Call Center: +62 21 30012490

Coal Sector Management Poor Amid Policy Changes

Although coal is expected to be the backbone of energy sources in the future, the country has made no progress in limiting extraction so that the mineral can be used in the years to come.

Amid a declining global price, the country’s coal output keeps growing. The government failed to meet its commitment to limit coal output to the same level as last year.

Early this year, the Energy and Mineral Resources Ministry’s mineral and coal directorate general said it would cap total coal production for this year at 421 million tons — similar to the 2013 output — partly by controlling coal diggers’ work plans. 

Until October, the policy went smoothly as the 10-month-output was in line with the full-year plan.

In November, however, things changed. It was revealed that during the January-November period, as many as 427 million tons of coal had been extracted, with around 366 million tons sent overseas.

Thus, the mineral and coal office adjusted its full year coal output’s estimation to 458 million tons, which is almost a 9 percent increase from last year’s figure.

“The increase in output is partly caused by better documentation,” the mineral and coal director general, R. Sukhyar, said in a recent interview.

The government implemented on Oct. 1 a policy requiring coal miners to obtain export licenses. The licenses require them to have a “clean and clear status”, a term referring to coal miners’ compliance to royalty and tax obligations as well as being free from conflict due to overlapping claims of ownership. 

Moreover, the ministry is also cooperating with the Corruption Eradication Commission (KPK) to crack down on illegal mining activities.

The government has been criticized for its poor coal management. There are reports that coal exports are lower than the actual volume of coal shipped overseas.

The country’s 2013 coal output was questionable. The official report repeatedly claimed the national output was 421 million tons in 2013. However, the ministry’s Energy Outlook 2014 report said that coal output in 2013 was 431 million tons. The report also said Indonesia’s coal resources reached 28.97 billion tons. 

Assuming that coal output is at the current level, the country’s coal production could only last for the next 50 years, the report added.

A domestic market obligation (DMO) for coal has been implemented for several years to ensure that domestic buyers have access to Indonesian coal. Also, the DMO is set to increase from year to year, with the government expecting producers to reduce its dependency on the overseas market.

Last year, 85 million tons were directed to local buyers. Domestic absorption is expected at 95 million tons this year and 110 million tons next year.

However, once again infrastructure hurdles made the policy unrealistic. State-owned electricity firm PT Perusahaan Listrik Negara, the biggest domestic user of coal, said that its planned coal usage was 55 million tons this year, meaning that there was uncertainty on whether the domestic obligation of 95 million tons of coal would be fully absorbed by local users.

The slow growth of power-plant development, which is caused mostly by land acquisition issues, has contributed to slower growth in domestic coal absorption compared to the pace of increases in production set by miners, which are trying to balance the weakening price by selling more.

Price pressures are expected to continue as global demand slows. The International Energy Agency’s (IEA) World Energy Outlook report reported that global coal demand grew and would increase at an average of 0.5 percent per year between 2012 and 2014, a much lower rate compared to 2.5 percent over the last 30 years. 

The growth is hampered not necessarily by a weakening economy but by new air pollution and climate policies in the main markets, particularly in the US, China and Europe.

Amid the bleak outlook and rising environmental concerns, the ministry once again expects next year’s production level to be similar to this year’s, at no more than 460 million tons. 

The public will see if the realization of the policy is as poor, as the government still considers coal as a source of state revenue amid declining prices instead of securing supply for future utilization. – See more at: