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Commodities

Indonesia revokes 2,000 mining permits amid coal export ban

Move driven by critically low domestic supply and looming power outages

Excavators pile coal in a storage area at an Indonesian power plant in Suralaya, Banten Province.   © Reuters

JAKARTA -- Indonesia has not budged on its January ban of coal exports as concerns linger over local power outages, with the government on Thursday revoking more than 2,000 mining licenses, believed to be mostly of coal miners that had failed to provide for domestic customers.

The energy ministry on Jan. 1 caught coal exporters off-guard by imposing the one-month export ban, effective to the end of January. The move came in response to state utility Perusahaan Listrik Negara's pleas over critically low coal stockpiles that would hit power grids serving the islands of Java and Bali and an estimated 10 million customers.

The ban was meant to be reviewed after Wednesday, according to local media reports, as some coal producers had begun to divert their shipments -- originally bound for overseas -- to supply PLN. However, as of Thursday, it remained unclear if the ban would be relaxed soon.

"We're still waiting for a meeting with the government to [get] certainty over the export policy," Hendra Sinadia, executive director of the Indonesian Coal Mining Association, told Nikkei Asia on Thursday. "The meeting was [originally] planned for yesterday morning, but there remains no certainty as to when it will be held."

Instead, President Joko Widodo on Thursday announced that the government has revoked as many as 2,078 mining licenses. He did not specifically mention coal, but it is believed that most of the licenses belong to coal miners, following the president's threat on Monday to revoke permits of those that had failed to meet their domestic market obligations to supply coal to PLN.

"The government will continue to tidy up and relax business permits with transparency and accountability, but we will surely revoke licenses that have been misused," Widodo said.

Under Indonesia's Domestic Market Obligation policy, coal miners must supply 25% of annual production to the local market. The price of domestic coal is capped at $70 per metric ton under the policy, below half of current market prices.

PLN said it needs at least 20 million metric tons of coal -- enough for 20 days of operation -- to ensure power supply stability. As of Wednesday, the company said it had secured new commitments for 3.2 million metric tons of coal in addition to 10.7 million metric tons under its existing contracts, meaning it is still short of 6.1 million metric tons in commitments.

Energy Minister Arifin Tasrif told local reporters on Tuesday that two mega power plants with a combined capacity of 5.4 gigawatts serving the islands of Java, Madura and Bali are facing a "crisis" due to coal shortage.

Another energy ministry official, Ridwan Jamaludin, told local news wire Antara earlier that 20 power plants with a combined capacity of nearly 11 gigawatts -- equivalent to 15% of Indonesia's total electricity generation capacity -- could be hit with blackouts and potentially affect over 10 million customers.

Under Indonesia's rules, coalminers must supply 25% of annual production to the local market.   © Reuters

Tasrif said the ministry had been informed of tight coal supplies since August but the situation worsened at the end of the year, which led to the decision to impose the ban. He attributed the coal shortage to high international market prices, which caused many local miners to abandon their domestic market obligations for exports.

State Enterprise Minister Erick Thohir said the government would strictly monitor miners' DMO compliance on a monthly basis, instead of annually as had been the practice. He added state-owned coal miner Bukit Asam will be asked to pump up its production and contribution to PLN's coal stockpiles, and long-term contracts with PLN will be discussed to prevent similar problems in the future.

The export ban is hitting Indonesian coal exporters hard. Indonesian Coal Mining Association's Sinadia said exporters could suffer shortfalls of at least $40,000 per day due to demurrage costs from shipment delays. On Thursday, coal miner Indo Tambangraya Megah declared a force majeure due to the ban, according to Reuters.

Investment bank Citi said in a note on Wednesday that the DMO schedule, which determines the timing of local coal sales, was "rather unclear."

"We estimate around 490 out of 631 coal miners have not yet fulfilled their DMO obligation," Citi said. These coal miners produce 35-40% of Indonesia's total, but a ban on their exports could have wider impact on the global market.

"Assuming only coal miners who have not complied with the DMO will continue to serve the export ban until the end of January, we estimate this could impact [approximately] 10% of the global seaborne thermal coal supply in the month of [January]," Citi said.

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