Track: Business Management

Abstract

The coal price index movement, mostly the Indonesian Coal Index 3 (ICI 3), varies from $37.6/ton to $74.9 per ton from Jan 2012 to Dec 2019. This volatility drives uncertainty in the future of coal mining companies. Recently, the House of Representative Indonesia has legalized Law 3 Year 2020, enabling the first generation holder of Coal Contract of Works (CCOW) or Perjanjian Kerja Pengusahaan Pertambangan Batubara (PKP2B) to extend their contract until 2 x 10 years in the form of Special Business Mining License/ Ijin Usaha Pertambangan Khusus (IUPK). Law 3 Year 2020 also impacts financial performance since the fiscal policy change in value-added tax, royalty, and corporate tax tends to raise the government’s earnings. Law No 3 Year 2020 gives an additional 10% portion of earnings after-tax implemented as well.

This study aims to access the possibility of the Indonesian Coal Index (ICI3) movement in the next five years using Geometric Brownian Motion and compare the difference between before and after implementation of Law 3 Year 2020. The authors have simulated one thousand scenarios of five years’ movements with the random normal distribution. The result shows that the enterprise value of ADRO is reduced by 12.4% from $5,680 million to $4,976 million. This result implies that ADRO should anticipate enterprise value reduction by efficiency program or strategic business expansion.