Indonesia pushing to consolidate coal industry

Indonesia is taking action to strengthen its coal industry by merging operations, as the market continues to decline.

The country is reportedly considering revoking more than 4000 mining licences to remedy the issue, according to Reuters.

"At the end of the day it's about equilibrium," Sudirman Said stated at a coal conference in Bali last week.

“This month we will decide whether the permits will be revoked," Coal Enterprise director Adhi Wibowo added.

Said went on to state the country had issued around 10,100 All Mining Licences known as IUPs, but only around 6000 of these had been certified as complying with government rules, and has created a butting of heads between the government and local regents.

There are reportedly around 960 coal mining companies in Indonesia, however around 900, all IUPs, produce only about 20 per cent of the nation’s total output.

These operations also have issues regarding overlapping permits and unpaid royalty payments.

The larger operators, such as Bumi Resources, are unlikely to be affected as these businesses are often on Contracts of Work agreements.

"This is the perfect time to consolidate," Said stated,

"We will create opportunities for players who are serious, who want to invest and who always comply with government rules."

These licences will be handed to an investment co-ordinating board.

This is reportedly the first steps in the direction of the earlier issues Minister of Energy and Mineral Resources (MEMR) Regulation No. 27 of 2013, which was brought into to control a rapidly growing domestic industry.

Said noted that these IUP number jumped during the mining boom.

“We enjoyed huge profits that were abnormal. Abnormal money drives abnormal behaviour.”

In addition to this consolidation, the government is also cracking down on local regents’ authority to issue IUPs.

“Rather, the sole authority to issue IUPs for mining companies having a mining area located in just one province was vested to Governors, while the MEMR has the authority to issue licenses for mining companies having a mining area located in more than one province and for PMA mining companies,” Florence Gracia Santoso, a lawyer from Soewito Suhardiman Eddymurty Kardono SSEK Indonesian Legal Consultants explained.

And despite permits being revoked and the consolidation of operations “regents’ authority to issue IUPs remains unchanged under the 2009 Mining Law,” Santoso added.

 “So, there is a conflict between the Mining Law and the Regional Governance Law. While it remains to be seen how this conflict will be resolved there is talk that the 2009 Mining Law will be amended to revoke the authority of Regents to issue IUPs.”

China took similar action last year in an effort to buoy their industry against the worst of the coal downturn, closing and consolidating smaller coal mines as part of the nation’s latest five year plan.

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