Indonesia: Searing coal prices cause a frenzy among investors

Another problem is soaring coal demand. With coal prices up 169 percent in the past 12 months, producers are competing to sell their products on the higher-priced export market.

In 2007, out of 215 million tons of Indonesia’s total coal production, 163 million tons, or 76 percent, were sold overseas, leaving just 52 million tons for the domestic market. However, overseas sales could very well be understated on the back of illegal mining operations and coal smuggling.
Compounding the problem is the fact that most local demand is for low-calorific coal, also sought after by Indian and Chinese buyers.

Domestic coal demand is expected to reach 90 million tons by 2010, up 80 percent from current levels. Most of this demand stems from the electricity generation industry, in line with the government’s plan for coal to account for 30 percent of Indonesia’s total energy mix by the year 2025.

PLN is currently the biggest single coal consumer domestically, consuming around 21 million tons in 2007. This coal usage is expected to triple in the next three years as a part of PLN’s crash start program to build 10,000 megawatts of new coal-fired power plants by 2011.

In 2008, to generate electricity, PLN expects to use 24.5 million tons of coal, before further increasing to 43.8 million in 2009 and to 83.5 million tons in 2010.

This expected surge in domestic demand has raised fears among traders that the government may implement export restrictions in an attempt to secure local supplies.

However, government officials we spoke to said such a plan was not in the cards, at least for now. However, it is likely the energy minister will implement his scheme for Indonesian coal producers to pay fewer royalties to the government in return for making coal supplies available domestically.

Thus, even though coal is a leading source of atmosphere-warming greenhouse gases, its usage in Indonesia will continue to rise, as will consumption from rapidly industrializing nations, including India and China.

Jakarta Post