| Geo Energy Resources, an Indonesian coal producer listed on the Singapore Exchange, has taken a significant step towards its ambitious growth plans by signing a US$150 million contract yesterday. The contract is for the development of an integrated infrastructure project -- essentially, a hauling road and a jetty -- in South Sumatra and Jambi Province, Indonesia. Geo Energy (current market cap: S$392 million) says this project, when completed by early 2026, will advance its goal of becoming a billion-dollar business. The contract signing yesterday (6 Aug) marked another high point of 2024 for the company. Earlier in the year, it entered into an agreement via which a Swiss commodities investment fund became a strategic investor. See: GEO ENERGY: Strategic investor is on board after spending ~$30M, what's next? |
At 6 Aug 2024 signing. Front row (L-R): Ng See Yong (MBJ) | Charles Melati, Chairman/CEO, Geo Energy | Zhang Shihong (CCCC-FHC) | Du Xiaodong (Norinco)
The Project
The Engineering, Procurement, and Commission (EPC) contract involves the construction of a 92-kilometer hauling road and an associated jetty.
This infrastructure will facilitate the efficient transportation of coal from Geo Energy's PT Triaryani (TRA) coal mine to international export markets.
The project is expected to be completed between late 2025 and early 2026.
Key Players
The contract has been awarded to a consortium comprising CCCC First Harbor Consultants Co. Ltd (CCCC-FHC) and Norinco International Cooperation Ltd (NORINCO), two of China's largest state-owned enterprises.
Both companies have a strong track record in the construction and development of transportation infrastructure.
Likely, they have strong financial reserves or are able to access external project financing, a useful trait especially for this project which they are funding upfront.
Financial Arrangements
One of the notable aspects of this contract is its deferred payment mechanism.
Apart from initial costs and a downpayment amounting to ~15% of the contract value, the contractor will fund the remaining project costs.
This arrangement allows Geo Energy's subsidiary, PT Marga Bara Jaya (MBJ), to make payments two years later, giving the infrastructure sufficient time to generate cash flow to meet its payment obligations.
It's uncommon for EPC contractors to fund a project -- typically, clients pay contractors progressively according to the work done.
| Only US$23 m initial payment from Geo Energy |
| • A down payment of RMB138 million (approximately USD19 million) will be paid by MBJ (Geo Energy subsidiary) to the Contractor. • Further, a payment of RMB21 million (approximately USD3 million1) shall be paid by MBJ to the Contractor right before commencement of the EPC works. • Other than the payments described, the rest of the Project costs will be funded by the Contractor. |
Strategic Importance
The integrated infrastructure is designed to handle a road haulage capacity of up to 50 million tonnes per year.
At least 25 million tonnes of this capacity are reserved for Geo Energy's TRA coal mine, with the remaining capacity available for leasing to neighboring mines.
This setup not only enhances Geo Energy's competitive edge but also provides a new revenue stream as an infrastructure provider.
Not only is the company well-positioned to expand its production capacity, it will reduce its logistical costs and contribute to the local economy and creating development opportunities for local communities.
 Charles Antonny Melati (photo), Executive Chairman and CEO of Geo Energy, emphasized the importance of this development:"This contract represents a significant milestone for our group, showcasing our team's unwavering efforts and ambitious vision to evolve into a billion-dollar energy group. "The integrated infrastructure will minimize transportation time, achieve substantial cost savings, and provide a captive market for natural resources in the region." |
Future Prospects
Geo Energy has also entered into a non-binding Memorandum of Understanding (MOU) with the consortium for potential future collaborations. These could include mining services, coal offtake, financing, investment, and operations and maintenance of the integrated infrastructure.
