INTERVIEW-Nalco key to Indonesia coal mine plan -MEC

* Nalco participation key factor in MEC Kalimantan mine

* MEC to sell 10 mln T/yr on cost plus contracts to India

* Nalco to make aluminium more cheaply in Indonesia

By Jackie Cowhig

MUMBAI, March 9 (Reuters) - Indian state aluminium maker NALCO's  participation was a key factor in Middle East Coal's (MEC) decision to develop a coal mine and rail line in Indonesia's East Kalimantan, MEC Executive Vice Chairman Madhu Koneru said on Tuesday.

Speaking on the sidelines of a Coaltrans conference in Mumbai, Koneru said his company had 35 years of experience in trading bulk minerals and many years of operating in Indonesia.

"We picked Indonesia as a place to go into coal mining because we're used to the style of mining there," he said.

"But with planned capex of $1 billion for the mine, rail line and port we couldn't depend entirely on the Indian market to sell coal, we needed local support and the locals wanted jobs," he said.

"We will create around 1,000 jobs so we talked to Nalco who wanted to build a new smelter and asked if they wanted to partner up," he said.

Nalco will build a captive power plant at the mine head to fuel its smelter to refine Indian alumina, increasing the total number of jobs created to 5,000, he said.

Nalco will also take 6 million tonnes a year of run of mine unwashed coal from MEC.

Koneru would not give details of the coal supply contract to Nalco other than to say that it would be cheaper for Nalco to build a power plant and smelter in Kalimantan than in India, where its bauxite mines and smelters are.

Asked if the Indian government was pushing 95 percent state-owned Nalco to create these jobs in India, Koneru said "nobody in the Indian government is pushing Nalco."

Since the South African power crisis in 2008 many in the aluminium industry have concluded that no metals company should build a smelter dependent on coal power because it is too expensive.

Asked to comment on this, Koneru said: "Nalco have done all the feasibility studies, it's cheaper in Indonesia."

MEC will sell 10 million tonnes a year of sub-bituminous coal to two Indian end-users on 15-year contracts.

Tata Power  is expected to sign a long-term contract with MEC.

The contracts are essentially cost plus, he said, with a cap and collar of around $30-$36 a tonne FOB.

MEC will also sell 5 million tonnes a year to either Indian or Chinese end-users and a further 2 million on the spot market.

SWAMP & MOUNTAIN

MEC's planned mine is in an undeveloped part of East Kalimantan without road or river connections to a port. A new rail line and cape-size port will be built as part of the project but MEC's cash costs will still be competitive, he said.

Indonesian mining sources and Indian firms looking for Indonesian coal assets said this part of Kalimantan will be costly and difficult to develop.

The part of Kalimantan where the project is located was easy to obtain permits for, he said, because only one regional government authority was involved rather than several, as is often the case.

MEC will rail coal to its port rather than trucking and barging.

The rail line will cross 20 km of swamp which will be treated to take the line and tunnel through 85-90 metres of mountain, Koneru said.

(Reporting by Jackie Cowhig, editing by William Hardy)