Indonesia is to withdraw a proposal to boost the lowest coal
prices since 2010 by banning exports of lower-quality grades.
The world's largest exporter of thermal coal had drafted a rule to prohibit
overseas sales starting in 2014 of coal with a heating value of less than 5,700
kilocalories a kilogram on an ADB basis, according to a copy of the proposal on
the ministry's website. Miners would be forced to upgrade the heating value of
the fuel if they wanted to export.
“If we applied the regulation, it will stop mining activity,” coal-business
director at the Energy and Mineral Resources Ministry Edi Prasodjo said. “Miners won't be able to
export the fuel, as technology for upgrading low-rank coal isn't available.
They can't sell to domestic buyers as demand isn't big enough”.
The planned ban on lower-grade coal exports was part of Indonesia's effort to
boost mining revenue. Scrapping the rule will remove the threat of higher
import costs for China and India, the two biggest buyers of Indonesian coal.
About 93 % of the country's coal reserves, an estimated 28 billion metric tons
in 2011, are below top quality. “Ban in export would have a big impact on
state revenue because coal accounts nearly 85 % of mining revenue,” “State
revenue targets always increase, and we have to work hard to meet the target.” Prasodjo
further added.
The government is seeking Rp 144.6 trillion ($14.8 billion) of revenue from
mining this year, up from Rp 123.5 trillion in 2012, according to the
ministry's data. Indonesia's coal exports may rise 0.7 % to 306
million tons this year, from 304 million tons in 2012.
Slow economic growth in China and Europe is the reason for decline in demand of
thermal coal in 2012 as in 2013, while supply to Asia from Colombia, the US and
other countries has increased.
Indonesia's benchmark coal price dropped 27 % last year, the first decline
since the government introduced its monthly reference price in 2009. It fell to $81.44 in November 2012, the lowest since January 2010, and traded at $87.55 a
ton in January.
“Coal prices are lower these days, but demand is still there because
electricity consumption is growing,” Prasodjo said. “We expect prices to
rebound this year” he further added.
Indonesia will proceed with a plan to control coal output by giving each
producing region an annual mining quota. The ministry plans to issue the
regulation this year and implement it in 2014. The country's output will
grow to an estimated 391 million tons this year from 131 million tons in 2004, according
to a data.
Coal demand for electricity generation from the state-owned utility and private
power stations may rise to 67.8 million tons in 2014 from 54 million in 2012, according to October data. Demand may rise to 88.7 million tons in 2015 and
125.7 million tons in 2020. Indonesia plans to burn more coal to compensate for
declining oil output.
The annual output quota will be set after discussion with regional government and may vary depending on reserves in each region. The government is discussing
possible sanctions for companies that exceed production limits.
Most of Indonesia's coal is considered sub-bituminous and lignite. That means
it has higher moisture levels and lower carbon content, reducing the heating
value compared to better-quality stock.
The government is drafting regulations that may allow certain types of coal, including grades supplied for domestic industry, to sell for less than the
government-mandated index, Prasodjo said. As part of the 2009 mining law, Indonesia requires miners to sell coal above the government's monthly benchmark
index. The rule may apply for supply intended for production of coal
liquefaction and gasification and for power stations in remote areas, Prasodjo added.
Prasodjo didn't give time-frame for implementing the regulations. The ministry
issued a rule in January last year that allows miners to sell thermal coal to
so-called mine-mouth power stations at less than the government's benchmark
price.
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