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Indonesia's Watchdog Warns the Gov of Indonesia of the Rise of Coal Price

Publish What You Pay (PWYP) Indonesia asks The Ministry of Energy and Mineral Resources to be cautious of the rise of coal prices in 2018 which is believed to keep soaring. This rise will lead to massive coal exploitation, while the government supervision and company compliance in some regions is still poor and need to be improved.

PWYP Indonesia’s mining governance researcher, Rizky Ananda stated that the industries will use the momentum of price increase to boost production. It’s likely to happen, especially because the Ministry of Energy and Mineral Resources has targeted to increase production in 2018 by 5% of RKAB 2017, which is about 485 million tons.

“It does not only violate the National Medium-Term Development Plan (RPJMN) 2015-2019 which sets 406 million tons of coal production in 2018 and the General Plan of National Energy (RUEN) which mandates a maximum of production at 400 million tons by 2019. This strengthens the direction of government policy that still puts coal as a source of state revenue by increasing coal production target,” said Rizky.

In the other hand, coal governance still remains a severe problem. There are 704 non-clean and clear coal IUPs per December 2017. Overlapping mining area with forest areas which has been identified since 2014 have not been resolved. Data collected by PWYP Indonesia from the Ministry of Energy and Mineral Resources per December 2016 indicates 631.000 hectares of coal concessions located in the protected forest and 212.000 hectares of coal concessions located in the conservation forest. Also, the low company compliance to allocate reclamation and post-mining guarantees. Until early 2018, the percentage of IUP holders who allocated the funds is only 50% of the total IUP in the mineral and coal mining sector. The other problems are including potential state losses from illegal coal exports and IUP holder that do not pay taxes and other financial obligations.

“Raising production target without making any improvements on the monitoring side is like “opening the taps” of coal exploitation. Moreover, there are 373 coal exploration IUPs that expired in 2016-2017 (ESDM, December 2017) and are expected to begin their production phase by 2018” Rizky added.

PWYP Indonesia’s National Coordinator, Maryati Abdullah, explained that the policy in coal management is still export-oriented. This has shown by the decrease of the provision of 2018 Domestic Market Obligation (DMO) compared to 2017, as regulated by Ministerial Decree Number 23/K/30/MEM/2018. Consequently, the gradual decline of coal export as mandated by RUEN is unlikely to happen. With that being said, the trend of global coal price will lead to greater coal export, in which shall impact to the supply shortfall for domestic purpose.

Moreover, with the deregulation of permits subject to Ministry Regulation Number 24 the Year 2017, which has replaced Mining Permits of Special Production Operation (IUP OPK) for Transportation and Trading with the Registration Mark (Tanda Registrasi). “Easier access to obtain the Registration Mark as a requirement to conduct transportation and trade activities is feared create bigger potential of manipulation and violation,” said Maryati.

ICW’s studies have shown IDR 133 trillion of potential state loss caused by an alleged unreported transaction from coal export in 2006-2016 period, calculated from the data gap between Indonesia and importing countries. Also, Coordination and Supervision of KPK in mining sector (Korsup Minerba) has exposed that there were IUP OPK holders are oftentimes carrying out transportation and trading activities from another party that was not listed in the Decree of IUP OPK.

“The poor company compliance is still haunting coal industry in Indonesia. It is necessarily needed an integrated system along the value chain, from licensing, revenue to trading activities as a reference in supervising the company compliance, thus there was no other recurrent violation in the future,” concluded Maryati.

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