News Analysis: Indonesia’s drastic coal export ban catches regional market off guard
News Analysis: Indonesia’s drastic coal export ban catches regional market off guard
News Analysis: Indonesia's drastic coal export ban catches regional market off guard

The Indonesian government has put domestic miners and coal importers in the Asia-Pacific region in limbo following its ban on coal export when those who rely on Indonesia’s coal supplies are still waiting for a possible decision to revoke the ban.

Indonesia, the world’s largest thermal coal exporter, issued a policy on Dec. 31, 2021, banning coal exports from Jan. 1 to 31, 2022, as an attempt to safeguard the supplies for domestic power plants.

The ban was imposed after coal miners failed to meet the Domestic Market Obligation (DMO) published in 2018, under which they are mandated to supply at least 25 percent of a mine’s approved production plan at a maximum sales price of 70 U.S. dollars per metric ton, or below the global benchmark price.

President Joko Widodo has warned that mining companies would have their business licenses revoked if they should refuse to comply with the regulation by not prioritizing the domestic needs.

According to local media, Japan’s ambassador to Indonesia has called on Jakarta to end its recent ban on coal exports, which he said has had a “serious impact” on Japan’s economic activities and people’s daily life, particularly during the winter with high demand for energy.

Indonesia’s coal mining firms protested the sudden and drastic decision. The Indonesian Coal Mining Association (APBI) revealed that the ban would bring significant impacts to the coal industry in general and disrupt coal export activities which were said to be the country’s main source of foreign exchange.

The country is likely to lose foreign exchanges worth 3 billion U.S. dollars from coal exports per month, which will also lead to losses in tax and non-tax revenues.

APBI’s General Chairman Pandu Sjahrir said the ban would force exporters to pay additional costs to the shipping companies for additional demurrage as much as 20,000 to 40,000 dollars per day for one ship because the ships cannot sail.

“Most of the cargo shipments are operated or managed by the export destination countries. This ban has forced them into uncertainty, and that will affect Indonesia’s reputation and reliability on the international stage as the world’s biggest exporter of coal for electricity generation,” Sjahrir told Xinhua in a written statement.

According to the Handbook of Energy and Economic Statistics of Indonesia 2020, the Southeast Asian country exported around 400 million tons of thermal coal in 2020.

According to the country’s Ministry of Energy and Mineral Resources, Indonesia has seen a surging demand for electricity following a post-pandemic economic growth and, therefore, if the domestic supplies were not fulfilled, there could be widespread blackouts that would affect more than 10 million users.

Minister of Energy and Mineral Resources Arifin Tasrif said on Tuesday that most of the coal companies ignored their obligations to meet the DMO and preferred to export the commodity due to the high price of coal in the international market.

The Jakarta Post, one of Indonesia’s mainstream media, said in an editorial on Tuesday that coal producers have preferred exporting coal due to the widening gap between global coal prices and the price it set to supply coal to the state electricity company (PLN) under the DMO policy, thereby depleting coal stocks at the country’s power plants.

According to the editorial, the continuing coal shortage as a result of demand-supply mismatch is threatening electricity generation at around 20 large power plants in Java that have a combined capacity of 11,000 megawatts (MW), or one-sixth of PLN’s power generating capacity.

Meanwhile, Tasrif promised that the ban would be lifted soon after the domestic supplies have been sufficient.

Mamit Setiawan, Director Executive of Energy Watch, an Indonesian energy watchdog, said the policy could also create instability in the global market because the coal supplies would be decreased.

Mamit said the Indonesian government was responsible to coordinate with partner countries, related to this policy, to avoid any frictions and misunderstanding that can disturb bilateral relations.

As a consequence, coal prices will go up in the international market, especially during winter, Mamit told Xinhua.

Director of Indonesian think-tank Center of Economic and Law Studies (CELIOS), Bhima Yudhistira, shares a similar opinion, saying that the ban would create a turmoil in the international market or at least in the regional market.

“The decision was made so sudden that other countries which are used to importing coal from Indonesia may not have time to anticipate it. Further, it is worrying that the policy can lead to trade retaliation,” Yudhistira said.

The Japanese embassy confirmed on Wednesday that they sent a letter on Tuesday addressed to Tasrif, saying that Japan imported 2 million tons of coal every month from Indonesia for power generation and manufacturing, mainly HCV (High Calorific Value) coal, which was different from LCV (Low Calorific Value) coal used by Indonesia’s State Electricity Company (PLN).

“It means that the HCV exports to Japan do not have a significant impact on the coal supply to PLN. I, therefore, wish to request for immediate removal of the ban on coal exports to Japan,” the letter said, adding that until now, at least five vessels loaded with coal for Japan are still waiting for departure.

The Indonesian government said it would review the ban on Wednesday after meeting with mining companies. As of Thursday evening, however, no decision has been made as to whether the ban would be lifted or not.

“We hope the government will listen to our aspirations so that we can sit together to find the best solutions that will not disadvantage any of us,” Sjahrir said.

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