26 February 2020 (closed)
USD/IDR (14,018) +52.00 +0.37%
EUR/IDR (15,291) +111.19 +0.73%
Jakarta Composite Index (5,688.92) -98.22 -1.70%
The Indonesian government is having problems curbing the nation's coal output, especially now coal prices are at a much more attractive level compared to one year ago. Therefore, the government may consider implementing disincentives or even sanctions in order to keep coal production under control and push it down to (an annual) 400 million metric tons by 2019.
In the National Medium‐Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional, or RPJMN) the Indonesian government set a 413 million metric tons of coal production target for 2017. However, based on estimates of stakeholders in the coal sector, the actual figure may nearly touch 478 million tons. And this figure does not even include illegal coal shipments.
Merah Johansyah Ismail, Coordinator for the Mining Advocacy Network (Jatam), said the government has actually already formulated steps that discourage coal production through a presidential regulation on the General Planning for National Energy (RUEN) at the start of 2017.
For example, the government can issue a moratorium on new coal mining concessions in specific areas. However, Ismail added that coal-rich provinces (on Sumatra and Kalimantan) are still reluctant to implement such measures.
Starting from 2018 the issue of reduced coal output will be placed high on the agenda of Indonesia's Energy and Mineral Resources Ministry. Not only a reduction in coal production is needed but authorities also want to limit coal exports, while boosting domestic coal consumption (mostly by coal-fired power plants). The table at the bottom of this page shows that Indonesia exports most of its coal production.
Reduced coal output and exports from Indonesia would help safeguarding plenty of coal reserves for future generations of Indonesians. The Energy Ministry targets to see coal production reduce to 406 million tons in 2018 followed by 400 million tons in 2019. Although the power to issue coal mining permits (IUP and IUPK) is in the hands of the provinces, the central government is formulating new national regulations (for example the setting of quotas) that have to be implemented by the provincial governments.
Supriatna Suhala, Executive director of the Indonesian Coal Mining Association (APBI), believes it is rather difficult for the central government to control coal output as it pretty much depends on the policies and strategies of the individual coal mining companies. What would be an effective measure, however, is the "China model" where the central government limits working hours in the coal mining sector. But Suhala says such a drastic step would come too early in Indonesia at this point.
Another problem for the central government is that there are currently hundreds of Indonesian coal mining companies in the exploration stage. In a couple of years these miners can reach the production stage, implying significant additional coal production.
Lastly, it all depends on the coal price. Currently coal prices are around the most attractive level in two years. For many coal miners - especially those that have been plagued by losses in recent years - it encourages the desire to produce and sell coal. Whether there is further room for growth of the coal price mainly depends on China's mining policies. Authorities in the world's second-largest economy curbed coal production by limiting working hours in an attempt to let the coal price rise. This then improves the financial situation of Chinese miners. Prior to these mining policies there had emerged concern about the non-performing loan (NPL) ratio in China's banking sector as coal miners encountered difficulty to repay debt to banks. China reviews its policy every three months.
Indonesian Government's Benchmark Thermal Coal Price (HBA):
Source: Ministry of Energy and Mineral Resources
Indonesian Production, Export, Consumption & Price of Coal:
(in mln tons)
(in mln tons)
(in mln tons)
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources