BALIKPAPAN, Indonesia (Reuters) - The global economic slowdown that has battered the resource sector this year has spared Indonesia's coal capital Balikpapan, which is forging ahead with a recession-defying infrastructure upgrade, partly funded by China.
Once a sleepy fishing village, Balikpapan now has facilities to rival the capital Jakarta, largely due to the commodity boom of the past decade which saw it become a base for global and local mining firms working the coal and gold seams of East Kalimantan province.
An almost 30 percent drop in global coal prices this year has forced production cuts and mine closures in the province, but a steady increase in Chinese coal imports from East Kalimantan, which sits on about two-fifths of Indonesia's coal reserves, has encouraged private investors and the provincial government to keep pouring millions of dollars into Balikpapan.
"I want to create opportunities for the next generation," East Kalimantan Governor Awang Ishak Faroek told Reuters on the sidelines of an recent conference dedicated to drumming up infrastructure investment in Indonesia.
In 2011, major resource consumer China imported almost 65 million tonnes of coal from Indonesia, an increase of just over 18 percent from the previous year. In the first eight months of this year, imports had risen by 17 percent, despite an economic slowdown that has dulled China's appetite for resources.
The central government's master plan to transform Indonesia into a top 10 world economy by 2025 envisages developing East Kalimantan into a major mining and mineral processing hub through almost 700 trillion Indonesian rupiah ($73 billion) worth of investments.
Upgrading the network to transport these resources is a priority: Indonesia is the world's biggest coal exporter, but most of this coal is moved from the mines of East Kalimantan down river using barges, which slows down mass shipments and leaves the process vulnerable to natural disasters.
These logistical challenges mean Balikpapan is pushing ahead with highways, railways, ports and industrial complexes to sustain long-term growth in a way other places are not.
At current coal production rates of about 240 million tonnes a year, East Kalimantan's reserves of 8.5 billion tonnes would last over 35 years. Indonesia's coal reserves of 21 billion tonnes account for around 3 percent of the world total.
East Kalimantan is home to the biggest mine for major Indonesian coal producer Bumi Resources (BUMI.JK). This month, governor Faroek surprised the industry by calling for a cap on coal output to prolong reserves in the region.
Indonesia has not built a new railway in over 60 years, but the province plans to develop the Kalimantan Railway, jointly funded by a $2.4 billion from Russian Railways RZDRU.UL, to join a coal port near Balikpapan to mines.
One of the biggest projects currently underway is the expansion of the city's Sepinggan Airport, which was originally designed for less than 2 million passengers but which now sees almost three times as many in a year.
After the $230 million upgrade, due to be completed in October 2013, the airport will be able to handle 10 million passengers. Steel and concrete now rise from the site, dwarfing the shingled rooftops of the existing terminal.
"We had no choice but to build a new bigger terminal because we expect the number of passengers to continue to increase," said Handy Heryudhitiawan, a spokesman for developer PT Angkasa.
The population of Balikpapan is also increasing as standards of living rise.
East Kalimantan was ranked fourth among Indonesia's 33 provinces in terms of infrastructure development and quality of life in a recent study by the National University of Singapore, and government data shows the number of residents has increased by more than one-third since 2005 to around 700,000 now.
Orderly, uncongested streets, affluent residential compounds named after places in Beverly Hills and Paris, as well as low pollution levels, make the city an attractive destination for the expatriates who mostly work in the resources industry and their families.
Their presence has boosted the local economy: rents for larger properties range between $1,350 and $1,800 a month, comparable to the capital Jakarta, while enrolments for 2013 at the Raffles International School are up 70 percent, an administration clerk said.
Sales of Vespa motorbikes, a luxury in a nation where cheaper, more utilitarian models are the norm, are also strong, said Marthen Mandagi, a sales executive at a Piaggio dealership in the upmarket Balikpapan Baru area.
"They have a pretty high lifestyle in this area. When they make enquiries they never ask about the cheapest models but about the most expensive ones," Mandagi said.
Even though the Indonesian Coal Mining Association cut its 2012 production forecast from 390 million tonnes initially to 340-350 million tonnes now, East Kalimantan and Balikpapan will continue to attract investment as resource consumption is expected to remain strong over the long-term, experts say.
"Balikpapan was a place you flew into and flew out of," said a senior mining industry executive who declined to be named as he was not authorized to talk to the media.
"Now you've got lots of new hotels, serviced apartments on the beach. Before there was only the Balikpapan Mall, now you've got three or four major malls. Balikpapan has changed dramatically in the last five years." ($1 = 9575 rupiah) (Editing by Neil Chatterjee and Miral Fahmy)