The introduction of mandatory letters of credit is not only confined to coal exports from Southeast Asia’s largest economy but also applies to other key commodities such as palm oil, oil & gas and minerals. Per 1 April 2015, the Indonesian government requires these Indonesian exporters to use letters of credit for their exports. Indonesian Trade Minister Rachmat Gobel stated at the start of the year that this new rule would increase the country’s export earnings and enhance monitoring sales of natural resources. Indonesia has been plagued by illegal coal shipments. It is estimated that per year between 50 and 75 million metric tons of coal are mined illegally in Indonesia, reflecting weak law enforcement and monitoring in the industry.

However, this new requirement immediately led to confusion over whether existing contracts that have been signed earlier this year should also use these letters of credit. Reportedly, the Indonesian Coal Mining Association (APBI) discussed this issue with the Indonesian Ministry of Trade a week ago but the government is yet to clarify this matter. Coal miners have requested for an exemption from the new regulation for existing contracts. This confusion may disturb coal shipments from Indonesia. For some miners the new requirement is problematic as their buyers prefer to pay through telegraphic transfers.

Corporate Earnings Listed Indonesian Coal Miners:

Company Net Profit – (Loss)
12 months 2014
12 months 2014
ABM Investama   (USD 114 million)   USD 724 million    -6.8%
Adaro Energy   USD 178.2 million   -23.9%   USD 3.32 billion    +1.2%
Baramulti Suksessarana   USD 2.5 million    -47%   USD 217 million    +30%
Bumi Resources
Golden Energy Mines   IDR 133.4 billion   -41.1%   IDR 5.19 trillion   +17.1%
Harum Energy   USD 410,792    -99%
Indo Tambangraya Megah   USD 200.2 million    -2.3%   USD 1.94 billion   -10.6%
Samindo Resources
Tambang Batubara Bukit A.   IDR 2.02 trillion     +9%   IDR 13.08 trillion   +16.7%
Toba Bara Sejahtera   USD 18.3 million    -1.1%   USD 499.9 million   +18.5%

Various sources

The table above shows that most Indonesian coal miners listed on the Indonesia Stock Exchange have recorded weaker net profit over 2014 compared to the previous year. The only exception is state-controlled Tambang Batubara Bukit Asam which posted a 9 percentage point growth (y/y) in net profit due to a number of successful strategies aimed at reducing the company's production costs.

Higher Coal Royalties

Besides the mandatory letter of credit, the government also plans to impose higher royalties for coal miners per 1 April 2015. These higher royalties only apply to IUP-holders, not the older Contracts of Work-holders. Pandu Sjahrir, Deputy Chairman of the APBI, requested the government to postpone the plan as Indonesian miners are already burdened by current low coal prices (and which are unlikely to rebound in the foreseeable future). The administration of Indonesian President Joko Widodo wants to raise coal royalties as it aims to increase non-tax revenue from coal and metals to IDR 52.2 trillion (USD $4 billion) in 2015 (from IDR 35 trillion in the preceding year).

Although both regulations - letters of credit for key commodity exports and higher royalties for IUP holders - are to be implemented per 1 April 2015, we have not received confirmation yet that the Indonesian government has upheld this deadline.

Indonesian Production, Export and Consumption of Coal:

     2007    2008    2009    2010    2011    2012    2013    2014
Production     217     240     256     275     353     383     421     435
Export     163     191     198     208     272     304     349     359
Domestic      61      49      56      67      80      79      72      76

in million tons
Source: Ministry of Energy and Mineral Resources

Further Reading:

Earnings Indonesian Coal Miners Down on Weak Global Coal Prices
Coal Mining News: Indonesia Plans to Raise Coal Royalties in March
News from Indonesia’s Coal Mining Industry: Production & Export
Coal Mining Industry Indonesia: Higher Royalties for IUP-Holders
Illegal Coal Shipments from Indonesia Form a Persistent Problem
Coal Mining in Indonesia: Safeguarding Future Energy Sources
Indonesia Coal Update: Export, Production and New License System
Overview of the Coal Mining Industry in Indonesia