Name : Chandra C Manurung

DBD : 113 131

Future Prospects of the Indonesian Coal Mining Sector
The commodities boom of the 2000s generated significant profits for companies engaged
in the export of coal. The rise in commodity prices was - to a large extent - triggered by
accelerated economic growth in emerging and developing economies. But this profitable
situation changed with the outbreak of the global financial crisis in 2008 when commodity prices
went down fast. Indonesia was affected by these external factors as export of commodities (in
particular coal and palm oil) accounts for around 50 percent of total Indonesian exports, thus
limiting the country's GDP growth in 2009 to 4.6 percent (which still represents an impressive
number, largely supported by domestic consumption). From the latter half of 2009 until the
beginning of 2011 a sharp rebounce in global coal prices occurred.
However, reduced global economic activity has lessened demand for coal, thus resulting
in a downward trend of coal prices starting from early 2011.
This means that - generally - profits in the coal industry will be limited in the near
future. However, if we take the longer term into consideration - when global economic activity is
back on track - demand from China and India is forecast to make the coal business very
profitable again (Chinas demand is in fact expected to double between 2011 and 2016 to 6
billion tonnes). These promising future perspectives are the main reason that in recent years
many Indonesian companies have started - or are planning to start - expanding into the nation's
coal mining industry, sometimes even resulting in a shift of their core business. Considering the
rising energy prices and growing scarcity of energy sources, it will become more expensive to
buy coal on the market in the future. For many Indonesian companies this is an incentive to start
securing coal reserves now. A number of large companies such as Astra International, Semen
Gresik (cement industry) and Perusahaan Listrik Negara (electricity) - last two of which are
highly dependent on the supply of coal - are investing in coal mining in order to establish an
entire value chain in mining and energy businesses while also securing future supplies, and thus
guarding it against fluctuations in global coal prices. Currently, owning a coal mine has become
a trend for the richer families and companies in Indonesia.
Despite global awareness to reduce dependency on fossil fuels, developments in
renewable energy resources do not show an indication that dependency on fossil fuels (especially
coal) will be reduced significantly in the foreseeable future, thus coal remains a vital energy
resource. Clean coal technologies in coal mining, however, will gain significance in the future
(partly due to commercial relevance) and Indonesia is expected to become heavily involved in
that process being a major player in the coal mining sector. These clean coal technologies focus
on the reduction of emissions produced by coal-fired power generation but lack sustained

progress yet. Upstream activities connected to coal mining, such as the development of coalbed
methane (CBM) reservoirs of which Indonesia contains great potential, has begun to receive
attention recently.
Indonesian Government policy will affect the nation's coal mining industry. To secure
domestic supplies, the Indonesian Ministry of Energy and Mineral Resources orders coal
producers to reserve a specific amount of their production for domestic consumption. Moreover,
the government can use export tax to discourage coal exports. The government aims for more
domestic consumption of coal as it wants coal to supply around 30 percent of the country's
energy mix by 2025:
Energy Mix Energy Mix
2011
2025
Oil

50%

23%

Coal

24%

30%

Gas

20%

20%

Renewable Energy

6%

26%

Source: Ministry of Energy and Mineral Resources

Another recent development is that the Indonesian government intends to curb

shipments of all raw materials (except for coal), instead requiring the mining sector to add value
to the products before export takes place. Initially, the plan was to ban raw mineral exports from
2014 onwards. Recently, however, the government has stated that it will be more flexible
towards this ban and expressed that some exports can continue under certain conditions. Coal
will not be affected by this ban according to government statements made in 2012, thus can
continue to be exported without being processed first.