sharing in governance of extractive industries

Report: The Urgency to Control Coal Production and Export in Indonesia

Ministry of Energy and Mineral Resources (MEMR) of Indonesia already set the national target of this year coal production of 480 million ton (CNBC, 2019). The figure is slightly lower than the 2018 target, but still exceeds the target of 2015-2019 Mid-term National Development Plan (RPJMN) and National General Energy Plan (RUEN) which put a maximum coal production quota of 400 million ton. The government again presents us with a major drawback in controlling coal production and export.

The Government of Indonesia's inconsistency in carrying out the control policy over coal production and export as mandated by both energy policy and national development plan is highlighted in the recently published report of Publish What You Pay (PWYP) Indonesia entitled “The  Urgency to Control Coal Production and Export in Indonesia”. The report also provides an analysis of the potential cost of the inconsistency toward the environment and state revenue.

Realities in Coal Production and Export Control in Indonesia

Policies to control coal production and export are not initiated without cause. In the past two decades, coal production has increased rapidly, which peaked in 2013. This increase was followed by soaring coal export. Coal in this situation is seen as not providing added value to the domestic industry but is only placed as an export commodity to generate state revenues. Therefore, 2015-2019 RPJMN mandating restrictions on coal production and export, as well as prioritize coal supply for domestic needs. Coal production and export targets have been set annually as a derivative of the mid-term development plan.
Figure Realization of Coal Production and Export of Indonesia (in million ton)

*Realization per August 2018
Source: PWYP Indonesia, 2018 (processed from various sources)
Realization of national coal production and export always exceeds the target of 2015-2019 RPJMN. The government even issued a regulation concerning the incentive in the form of additional production quote for those who meet the DMO regulation along with its special price. In addition, the government, in fact, increases the allocation of coal production for export needs on the pretext of increasing the state foreign exchange. Meanwhile, the performance of supervision and law enforcement has not been improved. Weak supervision and law enforcement have opened up loopholes for violations in which potentially cause greater state loss and environmental impact.
Figure Target of Coal Production (2015-2019 RPJMN) vs Realization

Figure Target of Coal Export (2015-2019 RPJMN) vs Realization

*Realization per August 2018
Source: PWYP Indonesia, 2018 (processed from various sources)

The Urgency to Control Coal Production and Export

Increased coal production and export amid weak supervision leaves a loophole that not only affects the loss of the state revenues, but also creates massive externalities to the ecosystem, environment, and society.

Potential Loss of State Revenues

There has been an indication of loss of the state revenues related to the coal export due to data discrepancy and poor company compliance. KPK highlighted in its study that the export difference resulted from the discrepant data on coal export between the Ministry of Energy and Mineral Resources and World Coal Institute (WCI) is amounting USD 12,267,781,200 (PWYP Indonesia, 2017). Meanwhile, according to the ICW, the coal export transactions that are not reported from 2006 to 2016 have indicated a total loss of the state of 133 trillion Rupiah (ICW, 2017).

Besides, poor company compliance also has been indicated by KPK in its study which compares surveyor data and government’s revenue (royalty). The potential loss of the state revenues as a result of underpaid royalties in 2010 - 2012 has reached USD 1.2 billion (KPK, 2014).

The abovementioned findings of KPK are supported by data of the Extractive Industry Transparency Initiative (EITI) Indonesia indicating a decrease in the number of companies meet the financial obligation, especially PNBP, from year to year. In 2016, that among the thousands IUP in Indonesia, only 1,654 IUPs that are recorded to have paid PNBP in 2016, half of the number in 2014. 90% of total PNBP of mineral and coal in 2016 has been contributed by 69 companies (EITI Indonesia, 2018).

Figure Non-Tax Revenue (billion rupiahs) and Number of Paying Companies

Source: EITI Indonesia, 2018

Coal Exploitation and Impact on the Governance

Uncontrolled exploitation of the coal in the existing ecosystem governance, in the form of poor supervisory performance and law enforcement, will have an impact on massive externalities to the ecosystem and environment. Larger potential damage to the environment gives more governance-related problems that have not been addressed to date. For instance, problematic mining permits (indicated by the status of non-clean and clear), mining in the protection and conservation forest area, as well as mining companies which haven’t placed reclamation and post-mining fund.

The full report can be downloaded here: https://pwypindonesia.org/en/the-urgency-to-control-coal-production...

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