Jokowi battles Indonesian Coal Producers

Thousands of permits for mining, coal and forestry were revoked as Indonesia’s President Joko Widodo battles coal producers over their failure to prioritize the domestic market, which sparked a ban on coal export.

2,078 permits for mining, mineral and coal businesses were revoked for the failure to provide work plans, misused the permits or transferred them to other parties. That is on top of the 200 forestry permit covering the size of Belgium.

“Some permits have been granted for years but they were never carried out. This has turned natural resources that should be used to improve public welfare into a hostage.

Companies that don’t meet their obligations … should be sanctioned, not just with export permit bans but also the revocation of business permits,”

President Joko Widodo

These “coal war” started when state utility Perusahaan Listrik Negara (PLN) warned that power stations were just days away from running out of fuel to generate electricity, which would cause blackouts for around 10 million customers. PLN’s energy director was sacked by Minister for State-owned Enterprises, Erick Thohir for this crisis.

Indonesian coal producers were seduced by the high global coal prices caused by the trade war between Australia and China, as a result, incentivized to focus their effort on the exports over domestic demands which are sold at a lower price. Miners are required to sell 25% of their output to local power plants at a maximum price of 70 USD per tonne under the domestic market obligation (DMO).

Indonesia is reported to have partially lifted it’s coal export ban (quietly) according to Lloyd’s List, after the state utility secured an extra 7.5 million tonnes of coal supplies to avert power outages.

Indonesia is the world’s top exporter of coal used in power plants and currently China’s largest overseas supplier. The ban had driven coal prices further in China.

Indonesian Coal Miners Association (ICMA) had pledged to help PNL close the supply gap immediately, working closely with the government in order to avoid a full-month ban. The group mention that the difficulties to secure vessels to transport the coal to state utility is slowing their efforts to plug the supply gap.

Should Indonesia continues with their export ban, China may well be forced to buy Australian coal again – something China is keen to avoid losing face over.