of power-plant construction, from water-treatment plant facilities to construction of more than
90% of PLN’s coal-fired
the complexities of boilers, turbines and generators. Truba has the expertise for
power plants
mechanical and engineering projects and for projects above 300MW. Truba undertook
the construction of more than 90% of PLN’s coal- and gas-fired power plants, with unit
capacities ranging from 25MW to 660MW.

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Exhibit 9: List of Truba’s Major Power-Plant Projects

Project description Clients/partner
2x400MW CFPP Paiton in Probolingo, East Java PLN / ABB
2x400MW and 2x600 CFPP Plant Suralaya IN Banten PLN / Mitsubishi HI
Power plants 2x660MW CFPP Tanjung Jati B, Jepara, Central Java PT CEPA / Mitsui Eng.
8,960MW of 2x300MW CFPP Cilacap in West Java PLN / Chengda
15,000MW 2x100MW CFPP Tarahan Unit 3 & 4 in Lampung, Sumatra PLN
500MW CGC Tambak Lorok in Semarang, Central Java PLN / Sumitomo - Toshiba
1,180MW CGC Tanjung Priok in Jakarta PLN / Marubeni
740MW CGC Cilegon in West Java Mitsubishi Heavy Ind.
1500MW CGC Gresik in East Java Mitsubishi Heavy Ind.
2x660MW Private Power Plant in Probolingo, East Java PLN / ABB

Exxon Mobil NSO "A" Field Development in Aceh Industrial Plan Riau Andalan Pulp & Paper in Riau
Industrial plant Depot / Oil Storage for Pertamina, Cikampek, West Java Steam Drum Lifting at CFPP Tanjung Jati
and Oil Tank Storage in Cilegon, Banten Maintenance in Toba Pulp Lestari
other services Rehabilitation Tank for Qatar Petroleum Reroute & Conncet HSFO Distribution Pipe Line PT Inco
Oil Production Facility for KUFPEC, Seram, Maluku Mechanical Maintenance PT Tanjung Enim Lestari
Heavylifting for Riau Andalan Pulp & Paper Field Development ExxonMobil Pase ‘B’ in Lhok Sukon
Urea Fertilizer Storage PT Pupuk Kaltim in Bontang Kiln foundation Cement Factory in Cibinong, West Java
Refinery ISLA in Curacao, South America.
Source: Truba Jurong Engineering company profile

New Chinese partners

Since early 2006, Truba has entered into partnerships with three Chinese companies: Truba has three strong
Shanghai Electric, Golden Concord and Qingdao Jieneng Power Station Engineering. Chinese partners
With these partnerships, Truba should expect to receive approximately 2.5% in fees for
every EPC contract taken by the three companies. We have reviewed Truba’s
agreement with Shanghai Electric.

Exhibit 10: Profile Of Truba Alam Manunggal Partners

Shanghai Electric The largest Chinese power equipment manufacturer established in 1955, is
principally engaged in the production and sale of electricity and thermal
power equipment
Has participated in the construction of a great number of major projects in
China including power transmission from West to East China and gas
transmission from West China to East

Golden Concord A leading private provider of electricity, steam & district heating in China
Operates several power plants with total installed capacity of more than 3m
kilowatts which is located mainly in the Jiangsu and Zhejiang provinces

Qingdao Jieneng A first-level national enterprises of producing various high-new

technological turbine products
Production capability is 10,000MW/year
The products are being used in many different industries throughout China
and in such countries as Thailand, Bangladesh, Tanzania and Indonesia.
Source: Truba Alam Manunggal Engineering

4) Solid earnings growth in 2008-09

Truba’s net profit more than tripled from 2005 to 2006 on the back of EPC projects. Truba’s net profit will
The value driver for Truba over the next two to three years should be EPC contracts experience significant
growth over the next two
and coal-mining and -trading projects, while the value driver for the medium to long
years …
term after 2009 should be IPP projects and the continuation of coal-mining and -trading
projects. We expect Truba’s net profit to grow at 107% CAGR from 2007-10.

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Truba has secured 670MW in IPP projects outside of Java, won a number of tenders … supported by EPC and
and received direct appointments (2x125MW in Kuala Tanjung, 2x125MW in coal projects
Banyuasin, 2x25MW in Pontianak, 2x10MW in Bangka, 2x20MW in Tanjung Batu,
2x30MW CP Bahari in Lampung).

In our model, we are using 650MW IPP projects in 2007, 1,000MW in 2008 and EPC
projects of 1,620MW and 1,000MW in 2007 and 2008, respectively.

Exhibit 11: Truba Pipeline Project

————— 2007E ————— ————— 2008E —————
Capacity Total Capacity Total
(MW) (MW) (MW) (MW)
PLN and Private EPC PLN and Private EPC
PLN Pelabuhan Ratu 3X300 900 PLN NAD 2x100 200
Power Jawa Barat 2x300 600 PLN Lampung 2x100 200
Merak, Banten, Sulfindo 2X60 120 PLN 1 Kalimantan Barat 2x50 100
Total 1,620 PLN 2 Kalimantan Barat 2x25 50
PLN and Private IPP PLN Sulawesi Selatan 2x50 100
Kuala Tanjung 2x125 250 PLN 1 Kalimantan Tengah 2x60 120
Banyuasin 2x125 250 PLN Riau 2 2x7 14
Pontianak 2X25 50 PLN Riau 1 2x10 20
Bangka 2X10 20 Banjarsari Plant 2x100 200
CP Bahari 2x30 60 Total 1,004
Total 630

PLN and Private IPP

Lombok 2x25 50
PT. Boral Indonesia 2x30 60
Bentala (Kalimantan) 2x65 130
Dipasena (Coal fired) 2x100 200
Dipasena (Solar power) 1x10 10
Bali 2x125 250
Krakatau Daya Listrik 300 300
Total 1,000
Source: Truba Alam Manunggal Engineering

As such, we expect earnings to jump 411%, 19% and 17% in 2008, 2009 and 2010,
respectively, while EBITDA is expected to grow at 107% CAGR from 2007-10.

Exhibit 12: Net-Profit Growth

(IDR b) Net profit to grow at

CAGR of 94% from
1,800 1,653 2007-10 while …
1,600
1,406
1,400
1,207
1,200
1,000
800
600
400 227
200 35
0
2006 2007E 2008E 2009E 2010E

Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

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Exhibit 13: Gross Margin And EBITDA Growth

(IDR b) (%) …EBITDA will grow at 107%
EBITDA (LHS) Gross margin (RHS)
CAGR for the same period
3,500 30

3,000 25

2,500
20
2,000
15
1,500
10
1,000

500 5

0 0
2006 2007E 2008E 2009E 2010E

Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

Exhibit 14: IPP Project That Has Been Signed

The Power Purchase Agreements (PPA) for the below listed projects was signed on 27 April On 27 April 2007, Truba
signed a PPA agreement
2007 between PT PLN (Persero) and individual IPP:
with PLN for 630MW IPP
2x125MW Kuala Tanjung, North Sumatra
projects
2x125MW Banyuasin, South Sumatra (minemouth)
2x25MW Pontianak, West Kalimantan
2x10MW Bangka, Sumatra
2x30MW CP Bahari, Lampung, South Sumatra
Acquired Operating Dual Fired Power Plant
1x20MW (plus 1x20MW extension) Tanjung Batu, East Kalimantan
Source: Truba Alam Manunggal Engineering

Exhibit 15: Other Potential IPP Projects – 1,264MW

Size Location
1x20MW Tanjung Batu Gas Turbine
2x30MW Dili Project
2x125MW Sumatra Utara
2x7MW Labuhan, Lombok
4x55MW Cambodian (partnering with Golden Concord)
700MW Thailand (5 projects)
Source: Truba Alam Manunggal Engineering

Exhibit 16: Other Potential EPC Projects – 714MW

Size Location
2x300MW Tanjung Jati
2x7MW PLN Maluku Utara
2x10MW PLN NTB
2x15MW PLN NTT
2x25MW PLN Bangka Belitung
Source: Truba Alam Manunggal Engineering

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Future strategy — Focus on EPC and IPP

Truba will continue to focus on its operation as an EPC and IPP company. It EPC and IPP will be Truba’s
aims to become the largest and most-profitable integrated IPP in Indonesia by main strategy focus
2009. Truba’s future strategy is to: 1) tap into government 10GW projects and
Indonesia’s rising energy needs; 2) focus on IPP projects outside Java while
remaining open to acquisition opportunities in the power-plant business; and 3)
expand its coal mining and trading to ensure sufficient supply to its IPP
business and free-market trading.

1) Tap into government 10,000MW projects and rising

energy needs through EPC activity
With its expertise as an EPC contractor and with its own coal mining and trading Truba will tap into 10GW
operation, Truba aims to be the largest integrated IPP in Indonesia. Supported by the projects through …
government’s/PLN’s decision to boost power generation in Indonesia, Truba will take
the opportunity to engage in IPP projects. PLN’s energy mix still contains significant
amounts of energy produced from oil. In 2006, oil still comprised 36% of PLN’s total
costs. Furthermore, its electrification ratio is still 54%, and there are more than 100m
people without electricity. As such, PLN will accelerate development of 10GW as a
starting point to reach an electrification ratio of 100% by 2020.

Truba will benefit from government 10GW because of expertise from Truba Jurong …EPC activity
Engineering (TJE), which was consolidated into Truba in December 2005. TJE has
engaged in construction for more than 30 years through various scopes of work and
involvement with almost every power-plant project in Indonesia. Over 30 years, TJE
has achieved some advantages, such as managing long-term relationships with many
project owners in various scopes of work.

There are many players in the construction field, one of three EPC activities, as
described in the chart below. But the ability of these companies to engage in all three
EPC activities – engineering, procurement and construction – remains limited.

Exhibit 17: PLN’s Source Of Energy

(%) Coal will represent close to
Coal Gas Geothermal Hydro Oil/Fuel
60% of PLN’s power
100
generation in 2016 from
90 36% in 2006
80
70
60
50
40
30
20
10
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: PLN

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Exhibit 18: Power-Plant Projects Set By The Government – 2006-10

Region Infra. Summit Acceleration Critical Area IPP Partnership Total To achieve its energy mix in
2016, the government needs
Java 3,300 6,900 130 — 10,330
to build at least …
Sumatera 200 1,158 52 368 1,778
Kalimantan 120 424 92 264 900
Sulawesi 50 270 118 154 592
NTB-NTT — 44 — 108 152
Papua — 62 28 58 148
Total 3,670 8,858 420 952 13,900
Source: PLN

Exhibit 19: Power-Plant Projects Set By The Government – 2005-12

———————————— Growth forecast ———————————— … one 34GW power plant
before 2015
Year +5% pa +7% pa +9% pa
(GW) (GW) (GW)
2005 26 26 26
2007E 29 30 30
2009E 32 34 35
2011E 35 39 41
2012E 37 42 45

Additional capacity required

2005-09 6 8 9
2005-12 11 16 19
Sources: BAPPENAS; Ministry of Finance

2) Focus on IPP projects outside Java while remaining

open to acquisition opportunities
Truba’s management has mentioned the company will focus on IPP projects outside Truba will focus on IPP
Java to strengthen its position among small and medium-size players, given the strong projects outside Java and
Bali …
competition from big multinational players in Java. Truba is well-prepared to tap
opportunities in new power-generation projects. However, more IPP projects will be
opened up by the government over the next several years to support the country’s
electricity generation.

Our conversation with management indicates that Truba is always open to any …but remain open to
opportunity to acquire any profitable and sizable power-plant company in order to opportunities for power-
plant acquisition
speed up and strengthen its business model. Several potential power-plant companies
in Indonesia are for sale, and management said it is willing to open negotiations and
make a purchase if the price is right.

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Exhibit 20: Indonesia’s List Of IPP Companies

Company Project location Fuel Capacity AF/CF Term of agreement
(MW) (MW) (%)
In operation
PT Cikarang Listrindo Cikarang, West Java Natural gas 150 72 1996-16
PT Energi Sengkang Sengkang, South Sulawesi Natural gas 135 85 1998-28
Unocal Geothermal Indonesia Gunung Salak, West Java Geothermal 165 90 2002-40
PT Makassar Power Pare-pare, South Sulawesi Oil 60 80 1999-16
PT Paiton Energy Paiton I, East Java Coal 1,230 85 1994-40
PT Jawa Power Paiton II, East Java Coal 1,220 83 1995-30
Pertamina, Chevron Drajat
Texaco Drajat and
PT Drajat Geothermal Drajat, West Java Geothermal 90 95 2000-30
Pertamina and
Magma Nusantantara Wayang Windu, West Java Geothermal 110 90 1999-29
PT Geo Dipa Energy Dieng, Central Java Geothermal 60 85 2004-46
PT Asrigita Prasarana Palembang Timur, South Sumatra Natural gas 150 85 2002-22
PT Dalley Energi Indonesia Panaran, Batam Natural gas 55 80 2005-16
PT Mitra Energi Batam Panaran, Batam Natural gas 55 80 2005-16
PT Sumber Segara Primadaya Cilacap, Central Java Coal 300 80 2004-36
Total 3,780

Company Project location Fuel Capacity AF/CF Term of Status as of

(MW) (MW) (%) Agreement June 2006
Under development
PT Sumber Segara Primadaya Cilacap, Central Java Coal 300 80 2004-2036 Testing stage
PT Central Java Power Tanjung Jati B, Central Java Coal 1,320 80 2004-2026 Testing stage
PT Tenaga Listrik Amurang Amurang, North Sulawesi Coal 110 80 2003-2033 Financing stage
PT Tenaga Listrik Sibolga Sibolga, North Sumatra Coal 200 80 2003-2033 Financing stage
Pertamina and Bali Energy Bedugul, Bali Geothermal 10 95 2004-2040 Financing stage
YPK PLN Cibuni, West Java Geothermal 10 90 1998-2028 Acquisition stage
Pertamina and Bali Energy Kamojang, West Java Geothermal 60 90 2004-2034 Under construction
PT Geo Dipa Energi Patuha, West Java Geothermal 180 85 2004-2046 Acquisition stage
PT Bajradaya Sentranusa Asahan I, North Sumatra Hydro 180 75 2010-2040 Under construction
PT Dizamatra Powerindo Sibayak, North Sumatra Geothermal 10 90 1996-2030 Under construction
PT Metaepsi Pejebe Power Gunung Megang, South Sumatra Natural gas 80 80 2005-2025 Under construction
Total 2,460
Source: PLN

3) Expand coal-mining and -trading divisions to ensure

sufficient supply to its IPP business and the market
Through Maxima Infrastructure, Truba owns a 90.1% stake in Manunggal Multi Energi Truba has exposure in the
(MME). MME owns a mining licence (Kuasa Pertambangan) at Muara Enim, south coal-mining sector to
support its IPP projects
Sumatra. Stage 1 exploration covering 230ha (out of 5,574ha) has resulted in
estimated coal reserves of 55m tonnes. Stage 2 exploration is continuing. The
company plans to start production in 2008 with initial output of 1m tonnes per year.

The stripping ratio is low, at about 1.0:2.2, with calorific value ranging from 4,000-6,206 Truba’s coal mines have
kcal/kg. This will help support Truba’s power-plant projects. As of now, Truba has low stripping ratios with
relatively decent calorific
managed to secure 670MW in power-plant projects. Truba is also planning to secure
value
more such coal resources to support its power-plant projects as well as supply to the
open market.

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Indonesian power generators are moving away from oil-fired capacity in favour of
natural-gas and coal-fired plants. As an example, Indonesia Power is considering
switching its existing oil-fired generators (32% of current capacity) to natural gas. In
particular, coal-fired capacity is expected to increase significantly from 37% of the
company’s existing capacity as new projects come online.

In an attempt to slash its oil-fuel-related costs to produce electricity and secure PLN has been trying to
electricity supply, the government realised that building non-oil-fuelled power plants is switch its fuel generator to
a coal-fired power plant due
a must. One of the non-oil-fuelled power plants, which are considered suitable for
its higher cost efficiency
Indonesia, is a coal-fired power plant, as it only requires low-rank coal, which is
cheaper than oil fuel and is available in abundance in Indonesia. Besides, unlike
hydropower plants whose capacity is highly influenced by weather and water
availability, coal-fired power plant is not affected by changes in weather, so it offers a
more-stable electricity supply.

In 2005, oil fuel accounted for 79% of PLN’s total production costs and produced only
33% of PLN’s total electricity output, whereas coal only accounted for about 9% of
PLN’s total production cost and produced 33% of PLN’s total electricity output. From
the table above, we can see that coal provides substantially lower production costs in
terms of one unit output per one unit cost, which is shown by a higher production to
cost ratio for coal compared with oil fuel.

Exhibit 21: PLN’s Volume And Production Costs – 2005

Production Oil fuel represents 33% of
PLN’s total power
—— Production —— ——— Cost ——— /cost ratio
production, while its cost
(GWH) (%) (IDR t) (%) (x)
accounts for 79%
Oil fuel 33,566 33 44.70 79 0.42
Natural gas 21,782 21 4.80 8 2.53
Coal 33,962 33 5.29 9 3.58
Geothermal 2,962 3 1.42 3 1.16
Others 9,318 9 0.37 1 14.03
Total 101,590 100 56.58 100
Source: PLN

Exhibit 22: Proposed Projects – 2006-10

Crash programme (10,000MW by 2010) Java accounts for the
largest chunk of the
Java 6,900MW
projects (6,900MW)
Outside Java 2,522MW
Infrastructure summit
Java 3,300MW
Outside Java 370MW
IPP partnership and direct appointment (including Crisis programme)
Java —
Outside Java 1,790MW
Source: Government

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KEY EARNINGS DRIVER

EPC and IPP are key earnings drivers

Given its strong competitive advantage, Truba will continue to focus on both EPC and EPC is the short-term
IPP as key strategies. In the near term, Truba will try to get as many EPC projects as earnings driver
possible from the 10,000MW power-plant project. As such, EPC and IPP will be the
key earnings drivers for Truba: EPC for the short to medium term and IPP after 2009.
In addition to these two divisions, Truba will also put effort into building up its coal
mining and trading, as well as operations and maintenance.

Exhibit 23: Sales Breakdown – 2007E Exhibit 24: Gross-Profit Breakdown – 2007E

Coal
Coal
12%
12%

EPC EPC IPP

86% 82% 6%
IPP
2%

Source: BNP Paribas estimates Source: BNP Paribas estimates

Exhibit 25: Sales Breakdown – 2009E Exhibit 26: Gross-Profit Breakdown – 2009E

Coal
Coal 11%
6%

EPC EPC
73% 57%

IPP
21% IPP
32%

Source: BNP Paribas estimates Source: BNP Paribas estimates

How to forecast earnings?

Since Truba is a newly listed EPC and IPP project in Indonesia, we have provided EPC will take about 40-42%
investors with a simple guideline on how to forecast earnings. of total costs …

For every IPP project, apart from the IPP revenue that will come onstream in about two … which is estimated at
to three years, Truba will also get the C (construction and Engineering portion), while around USD950,000 per
MW; Truba will receive 15%
partners (Shanghai Electric, Golden Concorde, etc) will get the P (Procurement).
gross margin and 2.5% of
Construction accounts for about 40-42% of the total cost with a gross margin of around the total cost of the projects
15%. In addition, Truba will also receive approximately a 2.5% fee from its partners for for agency fees
any projects taken on in Indonesia. Shanghai Electric has agreed to the terms; we
have seen the written agreement between the company and Shanghai Electric. The

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agreement with Qingdao and Golden Concord is expected to be signed soon. Our
preliminary indication from management indicates that Qingdao Jieneng will likely give
Truba a 2-3% agency fee for its equipment for the EPC project.

For the IPP business, Truba revenue will come onstream after two to two and a half
years. Truba will need to sign a PPA (power-purchase agreement) with the
government. One thing to understand is that IPP producers in Indonesia do not have to
bear the volatility in coal prices as this cost will be absorbed by PLN, and IPP
producers can fully pass on all cost to PLN.

In our model, we are using 650MW IPP projects in 2007, 1,000MW in 2008, 600MW in
2009-10 and EPC projects of 1,620MW and 1,000MW in 2007-10.

Exhibit 27: Earnings Assumption

2007E 2008E 2009E 2010E
EPC/IPP MW MW MW MW
IPP local (MW) 650 1,000 600 600
EPC PLN/captive (MW) 1,620 1,000 1,000 1,000
Total 2,270 2,000 1,600 1,600
Cost/MW (USD’000) 900 900 900 900 We are using USD900,000
per MW project

As % of total contract
Procurement (%) 12.5 12.5 12.5 12.5
Engineering (%) 2.5 2.5 2.5 2.5
Construction portion (%) 26.5 26.5 26.5 26.5
Agency (%) – from whole project 2.5 2.5 2.5 2.5
Project accomplishment (%)
2007 10.0 90.0 — —
2008 — 40.0 40.0 20.0
2009 — — 40.0 40.0
2010 — — — 40.0

Coal
Coal in tonnes ('000) 1,000 2,000 2,500 3,500
Coal Price (USD/tonne) 30 30 30 30

Margins (%)
Procurement and engineering (%) 11.0 11.0 11.0 11.0
Construction (%) 15.0 15.0 15.0 15.0
Coal (%) 17.4 36.4 40.0 44.3
Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

1) EPC: the backbone of earnings in the short term

EPC will become Truba’s key earnings driver in 2007-09, given the significant The backbone
contribution of this division. With Truba’s Jurong expertise, EPC will continue to
provide a significant amount of revenue and profitability to Truba’s earnings.

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Exhibit 28: EPC Revenue And Gross Profit

(IDR b)
Sales Gross profit
10,000
8,768
9,000
7,697
8,000
7,000
6,000
5,000
4,000
3,000
1,998
1,696 1,411
2,000
830
1,000 100 323
0
2006 2007E 2008E 2009E

Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

2) IPP: Main revenue driver over the longer term

IPP will become an important division for Truba over the longer term. We expect IPP to IPP will start giving
start giving contributions to Truba in 2009 and 2010. This will become Truba’s main contributions to Truba in
2009-10
earnings driver starting in 2009. Truba can either continue holding this IPP (ranging
from 20-30 years) or sell it to other parties. According to PLN, total additional capacity
needed in Indonesia is approximately 4,000MW/year, or 52,000MW by 2020. Due to
limited ability on the part of PLN to finance additional power plants (capacity), PLN
decided to invite the private sector to close the gap. These IPP projects could be
through regular tender mechanism and e-procurement or direct appointment for
proposals from interested parties to construct power plants and respective
transmission lines, but this is only applicable for regions with an electricity crisis.

Power purchases by IPPs from PLN is governed by a power-purchase agreements IPPs in Indonesia can pass
(PPAs). The IPP purchase tariff ceiling is regulated by the Ministry of Energy and on all costs to PLN
mineral resources regulation No. 44/2006. To ensure the financial ability and long-term
viability of IPPs, the government gives about 20-30 years. PLN will be responsible for
coal supply and coal price fluctuation.

Exhibit 29: IPP Projects Pipeline

(IDR b) Sales Gross profit
3,500
2,987 2,991
3,000

2,500 2,180
2,000

1,500
1,106 1,108
1,000 783

500
40 26 74 43
0
2007E 2008E 2009E 2010E 2011E

Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

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3) Coal mining/trading
The coal-trading business will account for 6% and 10% of Truba’s revenue and gross
profit, respectively, in 2008.

Exhibit 30: Coal-Trading/-Mining Division Assumptions

(IDR b) Coal mining and trading will
Sales Gross profit 952 become more important
1,000
900
800
682
700
600 546
500 422
400
273 272
300
199
200
100 48
0
2007E 2008E 2009E 2010E

Sources: Truba Alam Manunggal Engineering; BNP Paribas estimates

4) Operations maintenance and alternative energy

With its expertise in IPP and EPC, Truba over the longer term will expand its business Truba will provide services
by providing operations and maintenance services for other IPPs or companies that for other IPP projects over
the longer term
own IPPs. This will provide additional opportunities for Truba, given the tendency for
capital-intensive companies to have their own power generation. With this, we expect
EPC and IPP companies like CP Bahari & others to become Truba’s operations and
maintenance customers in future.

Truba will continue to focus on the development of other energy sources, including Truba will also focus on the
alternative energy. The company is also studying the possibility of getting into solar development of alternative
energy
power. This potential project represents: 1) an opportunity for Truba to diversify its
business mix from pure fossil-fuel-based power generation to include renewables; and
2) an opportunity to tap a related business with growth potential in Indonesia and the
region.

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KEY RISKS

Risks to the business

Among potential threats to Truba’s short-term and long-term business are: 1) Four risks to Truba’s
failure to get additional EPC/IPP contracts; 2) the government may not be able to business
successfully implement the fast-track programme; 3) increased competition
from big players; and 4) construction and start-up risks.

1) Failure to get additional EPC/IPP projects

Truba’s business is dependant upon the awarding of EPC and IPP projects. Any delay
or cancellation in getting IPP or EPC contracts can have a big impact on Truba’s
financial position and earnings. EPC and IPP combined accounted for 86% and 89% of
total gross profit in 2008 and 2009, respectively. In our model, we have assumed that
Truba will get additional EPC and IPP projects for 3,000MW and 2,200MW between
2008 and 2010.

2) The government may not be able to successfully

implement the fast-track programme
The revenue drivers of Truba in 2007-10 are largely dependent on the implementation
of the government’s 10,000MW fast-track programme. The proposed new electricity-
generating plants under the fast-track programme are expected to be operational by
2010. If the government were not able to implement the fast-track programme
according to schedule, it could have an adverse impact on Truba’s financial condition.
The success of the fast-track programme depends on construction of the transmission
and distribution facilities by PLN to support new electricity-generating plants.

We see that most fast-track power-plant projects have been tendered and that many
banks are willing to give support for its financial structures. If PLN/the government are
not able to implement the fast-track programme according to schedule, Truba’s
financial condition may be adversely affected.

3) Increased competition from big players

There are not many players entering either the IPP or EPC sectors, especially outside
of Java. Big multinational players such as Mitsubishi, Marubeni, ABB and Siemens are
focusing on big projects in Java. Although still few in number and not very focused on
power plants, domestic players could possibly come to compete with Truba for projects
outside Java in future. These companies include Adhi Karya (mainly for construction),
Tripatra Engineering (mainly for oil and gas), Wijaya Karya (civil work) and Total
Bangun Persada (civil work).

4) Construction and start-up risks

Construction of power plants involve many risks, including shortages of equipment,
material, work stoppages, weather interferences, and unforeseen engineering, design,
environmental and geological problems. Construction delays both in EPC and IPP may
result in the loss of revenue. No assurance can be given that construction of electricity-
generating plants or construction of projects under planning will be completed on
schedule and within budget.

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VALUATION

Our valuation methods give fair value of

IDR1,392–1,740/share
Using several valuation methodologies, we arrive at a fair value range for the
company of IDR1,392-1,740/share. Our discounted cash-flow valuation using a
WACC of 8.9% and a 3% terminal-growth assumption indicates IDR1,657/share.
Our relative valuation using an average P/E of 18.3x to 22.9x for 2008 translates
into a fair value of IDR1,392-1,740 per share.

Discounted cash-flow valuation

We employed a weighted average cost of capital (WACC) of 8.9% and terminal-growth Our DCF valuation using a
value of 3% (excluding the IPP business as the company needs to hand it over to the WACC rate of 8.9% and
terminal value of 3.0%
government after the contract ends) for our base-case scenario. We are using an 8.8%
indicates …
risk-free rate and 6.2% equity-risk premium and assume a beta of 1.0x.

Based on this, we put Truba’s fair value at IDR1,657/share. Our sensitivity analysis
using 0.5% movement in both the WACC and terminal-growth rate indicates Truba’s
value could range from IDR1,465-1,888/share. For our present value calculation, we
explicitly forecast cash flow up to 2027. Despite a relatively small contribution in 2008-
09, IPP accounts for approximately 47% our DCF valuation.

Exhibit 31: Discounted Cash-Flow Valuation

(IDR/share) ————————————— WACC ————————————— … IDR1,657/share
Terminal 7.9% 8.4% 8.9% 9.4% 9.9%
growth
2.0% 1,640 1,591 1,546 1,504 1,465
2.5% 1,693 1,644 1,599 1,557 1,517
3.0% 1,752 1,703 1,657 1,614 1,575
3.5% 1,816 1,767 1,721 1,678 1,638
4.0% 1,888 1,838 1,792 1,749 1,709
Source: BNP Paribas estimates

Relative valuation
There are no other listed peers for Truba in the Indonesian market. However, we have Our relative valuation using
considered several companies that we deem to be good valuation comparables for the 18.3-22.9x P/E for 2008
translates into …
company. These include Shanghai Electric, Dongfang Electric, Shenhua Energy and
Zelan. Based on our basket of stocks, we have an average 2008 P/E of 22.9x. If we
were to apply these average P/E multiples to Truba and give a 20% to 0% discount,
we derive Truba’s fair value at IDR1,392-1,740/share.

Exhibit 32: Power-Generation Companies Valuations

—————— P/E —————— … a value for Truba
between IDR1,392 and
2007E 2008E
IDR1,740/share
(x) (x)
Shanghai Electric 37.7 27.3
Dongfang Electric 24.0 24.1
Shenhua Energy 21.1 18.4
Shandong Molong 30.2 23.7
Zelan 39.0 21.1
Simple average 30.4 22.9
Sources: IBES

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Key company information

Exhibit 33: Industry Data Exhibit 34: Revenue Breakdown – 2007E
Industry structure : Oligopoly

Customers : IPP, Indonesian Power, state-owned electricity

company
Coal
12%
Competitors : Sojitz, Mitsubishi, Itochu, Paiton and Chinese
companies
EPC
86%
Markets : Mainly in the domestic market (outside Java
IPP
and Bali) 2%

Regulation : Medium

Source: BNP Paribas estimates Source: BNP Paribas estimates

Exhibit 35: Ownership Structure – June 2007 Exhibit 36: Gross-Profit Breakdown – 2007E

Alam Manunggall Public

31% 37% Coal

12%

Mandala Kapital Bumiputera

EPC IPP
27% 5% 6%
82%

TRUBA ALAM

Source: Truba Alam Manunggal Engineering Source: BNP Paribas estimates

Exhibit 37: Company Background Exhibit 38: Key Data

Truba Alam Manunggal Engineering, established in 2001, previously Year-end 31 Dec (%) 2006 2007E 2008E 2009E
a general-contractor company, has revamped its strategy to become
Sales growth — 137.8 303.8 13.1
a one-stop solution company for electricity needs, especially
EBITDA growth — 461.6 393.5 39.5
electricity that is powered by coal, in line with its vision of answering
EBIT growth — 569.8 423.2 33.1
challenges of engineering and power generation. Truba’s new
EBITDA margin 6.0 14.1 17.2 21.2
activities include: 1) EPC services to build coal-fired power plants; 2)
EBIT margin 4.6 13.0 16.8 19.8
power generation; 3) coal mining and trading; and 4) power-plant
operation and maintenance. Through its subsidiary company, PT Net profit growth — 541.4 410.4 18.8

Truba Jurong Engineering, Truba is the leading power- and Net profit margin 3.6 9.7 12.3 12.9
industrial-plant contractor in Indonesia with over 30 years Net gearing (49.0) (50.2) (68.1) 34.7
experience. Since 2006, Trubas has entered into partnerships with ROE 2.6 13.7 45.6 36.1
three Chinese companies: Shanghai Electric, Golden Concord and Effective tax rate 26.6 30.0 30.0 30.0
Qingdao Jieneng Power Station Engineering. So far the company
has won new contracts for 650MW IPP projects and a potential
1,620MW EPC project.

Source: Truba Alam Manunggal Engineering Source: Truba Alam Manunggal Engineering; BNP Paribas estimates

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FINANCIAL STATEMENTS

Truba Alam
Profit and Loss (IDR b)
Year Ending December 2005A 2006A 2007E 2008E 2009E
Revenue 1,247 972 2,312 9,388 10,559
Cost of sales ex depreciation (1,124) (839) (1,889) (7,410) (7,936)
Gross profit ex depreciation 124 134 422 1,978 2,623
Other operating income - - - - -
Operating costs (69) (76) (92) (282) (317)
Operating EBITDA 55 58 330 1,696 2,306
Depreciation (10) (13) (26) (40) (156)
Goodwill amortisation - - - - -
Operating EBIT 45 45 304 1,656 2,150
Net financing costs (9) (1) 32 70 (26)
Associates - 5 5 6 7
Recurring non operating income - 14 - - -
Non recurring items - - - - -
Profit before tax 36 63 342 1,733 2,130 Net profit jumped
Tax (13) (17) (103) (520) (639) significantly in 2008
Profit after tax 22 47 239 1,213 1,491 contributed by EPC
Minority interests (11) (12) (12) (6) (85)
Preferred dividends - - - - -
Other items - - - - -
Reported net profit 11 35 227 1,207 1,406
Non recurring items & goodwill (net) - - - - -
Recurring net profit 11 35 227 1,207 1,406
Per share (IDR)
Recurring EPS * - 2 14 76 89
Reported EPS - 3 16 76 89
DPS - 2 - - -
Growth
Revenue (%) - - 137.8 306.1 12.5
Operating EBITDA (%) - - 468.7 414.1 36.0
Operating EBIT (%) - - 579.0 445.2 29.8
Recurring EPS (%) - - 554.5 431.6 16.5
Reported EPS (%) - - 489.4 386.5 16.5
Operating performance
Gross margin inc depreciation (%) - 12.4 17.1 20.6 23.4
Operating EBITDA margin (%) - 6.0 14.3 18.1 21.8
Operating EBIT margin (%) - 4.6 13.1 17.6 20.4
Net margin (%) - 3.6 9.8 12.9 13.3
Effective tax rate (%) - 26.6 30.0 30.0 30.0
Dividend payout on recurring profit (%) - 77.9 - - -
Interest cover (x) - 93.0 na na 82.4
Inventory days - 2.4 1.1 0.3 0.3
Debtor days - 70.2 31.0 8.4 8.2
Creditor days - 64.4 29.3 7.8 7.7
Operating ROIC (%) - 18.3 42.1 175.0 46.7
Operating ROIC - WACC (%) - 0.6 24.5 157.4 29.1
ROIC (%) - 10.9 21.4 99.4 40.8
ROIC - WACC (%) - (6.7) 3.8 81.8 23.2
ROE (%) - 5.2 13.9 47.5 36.5
ROA (%) - 5.2 10.2 37.8 24.1
* Pre exceptional, pre-goodwill and fully diluted EPC accounts for the
largest contribution
Key Assumptions 2005A 2006A 2007E 2008E 2009E
EPC - MW 2,250 2,000 1,600 1,600
IPP - MW - - - 630
Coal sales (m tonnes) 1.00 1.98 2.47 3.45

Revenue By Division (IDR b) 2005A 2006A 2007E 2008E 2009E

EPC 830 1,998 8,768 7,697
Coal 142 273 546 682
IPP - 40 74 2,180

Sources: Truba Alam; BNP Paribas estimates

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Cash Flow (IDR b)

Year Ending December 2005A 2006A 2007E 2008E 2009E
Recurring net profit 11 35 227 1,207 1,406
Depreciation 10 13 26 40 156
Associates & minorities 11 7 7 0 79
Other non-cash items - - - - -
Recurring cash flow 32 55 260 1,247 1,641
Change in working capital - - (20) (19) (29)
Capex - maintenance - - - - -
Capex - new investment - (36) (297) (45) (5,216)
Free cash flow to equity 32 19 (57) 1,183 (3,605)
Net acquisitions & disposals - - - - -
Dividends paid - - (22) - -
Non recurring cash flows - - 22 6 14
Net cash flow 32 19 (57) 1,188 (3,591)
Equity finance - 1,323 378 - -
Debt finance - 49 9 28 3,661
Movement in cash 32 1,391 330 1,216 70
Per share (IDR)
Recurring cash flow per share - 4 18 79 104
FCF to equity per share - 1 (4) 75 (228)
Balance Sheet (IDR b)
Year Ending December 2005A 2006A 2007E 2008E 2009E
Working capital assets - 512 550 591 637
Working capital liabilities - (233) (251) (274) (290)
Net working capital - 279 298 318 347
Tangible fixed assets - 81 352 357 5,417
Operating invested capital - 359 650 675 5,764
Goodwill - - - - -
Other intangible assets - - - - -
Investments - 417 425 425 425
Other assets - 88 82 85 29
Invested capital - 864 1,157 1,184 6,218
Cash & equivalents - (708) (1,038) (2,254) (2,324)
Short term debt - 55 64 92 101
Long term debt * - - - - 3,651
Net debt - (653) (974) (2,162) 1,428
Deferred tax - - - - -
Other liabilities - 16 16 17 17
Total equity - 1,334 1,939 3,146 4,551
Minority interests - 167 176 184 221
Invested capital - 864 1,157 1,184 6,218
* Includes convertibles and preferred stock which is being treated as debt
Per share (IDR)
Book value per share - 102 123 199 288
Tangible book value per share - 102 123 199 288
Trading on 2008 P/E of
Financial strength 16.9x on a fully diluted
Net debt/equity (%) - (43.5) (46.1) (64.9) 29.9
Net debt/total assets (%) - (36.2) (39.8) (58.2) 16.2
basis as we have
Current ratio (x) - 4.2 5.0 7.8 7.6 assumed 2.8b warrant
CF interest cover (x) - 80.5 na na 62.6 shares
Valuation 2005A 2006A 2007E 2008E 2009E
Recurring P/E (x) * - 587.6 89.8 16.9 14.5
Recurring P/E @ target price (x) * - 728.8 111.4 20.9 18.0
Reported P/E (x) - 484.2 82.2 16.9 14.5
Dividend yield (%) - 0.1 - - -
P/CF (x) - 308.5 71.8 16.3 12.4
P/FCF (x) - 897.2 neg 17.2 neg
Price/book (x) - 12.7 10.5 6.5 4.5
Price/tangible book (x) - 12.7 10.5 6.5 4.5
EV/EBITDA (x) ** - 212.2 53.7 11.2 8.7
EV/EBITDA @ target price (x) ** - 264.7 67.0 14.0 10.9
EV/invested capital (x) - 19.0 16.9 15.5 3.5
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: Truba Alam; BNP Paribas estimates

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APPENDIX 1: INDONESIAN POWER INDUSTRY

History of power demand in Indonesia

The continuing transformation of Indonesia from an agricultural to a manufacturing- Manufacturing accounts
oriented economy has played a particularly important role in the growth of demand for for a big chunk or
Indonesia’s …
electricity. The agricultural sector generally has low electricity consumption despite its
rising usage of electric motors and pumps and other electrical equipment. In contrast,
the manufacturing sector relies heavily on electricity as a major source of energy. The
expansion of the commercial sector in Indonesia, which generally also has a higher
level of electricity consumption than the agricultural sector, has also contributed
significantly to the growth of demand for electricity.

Exhibit 1.1: Indonesian GDP By Sector

(IDR t) 2002 2003 2004 2005 2006 … GDP contribution

Manufacturing 419.4 441.8 470.0 491.4 514.2

Agriculture, livestock, forestry and fishing 233.0 240.4 248.2 253.7 261.3
Services 130.9 140.4 151.2 161.4 170.6
Mining and quarying 169.9 167.6 160.1 165.1 168.7
Others 552.9 587.1 627.4 679.1 731.9
Total GDP 1,506.1 1,577.2 1,656.8 1,750.7 1,846.7
Source: Indonesian Bureau Statistic

Other factors that have contributed to growth of power demand in Indonesia are the Rising affluence and
rising affluence and the increasing urbanisation of the Indonesian population. Rising improving standards of
living result in higher
affluence and improving standards of living in Indonesia have generally resulted in
electricity usage
higher usage of air conditioners and electrical household appliances. Increased
urbanisation has also generally reduced the number of persons per dwelling, which
has led to a larger number of electricity-consuming households.

Market structure
The electricity sector in Indonesia has an effective monopoly under PLN, a state- PLN has an effective
owned electricity company. PLN had a complete monopoly on power generation and monopoly in the electricity
sector in Indonesia
distribution until the middle of 1989. Due to its inability to meet estimated future
demand, the government began to allow IPPs to participate in power generation in
1989. By 1997, PLN had signed 27 IPP projects with a combined capacity of 10.5
GWh, typically with consortiums that featured well-connected Indonesian partners.
However, the Asian financial crisis in 1997 had a negative impact on PLN and the
government launched a number of initiatives that included the renegotiation of certain
PPAs to improve the economic sustainability of such contracts.

Indonesia is set for a substantial expansion of power-generating capacity. The country Indonesia faces a shortage
faces a shortage of generating power, a problem made worse by the lack of an of power
integrated national grid. Improving both capacity and the transmission network are
major components of Indonesia’s fiscal 2009 infrastructure development project. As of
2006, there were approximately 36m electricity customers throughout Indonesia, of
which 23.8m were served by the Java-Bali grid.

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Exhibit 1.2: PLN Customers And Electricity Demand

Number of Installed Peak Electricity Electrification Electrification ratio is only
54%
customers capacity demand sales ratio
(m) (MW) (MW) (GWh) (%)
Java-Bali 23.4 16,361 14,827 85,390 57.9
Sumatra 6.2 3,464 2,591 12,453 51.1
Sulawesi 2.1 850 563 3,314 51.7
Kalimantan 1.7 980 765 3,483 48.1
Other Islands 1.2 860 517 2,393 30.6
Total 34.6 22,515 19,263 107,032 54.1
* Note: PLN only
Source: PLN

PLN remains the dominant presence in domestic power generation and transmission. PLN’s power-generation
However, an emphasis on private-sector investment – primarily in IPPs – marks a capacity has been pretty
much stagnant since the
return to development plans before the 1997 financial crisis. PLN has 16,361MW
crisis
available in Java-Bali and 5,249MW on the other main islands. The role of IPPs in
providing domestic power is becoming increasingly important as the domestic
consumption of electric power increases. PLN’s power-generation capacity has had
only marginal increases in recent years. The increase in PLN’s power-generation
capacity from 2001-2006 was at annual growth of 1.7%, whereas peak demand has
risen by 4.3% per annum and electric-power consumption increased 6.1% per annum
over the same period.

New electricity-generating plants are expected to help the country meet its growing
demand for power and to reduce the risk of being dependent on certain specific
electricity-generating plants. Indonesia expects approximately 3GW of new capacity to
begin operation.

In addition to the lack of adequate investment in generating capacity, long-haul

transmission also remains a problem. Indonesia does not have an integrated network
of transmission grids. The Java-Bali grid is the main integrated grid and is connected
by a transmission system running at 500Kv, 150kv and 70kv. Outside Java-Bali,
individual islands use isolated transmission networks at 150kv and 70kV. The
combined length of the transmission lines is 31,534km. Distribution lines of 20kv cover
a total of 236,009km and low-voltage lines cover 324,454km.

Power-demand outlook
The increase in demand has been driven by Indonesia’s relatively low per capita Indonesia has low
consumption and generation capacity. Indonesia’s per capita consumption of electricity electricity per capita
consumption
is low compared with other emerging Asian economies such as Malaysia, Thailand and
Vietnam. This indicates that there is potential for future growth in electricity demand as
the Indonesian economy further develops. Furthermore, countries with predominantly
manufacturing-based economies tend to consume more electricity

Higher fuel prices lead to deficit for PLN

Oil price hikes since 2004 have increased the government’s burden for fuel subsidies. Fuel price hike have
The situation has forced the Indonesian government to gradually abolish fuel subsidies forced …
since 2005, causing the average domestic industry fuel price to surge more than 200%.

Fuel-price hikes have forced many industries to switch their energy supply from oil- … many industries to
fuel-based energy to electricity-based energy from PLN. This action has caused switch their energy to
electricity from PLN
electricity consumption to jump significantly during peak hours (5pm–10pm), notably in
Java and Bali. As a result, PLN’s consumption of oil fuel to produce electricity jumped
to 11m kilolitres in 2005, whereas its subsidised fuel is only 8.4m kilolitres.

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This oil-fuel difference (difference between total oil fuel needed and subsidized oil fuel)
must be paid for by PLN at market prices, which increases PLN’s costs as it needs
more funds to buy fuel to generate necessary power. But PLN’s highly limited financial
capability may prevent it from financing such excessive additional costs.

To ease its financial burden, PLN has tried to propose an electricity-tariff increase, but
finally after some to and fro, this proposal was rejected by the government as it was
thought to indicate negative sentiment to the overall economy. This rejection coupled
with higher oil prices has caused the government to propose higher electricity
subsidies.

Blackouts happening in some parts of the country

There is also a problem with the electricity supplied by PLN – some areas of the Many blackout were
country have experience blackouts due to the electricity deficit. These blackouts are happening
due to many technical problems, including ageing power plants that cannot operate
efficiently or, even worse, are in a damaged condition. There are also reservoirs that
experience a decline in water, thus keeping hydropower plants from operating at
maximum capacity.

These blackouts cause many industries to suffer substantial losses in the form of
decreased work hours and damaged machinery. For instance, up to 50,000 small and
medium-size enterprises in north Sumatra are losing 60% of their daily productivity due
to blackouts, which can be up to six hours per day.

Move to diversify fuel mix, especially coal

Indonesian power generators are moving away from oil-fired capacity in favour of PLN will move to coal to …
natural-gas and coal-fired plants. As an example, Indonesia Power is considering
switching its existing oil-fired generators (32% of current capacity) to natural gas. In
particular, coal-fired capacity is expected to increase significantly from 37% of the
company’s existing capacity as new projects come online.

In an attempt to slash its oil-fuel-related costs to produce electricity and secure … reduce its energy cost
electricity supply, the government realised that building non-oil-fueled power plants is a
must. One of the non-oil-fueled power plants, which are considered suitable for
Indonesia, is coal-fired power plants, as it only requires low-rank coal, which is
cheaper than oil fuel and is available in abundance in Indonesia. Besides, unlike
hydropower plants whose capacity is highly influenced by weather and water
availability, coal-fired power plant is not affected by changes in weather, thus offering a
more-stable electricity supply.

It is expected that oil fuel will account for 79% of PLN’s total production costs and
produce only 33% of PLN’s total electricity output, whereas coal will account for about
only 9% of PLN’s total production costs and produce 33% of PLN’s total electricity
output.

Exhibit 1.3: PLN’s Volume And Production Costs For Year 2006
— Production — —— Cost —— Production/
cost ratio
(GWH) (%) (IDR t) (%) (x)
Oil fuel 33,566 33 44.70 79 0.42
Natural gas 21,782 21 4.80 8 2.53
Coal 33,962 33 5.29 9 3.58
Geothermal 2,962 3 1.42 3 1.16
Others 9,318 9 0.37 1 14.03
Total 101,590 100 56.58 100
Sources: PLN, estimate

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From the table above, we can see that coal provides substantially lower production
costs in terms of one unit output per one unit cost, which is shown by a higher
production to cost ratio for coal compared to oil fuel. But after all the favourable stories
about coal-fired power plants, all we can guess is, the government will end up with the
same classic problem, that is, insufficient funding given its highly limited budget.

10,000MW coal-fired power plants to reduce PLN costs

The government plans to build 10,000MW coal-fired power plants, with all the plants 10,000MW coal-fired power
targeted to be completely installed by 2009. This project comprises a 6,900MW coal- plant will b built in 2009-10
and …
fired power plant to be built in Java (consisting of 10 projects), and a 3,100MW plant to
be built outside Java (consisting of 20 projects).

On 5 July 2006, the Indonesian president issued Presidential Decree No. 71 Year
2006, which assigned PLN to speed up coal-fired power-plant development in
Indonesia. Some local construction companies (private and stated-owned) have shown
an interest in the programme. The government has also shown its strong support for
this crash programme by providing financial guarantees for PLN’s financial statement
and balance sheet.

Most investors are Chinese and team up with local

partners
Since investment costs are one of the most crucial points to win projects in the Crash … most of the investors and
Programme, Chinese investors are likely win many projects as they offer substantially EPC contractors will be the
Chinese companies
lower investment costs compared with their competitors from Europe, Japan, Korea,
India and the US. It can be seen from the prequalification tender announced by PLN, in
which Chinese companies dominate most of the projects. Chinese companies are able
to build power plants that cost only USD900,000 per MW, whereas competitors set the
price at USD1.1-1.2m per MW. China President Hu Jintao has stated his support for
Indonesian coal-fired power-plant projects and he has asked China’s financial
institutions such as the Bank of China and others to provide financial support for these
projects. Not surprisingly, two Chinese companies, Harbin Power and China National
Technical Export Import, have won the Paiton and Suralaya (both are 1x 600MW) coal-
fired power-plant projects.

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Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations
of such places is strictly prohibited.

Recommendation structure

All share prices are as at market close on 19 June 2007 unless otherwise stated. Stock recommendations are based on
absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the
recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside
is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most
commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at
any point in time.

Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility
may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst
doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target
price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current
market price and our assessment of current fair value.

© 2007 BNP Paribas Group

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