Bad news for Indonesian coal miners as the government of Indonesia plans to raise coal royalties in March 2015 in a bid to increase revenue from the natural resources sector. Apart from raising royalties, the government will also implement measures to enhance monitoring in the coal mining sector (as illegal coal shipments and tax avoidance are a major problem). The plan to nearly double coal royalties are particularly expected to impact negatively on smaller miners and new firms that focus on the production of low-quality coal.

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The Indonesian Ministry of Energy and Mineral Resources signaled that the government may (again) decide to postpone full implementation of its ban on exports of raw mineral ores and concentrates as the country still lacks sufficient smelting capacity to produce value-added mining products. Through this export ban, stipulated by the 2009 Mining Law, the Indonesian government aims to enhance revenue generation in the country’s natural resources sector by forcing miners to produce and export value-added products instead of raw materials.

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Bob Kamandanu, Chairman of the Indonesian Coal Mining Association (APBI), advises the government of Indonesia to cut the country’s coal production by about 50 million tons and cap coal exports at 300 million tons in 2015 in an effort to boost global coal prices which are currently touching an eight-year low amid the sluggish global economy (particularly weakening coal demand from China) in combination with a coal oversupply. Indonesia is the world’s leading exporter of thermal coal which is primarily used in electricity generation.

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Indonesia’s Ministry of Energy and Mineral Resources may revoke the Mining Business Permit (Izin Usaha Pertambangan, or IUP) of 4,643 local mining companies at the end of January 2015 as these companies still lack the clean and clear certificate (CnC) from regional authorities. This CnC certificate indicates that the mining company has no outstanding royalty and other tax debts, fulfilled its exploration and environmental commitments, has no property delineation issues and obtained the necessary forestry permits.

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R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, stated that the country is plagued by structural illegal coal shipments from coal-rich regions in Kalimantan and Sumatra. Sukhyar estimates that each year between 30 and 40 million tons of coal is exported illegally from Indonesia, Southeast Asia’s largest economy. Based on current coal prices, this would imply that USD $1.2 billion worth of coal is shipped illegally per year causing the government to miss out on royalties.

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Indonesia’s Ministry of Energy and Mineral Resources said that in the period January-August 2014 Indonesian coal production reached 280 million tons and coal exports 224 million tons. Director General for Coal and Mineral Resources R. Sukhyar added that miners that hold Coal Contracts of Work (PKP2B) account for 80 percent of total domestic coal production, while Mining Business Permit (IUP) holders account for the remainder. The Ministry targets total coal production to reach between 390 and 420 million tons in 2014.

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Indonesia's tighter coal export policy, originally scheduled to be implemented on 1 September 2014 has been delayed one month. Director General for Coal and Mineral Resources at the Ministry for Energy and Mineral Resources, R. Sukhyar, explained that this delay does not mean that the policy will be changed. Indonesian coal miners still need to obtain a ‘listed exporter’ status (Eksportir Terdaftar, ET) from the ministry to export coal. The new rule applies to miners that hold Coal Contracts of Work (PKP2B) and Mining Business Permits (IUP).

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R. Sukhyar, Director of Mineral and Coal at the Indonesian Energy and Mineral Resources Ministry said that 184 mining business licenses (Indonesian: Izin Usaha Pertambangan, or IUP), needed for exploration and mining activities, have been revoked this June because of overlapping mining areas and illegal administration. The revoked permits concerned mining areas in Jambi (99 revoked licenses), South Sumatra (83), and South Sulawesi (2). This case is another illustration of weak governance in Southeast Asia’s largest economy.

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Indonesia's Ministry of Energy and Mineral Resources stated that domestic production of coal in Southeast Asia's largest economy reached 421 million tons in 2013. This implies a 7.6 percent growth in production from the previous year (391 million tons). R. Sukhyar, General Director of Mineral and Coal within the Ministry said that Indonesia's production of coal in 2014 is likely to exceed 400 million tons again as global demand for this fossil fuel remains strong. Indonesia is one of the world's largest producers and exporters of coal.

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Production is still not back on track at Freeport Indonesia’s Grasberg mine in Papua as around 1,000 workers have not showed up for work since the second week of October. These workers refuse to work after a series of (fatal) incidents that led to concern about safety policies. In May 2013, 28 Freeport Indonesia workers died after a tunnel collapsed. More recently, in late September 2014, four workers died after a giant haulage truck collided with another vehicle (carrying nine passengers) at the Grasberg mine.

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Subsidiary of US-based natural resources company Freeport McMoRan Copper & Gold Inc, Freeport Indonesia, decided to build its copper smelter in Gresik (East Java) as infrastructure around this regency makes it easier to transport its mining products for export purposes. The other location that Freeport was considering was in Papua, near its mining site the Grasberg mine, the world’s largest gold mine and third-largest copper mine. However, infrastructure in Papua (one of the poorest regions in Indonesia) is still underdeveloped.

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