Indonesia may be looking to ban the exports of low-grade thermal coal by 2014, a move, which if undertaken, could have an impact on the domestic power sector that is dependent on the Southeast Asian country to bridge the coal supply shortfall in India.
"There are domestic market obligations, as we need coal for our own power producers. From 2014 onwards, we will only export value-added coal of more than 5,600 kilocalories (kcal)," Djunaedi, deputy director of oil, gas and mine products at Indonesia’s Ministry of Trade, said on the sidelines of the ninth Annual Coal Markets Conference.
As the world’s largest thermal coal exporter, Indonesia has often found it difficult to procure enough supplies for domestic consumption. Earlier this year, it implemented a series of measures to ensure that a portion of production was allocated to local industry.
However, the proposed ban on exports of coal under the 5,600-kcal mark stands to change the dynamics of the global thermal coal market, which has seen spiraling demand from Asian economies such as China and India. The latter, for instance, is currently the world’s fastest-growing coal importer.
"Such a ban will have a substantial impact on the thermal coal market, as large amounts of low-quality coal from Indonesia are exported to India and China," said Mark Pervan, global head of commodity research at ANZ.
Low-quality coal, of between 4,800 and 5,800 kcal, constitutes a significant portion of exports out of Indonesia and, considering the country accounts for about 30 per cent of the global thermal coal supply, an export ban could reduce worldwide supplies by at least 10 per cent, Pervan added.
But Indonesia’s local mining industry is pushing hard to stop the move. "We are in discussions with the government and are trying to postpone the ban. If this measure is implemented, it will hit 60 per cent of our exports and we don’t have the technology to undertake value-addition. The government must give us the technology if this is what it wants," said Bob Kamandanu, chairman of the Indonesian Coal Producers Association.
India is already among the largest buyers of coal from Indonesia, and is expected to maintain this position considering the growth in domestic demand and stagnating production of major miners such as Coal India. Earlier this month, Coal Minister Sriprakash Jaiswal said India might have to import 142 million tonnes (mt) of the fuel in the next financial year, up from the earlier estimates of 104 mt.
"There will be an overall impact on the Indian power sector, as currently about 60 per cent of the total thermal coal imports are coming from Indonesia. If the ban comes in, it could also affect domestic coal prices, apart from influencing global thermal coal prices," said Rupesh Sankhe, an analyst at Angel Broking.
Moreover, Indian firms have considerable interests in Indonesia’s coal sector. Tata Power holds a 30 per cent stake in two of the country’s largest coal mines and the Adani Group, India’s biggest coal importer, last year committed $1.6 billion to build mining-related infrastructure in that country.
"It is a draft law at present, and there will be consultations with interested parties before finalisation," a spokesperson for the Adani Group said, adding that the group was already evaluating the possibility of setting up a power plant in Indonesia that would run on locally-mined coal.(sourced:BS)