With the issuance of the three-year RKAB policy, the national coal production target in 2024 is 922 million tons, while for 2025 and 2026 it will be 917 million tons and 902 million tons, respectively. If other exploration concessions can enter the production stage, it is on course to hit 1 billion tons. With domestic coal demand in 2024 standing at 220 million tons, coal exports are expected to reach 75 percent. Based on coal demand projection for the next 10 years, Indonesia will remain the world’s largest coal exporter.
The coal market is also under pressure from various energy transition policies, both domestically and globally. As the world’s largest coal exporter, almost 54 percent of Indonesia’s coal exports went to China and India. Assuming that religious group-run mines will enter production in 2026/27, the dynamics of regional and global coal markets must be anticipated as early as possible.
The development of new and renewable energy technology will influence the proportion of fossil fuels in particular for each country’s energy mix, especially in regard to those that import coal from Indonesia. Thus, religious group-owned business entities, and especially NU, should immediately carry out technical assessment and economic analyses of the potential of different relinquished areas which will be offered for bidding. Calculations of resources, proven reserves, mining cost assumptions, investment in hauling and processing plants, loading ports must be conducted in a careful and detailed manner, especially for investments that plan to rely on third-party funds through bank loans or loans from business partners.
The amount of investment needed will be determined by the size of the relinquished PKP2B areas granted, and the coal production target in the next three years, after the Production/Operations IUPK is obtained, in addition to the RKAB approved by the ESDM Ministry.
The major pitfalls will be in dealing with coal price fluctuations, including the energy transition policies of coal-importing countries. The price of coal, which used to be less elastic and easier to project and analyze based on economic growth rate and electricity supply and demand, has now become much more difficult, after it became a mere commodity on the spot market.
Domestically, the Government has set the coal price at US$70 per ton for household electricity and US$90 per ton for the fertilizer and cement industries. Meanwhile, the smelting market follows global prices. Religious groups will also be required to sell coal domestically through a domestic market obligation (DMO) mechanism to ensure the stability of Indonesian coal supplies, especially for household electricity.
The Government is allowed to set special pricing domestically. Article 5 of Law 3/2020 gives it the authority to determine the amount of coal production, sales and prices in the name of national interests. This will not be harmful to mining investors, while it will ensure an affordable electricity tariff, especially for low-income households. The Government must also ensure that state-owned power company PT PLN does not increase the electricity supply cost (BPP) every time coal prices go up, which can result in higher electricity tariffs.
Given the importance of a smooth implementation of DMO, the Government’s plan to establish Managing Agency Partners (MIP) should be welcomed. Unfortunately, the MIP has yet to be realized, even though preparations and discussions have been carried out for almost two years by the Finance Ministry, ESDM Ministry and Coordinating Maritime Affairs and Investment Ministry. The presidential regulation draft on MIP has been finalized, but it is unclear when the President will sign it. MIP will allow PT PLN to maintain the reliability of the national electricity grid through adequate availability of coal at thermal power plants.
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Conclusion
It should be noted that Indonesia, with coal resources of 99.19 billion tons and reserves of 35.05 billion tons (ESDM Ministry’s Geological Agency, 2022), is not the country with the largest coal reserves in the world. Even though China and India are the largest importers of Indonesian coal, their reserves are larger than those of Indonesia, at 114.5 billion tons and 61 billion tons, respectively.
Assuming national coal production is 1 billion tons, it is estimated that the national production ratio will only last 30 to 35 years. Thus, the Government must carefully manage the energy trilemma in terms of energy security, energy affordability and environmental sustainability.
The revised PP which gives coal concessions to religious organizations must be linked to energy conservation and the reliability of a domestic coal supply. Public concerns about the policy can be proven to be an overreaction, if religious groups are able to manage their coal concessions properly by implementing good mining practices. (Singgih Widagdo)