Nevertheless, Indonesia’s coal industry is way from over yet. After being highly sought-after and becoming a number one interchange earner through the first 2000s, Indonesia’s coal sector has been hit hard in recent years following the autumn in commodity prices. There are many factors contributing to the decline of the national coal industry; from over dependence on export markets and therefore the lack of market diversification, to concerns over temperature change that have prompted some countries to chop back their coal consumption.
Many expect to determine the revival of this commodity within the near future. The Indonesian government’s 35 gigawatts (GW) electricity project, as an example, will still depend on coal to extend the nation’s electrification ratio. This megaproject is anticipated to sustain demand for coal for many years to return and will play a key role in supporting demand for domestic coal.
Number One to Struggling
Indonesia’s coal industry undergoes quick extension from the 1990s. Why? Mostly due to the government seek alternative sources of energy as their oil resources started falling down. To encourage investment in coal mining and coal-fired power plants, the Indonesian government reformed the arena to ask both local and international investors through the issuance of coal contract of labor (CCOC) and mining business permits. This departs a coal rush as companies quickly took up the chance for quick returns given Indonesia’s advantages as a coal producer, proximity to China, and simply accessible coal in coastal areas thus leading to lower operational and transportation costs. Indonesian coal’s high calorific content similarly as low sulphur content also made it a highly attractive option.
Indonesia swiftly became the fourth largest coal producing country and among the biggest coal exporters within the world. Indika Energy, Bumi Resouces, Bukit Asam and other coal companies’s stock prices roared high in the sky. Coal became a number one commodity and a top exchange earner. Within the span of 23 years, Indonesian coal production climb from 10.7 million to 474 million, that is, from 1990 to 2013. The country’s coal exports also rose significantly from 4.3 million tonnes or 42.5% in 1990 to 402 million tonnes or 85% in 2013. the bulk of Indonesian coal was exported to China, India, Japan, and Republic of Korea. In the time of heyday, nearly 85% of state revenue came out from the mining sector, especially from the coal. This reached 24.4 trillion IDR in 2014.
The coal rush came to an abrupt halt; in 2012, after the value of coal peaked at $118.4 USD per tone within the previous year, the coal price quickly descended. Speaking of the year 2015, coal was sold at $60.1 USD per tone and shrank nearly up to 50% in comparison to 2011. This downward trend continued into the primary quarter of 2016 when the worth of coal dropped to below $50 USD per tone. This has led to a decline in production from 96.77 million tones within the half-moon of 2015 to 86.63 million tones within the same period in 2016. From 79.44 million tones to 68.09 million tones or to say 14.29%, this is the ratio of weakened coal exports in Indonesia.
The slump in coal price has been attributed to the slowdown of China’s economy which forced the country to chop back its energy consumption, particularly coal. Furthermore, the global campaign for environment conservation and climate change focused on coal as the key culprit. It causes pollution, environmental degradation and global warming promoted the country to shift into renewal energy source like gas, solar, wind and geothermal. Another reason for dropping the coal price is shale gas and oil revolution. As cheap oil made from the underutilized coal from the US market, flood into the world market attracting people with its cheap price. The Joko Widodo administration is currently working hard to enhance the investment climate within the coal mining sector by facilitating permits, postponing the rise in royalties, limiting exports and increasing domestic market demand.
Mismanagement and Poor Governance
The crisis experienced by the industry in Indonesia in recent years may be a result of a decade-long mismanagement and poor corporate governance. This cheap and abundant energy resource which was originally founded to substitute oil in meeting domestic energy needs was intentionally changed into a commodity charged with high royalties and taxes to spice up state revenue and economic process.
Consequently, many private companies opened mines and extracted coal without taking into consideration the environmental impact. They focused on short-term revenue and didn’t develop downstream industries and conduct exploration activities to get new reserves furthermore as create new demand; especially within the domestic Indonesian market. Moreover, the industry relied an excessive amount of on export markets which are limited to some countries only, namely China, India, Japan, and Asian nation. This has made Indonesia more liable to the worldwide economic slowdown in coal demand.
As a result, supported estimates from the Indonesian Coal Mining Association (APBI), Indonesia only has 7.3 – 8.3 billion tones of coal reserves left as of 2015. These reserves are expended by 2033 – 2036.
Light in Dark clouds
Despite all the declination inside the Indonesian Industry, there has been huge interest for investment from the world. The Joko Widodo administration is currently working hard to boost the investment climate within the coal mining sector by facilitating permits, postponing the rise in royalties, limiting exports and increasing domestic market demand through the 35 GW powerhouse project; among others.
Indonesia continues to present several challenges for companies involved in power generation; not least the necessity for better coordination and cooperation across the various sectors that play a job within the successful completion of an influence plant project.
The 35 GW power project should breathe new life into the struggling industry. because the state-owned electricity firm (PLN) allocates 60% or 20 GW to coal-fired power plants, this can successively create demand for a few 166 million tonnes of coal annually starting in 2019. Comprehensively, the Indonesian government still bend over the coal for its energy source. The ‘black gold’ or the coal still account 30% of the country’s energy source by 2025.
Many large-scale coal companies have already taken advantage of this chance by constructing mine-mouth steam power plants and becoming Independent Power Producers (IPPs). further as gaining profits from the sale of electricity, the move will sustain the demand for his or her coal products for the following 30 years around.