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Indonesia Drops Plan to Lift Coal Prices by Restricting Exports 25-Jan-2013

Indonesia is abandoning 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 decree to prohibit overseas sales starting in 2014 of coal with a heating value of less than 5,700 kilocalories a kilogram on an air-dried basis, according to a copy of the proposal on the ministry’s website. Miners would have been forced to upgrade the heating value of the fuel if they wanted to ship it. 

“If we applied the regulation, it will stop mining activity,” Edi Prasodjo, coal-business director at the Energy and Mineral Resources Ministry, said in a Jan. 18 interview. “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 percent of the country’s coal reserves, an estimated 28 billion metric tons in 2011, are below top quality, Prasodjo said. 

“An export ban would have a big impact on state revenue because coal accounts for 85 percent of mining revenue,” Prasodjo said. “State revenue targets always increase, and we have to work hard to meet the target.” 

More Exports 

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 percent to 306 million tons this year, from 304 million tons in 2012, the ministry’s data on Dec. 28 showed. 

Slower economic growth in China and Europe cut demand for thermal coal in 2012 as in 2013, while supply to Asia from Colombia, the US and other exporters increased. 

Indonesia’s benchmark coal price dropped 27 percent 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, government data showed. 

“Coal prices are lower these days, but demand is still there because electricity consumption is growing,” Prasodjo. “We expect prices to rebound this year.” 

‘Production Control’ 

Indonesia will proceed with a plan to control coal output by giving each producing region an annual mining quota, Prasodjo said. The ministry plans to issue the regulation this year and implement it in 2014, he said. 

“Coal is increasingly important for meeting domestic energy needs,” Prasodjo said. 

The country’s output will grow to an estimated 391 million tons this year from 131 million tons in 2004, the ministry data showed. 

Coal demand for electricity generation from PT Perusahaan Listrik Negara, the state-owned utility, and private power stations may rise to 67.8 million tons in 2014 from 54 million in 2012, according to data in October. Demand may increase 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, Listrik Negara data showed. 

The annual output quota will be set after discussion with regional governments and may vary depending on reserves in each region, Prasodjo said. The government is discussing possible sanctions for companies that exceed production limits, he said. 

‘New Price Rule’ 

Most of Indonesia’s coal is considered sub-bituminous and lignite. That means it has higher moisture levels and a 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 said. 

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.

Bloomberg


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