Indonesia – Coal sector reforms will boost Indonesian exports
World Risk Developments October 2019
The world’s largest thermal coal exporter is considering reforms to support investment – potentially displacing Australian coal exports.
In 2018, Indonesia exported 435 million tonnes of thermal coal, more than double Australian exports of 208 million tonnes, making it the world’s largest exporter (Chart). The majority of both Indonesian and Australian thermal coal is exported to Asia – with China, India, Korea, and Japan the main markets – making the two countries competitors.
The Indonesian parliament has been considering an amendment to the current mining law that would allow miners to automatically renew their permits twice, for 10 years each. At present the government must first offer the concessions to state-owned companies. The bill also stipulates no limit on the size of mining concessions that can be granted, while the current law caps the size of mining operations in a single permit to 15,000 hectares.
These measures will improve the investment climate in Indonesia’s coal sector. Since Indonesia accounts for 41% of global thermal coal exports, any resultant increases in supply will likely dampen prices for Australian exporters. This adds to an already soft outlook for demand, due to slower growth in China’s manufacturing sector, the shift towards less carbon-intensive power generation in many countries, and nuclear restarts in north Asia.
In the longer term, the Indonesian government has committed to an energy program that will increase thermal coal generation capacity from more than 34 Gigawatts (GW) in 2018 to almost 65GW by 2027. This should increase domestic consumption of coal and curb the scope for exports over the longer term.