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Coal is unloaded from a barge at the Suralaya coal power plant in Cilegon, Indonesia, in September. Photo: AFP

Coal industry breathes sigh of relief as Indonesia signals end to export ban

  • Fourteen vessels are poised to depart the country imminently, easing industry concerns of a looming supply shortage
  • Prices of thermal coal futures fell on Tuesday as market anxieties eased
Energy
Fourteen vessels loaded with thermal coal were on Tuesday poised to depart Indonesia as the country’s export ban neared its end, easing industry concerns of a looming supply shortage.

Jakarta has indicated it will allow the 14 carriers to depart as soon as they receive permits from mining and transport authorities.

The director of sea transport Mugen Suprihatin Sartoto told Reuters that the transport ministry was now just waiting for a final green light from the energy ministry.

In anticipation of a resolution of the ban that had gripped exporters and regional power plants since it was imposed at the start of the year, prices of thermal coal futures continued to fall on Tuesday as market anxieties over tightened supplies eased.

Thermal coal prices traded on the Zhengzhou commodity exchange have fallen nearly 5 per cent since Monday when Indonesia’s senior minister Luhut Pandjaitan flagged the possibility of lifting the ban, saying Jakarta had accumulated enough coal to stave off a domestic coal crunch that could have triggered power outages.

While Jakarta has amassed more than enough coal to meet the shortfall of 5.1 million tonnes that it had been facing, it is now looking to stockpile 20 million tonnes, which would cover 20 days’ worth of domestic use.

A tug boat pulls a coal barge along the Mahakam River in Samarinda, East Kalimantan province, Indonesia. Photo: Reuters

Pandjaitan also said the Indonesian government was looking to revise the domestic market obligation (DMO) policy to allow state-owned utility Perusahaan Listrik Negara (PLN) to buy coal at market price.

The present DMO forces local miners to relinquish 25 per cent of their production to PLN at a non-market price of US$70 a tonne.

With prices of coal going as high as US$270 a tonne last year, and now hovering at about US$150 a tonne, a capped price interferes with the free-market economics of coal trading.

Japan urges Indonesia to revoke coal ban as exporters remain in limbo

Combined with PLN’s inefficient payments and contract management, some miners defaulted on their DMO obligations last year resulting in a selective ban on exports.

Since a review in October, only about 20 per cent of mining companies required to meet the DMO had met or were close to meeting their targets, government data shows.

The shortage in the local reserves reached a critical point towards the end of last year, forcing Jakarta to implement a widespread ban.

Coal-dependent countries including the Philippines, Japan and South Korea have appealed to Jakarta to resolve the ban.

A prolonged ban would have had ramifications not only on power supplies but the price of electricity, said Sam Reynolds, energy finance analyst at the Institute of Energy Economics and Finance Analysis.

A worker at a state-owned coal miner in Lampung province of Indonesia. Photo: Reuters

“Indonesia’s coal export ban could have major ramifications for the Philippines, given that nearly 90 per cent of the Philippines’ coal consumption is met by imports, 97 per cent of which come from Indonesia,” Reynolds said.

“Reduced coal supply could therefore drive up coal import prices, as well as power prices in the Philippines, which already pays among the highest power prices in the region and may now have to rapidly search for new suppliers.

Overall, the situation demonstrates very clearly how fragile and insecure such a heavy dependence on imported fossil fuels for power generation can be
Sam Reynolds

“Overall, the situation demonstrates very clearly how fragile and insecure such a heavy dependence on imported fossil fuels for power generation can be.”

Like coal, liquefied natural gas and other liquid fuels were vulnerable to supply chain interruptions or unstable supplies like an export ban, Reynolds said.

Australian thermal coal miners said there had not been a surge in orders from Indonesia’s buyers. Australia is the second biggest thermal coal exporter after Indonesia.

In response to an imminent lifting of the ban on exports, share prices of major Indonesian miners such as Bumi Resources, Adaro Energy and Indika Energy rose on Tuesday while prices of listed Australian coal miners fell.

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