Illegal Coal Shipments from Indonesia Form a Persistent Problem

Indonesia is one of the world’s leading producers and exporters of thermal coal. However, the country is also characterized by weak law enforcement, thus resulting in many illegal activities including in the coal mining sector. Previously, it had been reported by Bloomberg that illegal coal shipments from Indonesia totalled USD $6 billion in 2013. Pandu Sjahrir, Chairman of the Commercial Committee of the Indonesian Coal Mining Association, estimates that 71 million tons of Indonesia’s 2013 production figure cannot be tracked.

Due to heightened supply, these illegal coal shipments also undermine global thermal coal prices which have already declined significantly in recent years. If Indonesia would be able to block informal mining then the market may in fact rally.

Indonesia has over 20 terminals that handle coal exports. However, the government lacks control over existing private ports in South, East and Central Kalimantan as well as in South Sumatra and Jambi (Sumatra). In June 2014, Sukhyar had stated that the government plans to add 14 coal terminals in Kalimantan and Sumatra in an attempt to combat informal shipments and boost royalty payments.

Sukhyar said that most of illegal coal shipments are done by Mining Business Permit (IUP)-holders. The Coal Contracts of Work (PKP2B)-holders form less of a problem as they are required to report their production and exports figures. Moreover, there are only 73 PKP2B-holders (and thus easier to monitor), while there are 1,394 IUP-holders currently active in Indonesia.

To improve the surveillance system Sukhyar proposes to use satellite technology.

Recently, the Indonesian government also introduced a new licensing system - ‘Listed Exporter’ status (Indonesian: Eksportir Terdaftar, ET) - for Indonesian coal exporters in a bid to optimize state revenue from the coal mining industry and have more supervision on coal exports.

Indonesian Coal Statistics:

     2006    2007    2008    2009    2010    2011    2012    2013
Production     194     217     240     256     275     353     383     421
Export     144     163     191     198     208     272     304     349
Domestic      49      61      49      56      67      80      79      72

in million tons
Source: Ministry of Energy and Mineral Resources

Further Reading:

Overview of Indonesia's Coal Sector
Indonesia Coal Update: Export, Production and New License System