INTERVIEW-UPDATE 1-MEC delays Indonesian coal output to 2012

* Limited output to start in 2012, vs earlier 2010 forecast

* Railway construction delayed; expects loan finance this yr

* Exports to rise to 14 mln T in 2013, to India, China (Updates with details, quote)

By Neil Chatterjee and Janeman Latul

JAKARTA, July 28 (Reuters) - The UAE's MEC Holdings said its Indonesian Kalimantan project will not start significant coal production to meet Chinese and Indian demand until 2013 because of delays to its project to build a railway from the mine.

The firm expects the railway to start operating at the end of 2012, when the coal mine will produce one million tonnes, before shipping 14 million tonnes in 2013 to Asian utilities, Madhu Koneru, the firm's executive vice-chairman, told Reuters.

He said the firm is in talks with India's top five private power producers, which could include Tata Power and JSW Energy, and two Chinese firms for the output, with Indonesian domestic demand another possible future outlet.

MEC told Reuters last December that it expected to ship two million tonnes of Indonesian coal this year to India, ahead of the railway's completion, but it will now wait for the railway as utilities plan their expansion around securing coal supplies.

"We're not doing a road, we're putting all our effort into the railway," Koneru said in an interview in Jakarta, adding its construction had been delayed by six months but the firm had now got cooperation agreements for the necessary land acquisition.

He said the firm has appointed Standard Chartered as lead arranger for $750 million of project loan financing for the railway, which it expects to get within four months.

MEC is investing $1 billion in the railway to take coal from its mine to a port in an undeveloped part of Kalimantan on Borneo island, plus another $4.2 billion in an associated smelter and power plant with Indian aluminium producer NALCO.

The problems of doing such infrastructure projects in Indonesia mean the country's plans to unearth and export vast coking coal resources from Kalimantan could stumble, resulting in little relief for a tight global market.

MEC will supply six or seven million tonnes a year ex-mine to NALCO, while shipments for export via the railway are expected to rise to 23 million tonnes in 2014 and 34 million in 2015.

Koneru said he expected the coal, with a low calorific value of 3,800 gross-as-received (GAR), to sell for around $26 to $32 a tonne in 15-year term deals. Benchmark Australian coal prices are around $94 a tonne, after hitting an 18-month high in April.

"We don't care what the spot prices are. If investing $1 billion in project financing in Indonesia, it's going to be much more difficult than $1 billion of project financing in Australia -- the banks want to see a clear revenue stream," he said.

Indonesia said on Wednesday that foreign direct investment was expected to increase around 25 percent this year, showing investors are increasingly willing to take longer-term bets on a country seeing strong inflows into its stocks and bonds.

Direct investment faltered in recent years on concerns over corruption, red tape and a shaky legal system, though Koneru said sentiment on Southeast Asia's top economy was now more positive. (Editing by Sara Webb)