Government Tightens Illegal Coal Activity to Boost Revenues

June 27, 2014, 4:13 pm | Admin

The Indonesian Government has finally admitted what the industry has long known – that between 50 and 60Mtpa of coal is illegally traded out of the country. And it is no longer prepared to lose the royalties it is entitled to from this coal.  Speaking at the Coaltrans Asia conference in Bali at the start of June, the Director General of Minerals and Coal at the MEMR, R Sukhyar, said the government had taken the decision to issue no new special production operation mining permits (IUPKs) for the next 12 months. Coal cannot be transported or sold domestically or internationally without an IUPK.  The decision to issue no new IUPKs was made as part of the process of revamping the entire permitting process to provide better oversight of the movement and sale of coal and to reduce the movement and sale of illegally mined coal.

Who will this impact?

The decision is not supposed to delay the issue of IUPKs to those who had applied for them before the end of May and will only be applicable to new applications. However, many existing coal traders report they have had difficulty extending their permits because of red tape and some have been forced to suspend trading because their permits have expired. The Director General has also temporarily suspended operations for 62 companies which had held IUPKs stating they had failed to fulfill their obligation to submit to the government operational reports regarding the origin and destination of some coal cargoes. The companies have been deemed by the government to be uncooperative, not transparent and has alleged this is – in some instances – because they have been engaged in selling illegally mined coal. Presently there are around 750 IUPKs which have been issued in Indonesia as the government works to reduce the level of illegal mining. Sukhyar told the Coaltrans conference Indonesian coal royalty revenue during the first quarter of the year had reached Rp 11 trillion (US$950Mn), which is more than double the Rp 5 trillion ($420Mn) collected in the same period last year. The full year coal royalty target has now been set at Rp37.6 trillion ($3.1Bn). In 2013, state revenue from coal royalties was Rp24.4 trillion. The Director General said the higher revenues were not the result of increased production but rather the optimization of the collection of royalty payments for coal miners. This is due, in part, to the closer tracking of coal mining through the IUPKs.

Other measures to reduce illegal mining

The Indonesian Government has also proposed introducing the Mineral and Coal One Map Indonesia called (MOMI) system to track coal exports. Under this system, all IUP holders will be issued with a code, like an identity card, which they will be required to use for royalty payment records, taxes, at coal export ports and reporting systems. In addition, the government is developing a proposal to nominate 14 coal dedicated ports and prohibit transshipment activity. The proposal decrees that transshipment of coal can only be done from designated coal ports and must be able to be seen directly from the port at a maximum distance of 2km from land. There will be a transition period of a maximum of three years before transshipment is prohibited completely. It is still unclear whether the 14 ports will be owned by the government or private enterprise. What is clear is that it will be the government and not the coal sector nominating which ports will be coal dedicated. Seven of the ports will be coal seaports in Kalimantan with the other seven units in Sumatra. The ports, at this stage are expected to be: Balikpapan Bay, Adang Bay, Berau and Maloy Bay in East Kalimantan, Tobaneo/Pulau Laut, Sungai Danau and Batulicin in South Kalimantan and Aceh, Padang Bay, Riau Bay, Jambi Bay, Bengkulu Port, Tanjung Api-Api and Tarahan in Sumatra. They will take on the role of main coal ports from next year. The ban on transshipment and nominated main coal terminals is designed to eliminate coal sourcing from more than one coal mine on any one barge or vessel, which is a common method for moving illegally mined coal. The move is sure to be unpopular with one Indonesian coal trader telling HDR Salva that the ban on transshipment activity will “surely kill” his business, particularly given the current weak demand and pricing scenario.

By Denny Tarigan
Salva Report

Last modified on February 1, 2017, 4:14 pm | 3575