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UPDATE 1-Indonesian coal firms, fearing mass failures, want trade rules reviewed
August 26, 2014 / 9:47 AM / 3 years ago

UPDATE 1-Indonesian coal firms, fearing mass failures, want trade rules reviewed

* New trade rules aimed at illegal operators

* But legitimate firms say cash flow will suffer, firms will fail

* Coal association speaking to govt, wants delay to new rules

* Hopes for sympathetic review by incoming administration (Recasts with call for review of rules, quotes, context)

By Fergus Jensen and Michael Taylor

JAKARTA, Aug 26 (Reuters) - Indonesia’s coal industry is pushing the government to roll back new trade rules that it says will drive firms into the ground and rule out any chance of higher shipments next year from the world’s top exporter of thermal coal.

The rules, intended to rein in illegal operations, force coal miners to register with the central government and make royalty payments upfront before they are allowed to export.

But the change - coming as the Southeast Asian country pushes to limit coal output to safeguard future energy needs - is piling pressure on a sector that faces at least another year of depressed prices because of a global oversupply, the Indonesian Coal Mining Association said.

“A lot of companies will die because of cash flow problems ... The full impact will be seen in 2015. Usually the (export) number is always increasing significantly, but this will stop that,” Bob Kamandanu, chairman of the association, told Reuters.

He expected coal exports of around 350 million tonnes in 2015, broadly the same as this year.

“They are trying to kill the rats but they are killing the chicken that laid the golden egg,” Kamandanu said. “I‘m trying to convince the government that this will kill everyone.”

However, according to Sukhyar, Indonesia’s director-general of coal and minerals, the new export rules would have a minimal impact on shipments. “Perhaps a little, but not major,” he said.

The price of Asian benchmark Newcastle coal has dropped around 20 percent this year, hitting $69.27 a tonne in the week to Aug. 22, its lowest level since late 2009, due to worries about growth in demand from China.


According to the coal association, the new export rules would contravene contracts signed with the government by miners that account for about two-thirds of national output.

The government already faces international arbitration over a separate rule restricting mineral exports introduced in January that U.S.-based Newmont Mining Corp has said is in breach of its contract. Fellow U.S. miner Freeport McMoRan Inc had also challenged the rule but reached a deal with the government last month.

The association hopes the administration of president-elect Joko Widodo, due to take office on Oct. 21, will review coal policy, said Pandu Sjahrir, who chairs its commercial committee.

“We are talking with the current trade minister to suggest they wait until the next government because obviously this is very contentious,” he said.

“Once you get a very strong team, people who truly understand the industry, that should be helpful because they know the pain we go through,” Sjahrir said, adding he saw no reason for the new government not to roll back the rule.

Last week the government announced it would delay implementation of the regulation by one month from Sept. 1 after only a handful of firms registered.

“The backlog is quite significant,” Sjahrir said, noting that smaller firms would find it more difficult to get government approval. “Getting those signatures is not very easy, even if you’ve complied with everything.”

Data on Friday from the Financial Services Authority (OJK) showed that non-performing loans to the mining sector had more than doubled to 2.49 percent in June from 0.99 percent a year before, showing the impact of the downturn in prices.

Banks have been cutting exposure to the sector, with loans to the mining sector growing by 6.97 percent over the same period, whereas overall credit grew 17.2 percent.

The coal association says it was taken by surprise by the changes to the royalty payment structure, which would add to members’ cash flow problems.

“Effectively you are financing the government a month ahead, and that will affect cash flows for all businesses,” Sjahrir said.

Previously firms only had to pay royalties to the government after their coal had been handed over to a customer and some could pay up to three months after transactions, he said. (Reporting by Fergus Jensen, Michael Taylor and Wilda Asmarini; Additional reporting by Yayat Supriatna and Gayatri Suroyo; Editing by Alan Raybould)

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