Bioeconomic Analysis and Risk Assessment of Integrated Forestry and Wood Pellet Production for Post-Mining Land Use in East Kalimantan

¹ Industrial Engineering Department, Universitas Surabaya, Indonesia
² Lee Khong Chian – Faculty of Engineering & Science, Universiti Tunku Abdul Rahman, Malaysia

^* Corresponding author: This email address is being protected from spambots. You need JavaScript enabled to view it.

Abstract

Coal mining in East Kalimantan, Indonesia, has spurred economic growth but inflicted severe environmental degradation, necessitating innovative PMLU strategies for ecosystem restoration and sustainable development. This study evaluates the financial viability and risks of an integrated wood forestry and wood pellet factory using Acacia mangium plantations on 10,500 hectares of degraded land, aligning with SDGs 7, 15, and 8. Employing a bioeconomic model, we constructed a base case financial framework with proforma statements, free cash flow calculations, and Monte Carlo simulations (50,000 iterations) to assess NPV, IRR, and DPP under uncertainty. Results indicate baseline feasibility with an NPV of USD 2.2 million, IRR of 12.08% (exceeding 9% WACC), and DPP of 19 years, transitioning to positive cash flows by year 5. Simulations reveal a mean NPV of USD 6.146 million and DPP of 14.87 years, but high variability (coefficient of variation up to 1.60) and risks from pellet price fluctuations (over 70% variance contribution) and cost growth, where a 5% adverse pellet price change reduces NPV by 72%. These findings underscore the project’s potential for bioenergy production and land rehabilitation, while highlighting the need for market stabilization strategies.