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INTERNATIONAL
New Indonesian norm on
low quality coal sales
Coal Insights Bureau
In a move which is likely to benefit Indian utilities looking for
secure thermal coal supplies from abroad, leading thermal
coal exporter Indonesia is all set to allow miners to sell lowquality
coal below the government reference price this year.
As per recent media reports, Indonesia’s ministry of energy &
mineral resources has, on September 23, issued a decree which
affects only coal with a very low heating value. As per the report,
this kind of coal which is hard to sell at the reference price, is
likely to find buyers in the form of the Indian power utilities
who are looking to secure coal to meet their generation targets.
As per the information regulation on coal and minerals,
the reference price guidelines state that most thermal and
coking coal must be sold at or above the government's
monthly reference price. However, this does not specify what
heating value of coal will be eligible for sale at prices below
the benchmark.
Minimum sale rule
for miners
Another report stated that Indonesia will require coal
miners to sell a minimum of 24.17 percent of their
annual production to the domestic market next year,
which would be slightly less than this year despite an
increase in domestic consumption.
As per the energy and mines ministry estimates,
domestic coal consumption will reach 78.97 million
tons (mt) in 2011, reflecting a 21.6 percent increase from
64.96 mt for this year, the ministry said in the decree.
This minimum domestic sales requirement applies
to coal miners including PT Berau Coal Energy Tbk , PT
Bumi Resources Tbk , PT Adaro Energy Tbk , PT Bayan
Resources Tbk and PT Indo Tambangraya Megah.
As per the report, nearly 70 percent of domestic
sales will go to power plants run by state utility firm
PT Perusahaan Listrik Negara while the rest will
go for the metal and cement industry, including for
Freeport McMoran Copper & Gold’s Indonesia unit and
Newmont Mining Corp. The domestic sales requirement
decree flows from a mining and coal law passed in
December 2008, which aimed to squeeze more revenue
from the sector and assure supplies of minerals such as
coal, for the home market, where demand is expected to
increase as new power projects get on stream.
"It will be applied to coal which has very low heating value
and is difficult to sell because of the quality," said Witoro
Soelarno, secretary at the directorate general of minerals and
coal, at the energy and mines ministry. The report added that
though the coal can be sold without following the government
price reference, yet miners would have to give a strong reason
for the same which would be subject to approval by the ministry.
With the passing of this decree, coal for certain purposes,
such as for power plants run by state utility firm PT Perusahaan
Listrik Negara, could be sold below the benchmark price set
by the Indonesian government, if approved by the ministry.
The report further stated that according to the draft,
powder-like fine coal, reject coal and coal with certain
impurities which is used by domestic industries like cement
and textiles, would also be sold below the benchmark.
It needs to be mentioned here that Indonesia has a wide
variety of coal ranging from 3500 kcal/kg to 7000 kcal/kg.
Besides low-quality coal makes up nearly 65 percent of total
resources in Indonesia and is seen as uneconomical to extract
as it is a less viable source of fuel due to its high moisture
content and low heating value.
As per the information, the government benchmark price
is based on an accepted coal quality comprising 6322 kcal/
kg GAR, total moisture (TM) 8 percent, total sulphur (TS) 0.8
percent and ash content (AC) of 15 percent.
Besides, the regulation would also require miners to
report sales volumes, prices, and buyers every month to the
government, allowing it to ensure that the rules are being
followed. Violations can lead to revocation of mining permits,
stated the report.
Meanwhile, the Indonesian Coal Association said that it
would apply to coal with a heating value of 3000 kcal/kg, a
type that is not used by domestic utilities.
It is to be noted that the government has, since February,
issued a monthly coal price reference used as a guideline
for producers to calculate coal sales and also used by the
government itself to collect revenues.
As per the information, this planned rule change is unlikely
to affect supplies of coal from Indonesia but it would certainly
be a positive factor for power utilities in other countries who
would be now be able to get Indonesia’s low quality coal at
cheaper rates.
In this regard, Indian power utilities who currently are
one of the main buyers of Indonesia's low quality coal, which
is later blended with high-quality South African coal, would
stand to benefit greatly. India's demand for thermal coal is
likely to be over 150 million tons (mt) by 2015.
COAL INSIGHTS 52 October 2010