Coal Mining in Indonesia: Can Authorities Limit Coal Output?

Coal Mining in Indonesia: Can Authorities Limit Coal Output?

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).

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.

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Link to Original
Article: https://www.indonesia-investments.com/news/todays-headlines/
coal-mining-in-indonesia-can-authorities-limit-coal-output/item7994

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com