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Illegal coal shipments from Indonesia a persistent problem

R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, stated that the country is plagued by structural illegal coal shipments from coal-rich regions in Kalimantan and Sumatra. Sukhyar estimates that each year between 30 and 40 million tons of coal is exported illegally from Indonesia, Southeast Asia’s largest economy. Based on current coal prices, this would imply that USD $1.2 billion worth of coal is shipped illegally per year causing the government to miss out on royalties.

Indonesia is one of the world’s leading producers and exporters of thermal coal. However, the country is also characterized by weak law enforcement, thus resulting in many illegal activities including in the coal mining sector. Previously, it had been reported by Bloomberg that illegal coal shipments from Indonesia totalled USD $6 billion in 2013. Pandu Sjahrir, Chairman of the Commercial Committee of the Indonesian Coal Mining Association, estimates that 71 million tons of Indonesia’s 2013 production figure cannot be tracked.

Due to heightened supply, these illegal coal shipments also undermine global thermal coal prices which have already declined significantly in recent years. If Indonesia would be able to block informal mining then the market may in fact rally.

Indonesia has over 20 terminals that handle coal exports. However, the government lacks control over existing private ports in South, East and Central Kalimantan as well as in South Sumatra and Jambi (Sumatra). In June 2014, Sukhyar had stated that the government plans to add 14 coal terminals in Kalimantan and Sumatra in an attempt to combat informal shipments and boost royalty payments.

Sukhyar said that most of illegal coal shipments are done by Mining Business Permit (IUP)-holders. The Coal Contracts of Work (PKP2B)-holders form less of a problem as they are required to report their production and exports figures. Moreover, there are only 73 PKP2B-holders (and thus easier to monitor), while there are 1,394 IUP-holders currently active in Indonesia.

To improve the surveillance system Sukhyar proposes to use satellite technology.

Recently, the Indonesian government also introduced a new licensing system - ‘Listed Exporter’ status (Indonesian: Eksportir Terdaftar, ET) - for Indonesian coal exporters in a bid to optimize state revenue from the coal mining industry and have more supervision on coal exports.

Source: Indonesia-Investments