3 April 2020 (closed)
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The government of Indonesia is eager to use current low coal prices as the context to push for consolidation in the country’s coal mining sector. Sudirman Said, Minister of Energy and Mineral Resources, announced that the government may revoke over 4,000 troubled mining licenses this month and install a better licensing system. Licenses that may be revoked are Mining Business Permits (IUPs), not the long-standing Coal Contracts of Work (PKP2B) that are held by companies such as Bumi Resources and Berau Coal Energy.
It is needed to reform the country's coal mining industry as the regulatory framework and permitting process has become confusing. Minister Said stated that the huge profits enjoyed by coal mining companies during the commodities boom in the 2000s led to abnormal behavior. Although the minister referred to local coal miners as the source of abnormal behavior (for example tax/royalty evasion or illegal mining), it is also known that local governments in coal-rich areas (in Kalimantan and Sumatra) have issued a large amount of IUPs (in search of fast cash) without putting in place good monitoring (leading to overlapping permits). Part of the government's reform plans includes the handing over of the licensing process to the Indonesia Investment Coordinating Board (BKPM). This is expected to happen in 2015.
Minister Said said that there are currently around 960 coal companies in the production stage in Indonesia. About 900 of these companies are IUP-holders and who contribute approximately 80 million tons, roughly 20 percent of Indonesia’s total annual coal production.
Indonesia, Southeast Asia’s largest economy, is the world’s largest exporter of thermal coal. However, as the government plans to construct 35 gigawatts of new power stations over the next 10 years (a plan that may be too ambitious), it wants to curb excessive coal exports in order to safeguard future supplies for these power stations. Minister Said claims that domestic coal consumption may increase from 90 million tons per year currently to 250 million tons per year in the future.
On Monday (08/06) it was announced that China’s coal imports plunged 41 percent (y/y) in May 2015 to 14.25 million tons by China’s General Administration of Customs. Zheng Nan, analyst at China’s Shenyin Wanguo Securities, said that coal imports are constantly falling compared to 2014 due to new policies, and the use of new (renewable) energy.
Despite resistance and criticism from the coal industry, the Indonesian government still plans to raise coal royalties. Miners have fiercely objected to this as the coal mining industry has already been plagued by low prices, drastically curtailing profits. The benchmark Newcastle coal index stood at USD $60.32 per ton in the week ending on 5 June 2015, down 10 percent from the start of the year and less than half of the post-2008 recession peak in January 2011 (USD $136.30). Minister Said announced that the government will probably exempt low-grade coal from this planned royalty hike. The hike, which will nearly double coal royalties, still awaits approval from the Indonesian Finance Ministry.
Indonesian Production, Export and Consumption of Coal:
in million tons
Source: Indonesian Coal Mining Association (APBI)
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