Indonesia Eyes Tightening Coal Exports

Indonesia, the world’s leading exporter of thermal coal, in June again suggested it could limit coal production and further tighten its control on exports to protect supply for domestic power plants.

However, the new rules aren’t expected until after the country’s presidential election in July, and possibly not until after a new government is inaugurated in October.

About 70% of Indonesia’s coal production is exported, but the government projects that domestic demand for coal-fired power plants will rise by 13% by 2015. The new rules could come as a ministerial regulation on mines and shipments, though how effective that will be remains to be determined, experts say. As Reuters reported in June, many of the country’s coal mines, such as Bumi Resources and Toba Bara Sejahtera, are owned by politically connected figures.

Benchmark prices for Asian coal have dropped 16% to $72.38 a metric ton (mt) as of June this year, trading at its lowest levels since late 2009. One reason cited for depressed prices is the rampant illegal mining and exports that flood the market. About 50 million to 60 million mt of coal is illegally exported from Indonesia each year (total exports were 383 million mt in 2012, according to the World Coal Association). The government, which levies royalties of 3% to 13.5% on exports of coal produced in the country, has plans to build 14 dedicated coal terminals in the islands of Kalimantan and Sumatra to tighten supervision and curb illegal exports.

However, the falling prices have already begun forcing smaller coal producers in the country out of business, further slashing output, observers note. That could have repercussions for the countries to which the bulk of Indonesia’s coal exports are destined, including China, India, South Korea, Japan, and Taiwan. India, for example, which relies on Indonesian coal imports to keep up chronically short power plant stocks, would have to rely on increased shipments from Australia and South Africa.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)