David Fogarty – Out of the jungles of East Borneo in Indonesia comes the fire that fuels Asia's burgeoning economies: coal.

Miners dig deep, open pits, clearing forests and farmlands to extract coal from thick, black seams, which is then crushed and loaded onto trucks and barges for shipment to China, India, Japan and other destinations in Asia.

Indonesia, itself a large and growing customer, produced 421 million metric tons last year, according to official government figures, with about 350 million tons exported to feed the region's growing demand for energy. India and China are the top two buyers.

Output has tripled within a decade and Indonesia is now the world's top exporter of thermal coal used in power stations, earning the government billions of dollars in royalties. Coal taxes are a vital source of revenue for the country, helping plug a budget deficit running at about 3 percent of gross domestic product.

But with this success has come a multitude of ills, including large-scale deforestation, water pollution, conflict with local and indigenous communities and health costs from coal dust. Add to this corruption, tax evasion, illegal mining and illegal exports, which are costing the government millions of dollars in revenue.

The industry is becoming a threat to itself, the economy and the national and global environment. Burning coal is the single largest source of carbon dioxide emissions blamed for climate change.

In response, the central government has launched a major drive to clean up the sector and weed out the worst players, mostly small mining companies, but it remains to be seen if the authorities can claw back greater control. The aim is to limit the sector's rapid growth and to impose tougher enforcement of regulations – crucial if the government is going to able to manage growing demand for Indonesia's coal.

About half the coal comes from the resource-rich province of East Kalimantan. To get a sense of the scale of the industry, you only need to stand on the main bridge across the Mahakam river, which flows through the provincial capital Samarinda. Barges the size of an Olympic swimming pool flow past every few minutes, pulled by tugboats to bulk carriers waiting along the coast nearby.

Each barge carries about 8,000 tons of coal, most loaded up river from myriad coal terminals that jut out into the river. Samarinda is ringed by coal mines and vast coal stockpiles that constantly feed the barges via conveyer belts.

Energy security

As Indonesia's oil reserves dwindle, coal's importance grows. "The idea is that we have to consider our energy security. We consider that coal is our prospective energy in the near future," said Bambang Tjahjono, the director of coal business supervision at the Ministry of Energy and Mineral Resources' Directorate-General of Mineral and Coal.

About 60 million Indonesians are not connected to the grid and the government is pushing rapid investment in coal-fired power stations to fix power shortages. Like the resource booms of oil and gas, logging and oil palm before it, coal is regarded as a quick and easy fix and a cash cow, with environmental concerns often secondary.

NGOs say Indonesia needs to focus more on renewable energy investment and curbing conflict between mines and local communities, whose land is increasingly under threat. To clean up the sector, the government has called in the Corruption Eradication Commission (KPK), which is leading a sweeping review of mining permits.

"The focus for KPK is to increase government revenue and avoid revenue leakage," Tjahjono said in a recent interview.

In another major initiative, new trade rules that took effect Oct. 1 target illegal coal exports. Combined, Tjahjono hopes both initiatives will lead to a leaner, more tightly regulated sector.

For NGOs, the crackdown is essential but some fear it won't head off looming environmental and social problems because of the large number of mines and permits. And, depending on where global coal prices go, more mines could come on line.

"I think there will be more problems because half the mining permits will be finishing up in the next 10 or 15 years. Our prediction for 2020, we will have very serious environmental damage. That's only one problem. It will also be with other problems, such as health and land conflict," said Merah Johansyah, who leads the East Kalimantan branch of Indonesian mining NGO Mining Advocacy Network, or Jatam.

According to the Ministry of Energy and Mineral Resources, there are 3,922 permits for coal exploration, operations and production across the country. Most are in Kalimantan and Sumatra, which contain the majority of Indonesia's coal reserves.

Central and local governments do not have the resources to monitor these permits, analysts, NGOs and the ministry say.

"There are a lot of mining companies in this place and the administration is not nearly as strong as, say, Australia or the United States," said a senior mining executive on condition of anonymity.

Of the total permits, 1,461 are listed as non-clean and clear because of irregularities, such as mines overlapping with other mining or agricultural concessions, the ministry says.

A province-by-province analysis of all coal permits shows they totaled just over 21 million hectares in 2013, roughly the size of the US state of Kansas or three times the size of the Republic of Ireland. While many of these will never become mines, the scale highlights the risk of social conflict and environmental damage in a country with 250 million people, many of whom rely on farmland, forests and rivers for their livelihoods and customs.

Top challenge

Most of the problems are at the district level. Regional autonomy laws gave districts much greater powers, and this triggered the explosion of mining permits.

In East Kalimantan, district heads have issued about 70 percent of all mining permits, with the money boosting district revenues, funding re-election campaigns and, at times, for personal enrichment.

"One of the top challenges for the industry is the coordination between government departments and between the central and regional governments, because this is one of the keys to sustainable development that meets the needs of investors," said Sacha Winzenried, a senior adviser in energy, utilities and mining for PricewaterhouseCoopers, the multinational business services firm.

"Whether it's managing the level of production, because the district head has different interests to the central government, or whether it's environmental, health and safety, that level of coordination doesn't work as it should," he said.

Regional government mining offices often lack the resources, the budget or the will to up-skill themselves, he added.

The lack of oversight means the central and local governments do not know the exact number of mines that are producing coal in Indonesia – roughly estimated at 400. And no one knows how much coal is illegally produced and exported. While 421 million tons is the official production figure for 2013, the ministry says it is closer to 500 million because of 50 million to 60 million tons of what it calls "missing exports." However, others say illegal production is much higher.

Not all coal mines are the same and most of the problems stem from the multitude of smaller, loosely regulated mining outfits. These operate for relatively short periods, have little regard for local communities and often abandon their mining pits once they cease operation, government officials and NGOs say.

Most of Indonesia's coal is produced by a handful of large companies that have direct contracts with the government. These also pay higher royalties than companies granted mining permits called IUPs.

"Within Indonesia, you can see a marked difference between what may be called the formal sector and the other less formal end of the markets. And where there are clearly environmental issues is with the less regulated sector, either illegal miners or the very small players," said PwC's Winzenried.

Working with the KPK and the Supreme Audit Agency, the Ministry of Energy and Mineral Resources and other agencies are focusing on the 12 provinces with the highest number of mining permits. The aim is to review the legality of the permits, check if mining companies have valid tax identity numbers, are paying their taxes fully and whether the permits overlap palm oil and other mining concessions and protected forest areas – a common problem in Indonesia.

To date, the program has led to the suspension of more than 300 mining permits by local officials, with more expected.

The new trade rules state that only coal mining companies that have business permits assessed as clean and clear can export coal. Exports will also have to go through designated ports.

"This should stop or decrease poor mining practices, those that are unsafe and non-compliant with environmental rules," said Tjahjono. "That means we can close those companies."

Good regulations, lax enforcement

Indonesia has another tool at its disposal: stringent environmental regulations governing mining practices. But they need much stronger enforcement, government officials, analysts and NGOs say.

Companies must submit detailed environmental impact assessments and prepare detailed rehabilitation and post-mining reclamation plans. Companies have to place large deposits into a bank account to ensure they carry out mandatory rehabilitation and reclamation of affected areas.

However, lack of qualified mining inspectors, lack of expertise at the district and provincial level and, most likely, graft, mean many smaller mines are not inspected as often as they should be, laws are not enforced and permits are rarely terminated for bad practices.

Tjahjono said the ministry was trying to train up more mining inspectors. "The problem is not many engineers are interested in this training," he said.

In total, the mining ministry says there are 10,992 permits for mining of all types across the country, raising questions about how to effectively monitor all of them. According to a source involved with the KPK-led investigation, these 10,922 permits are owned by 7,834 companies. Of these, 17 percent do not have a tax number.

The mining concessions covered by these permits include 26 million hectares of the national forest estate. According to the source, the permits cover 1.3 million hectares of conservation forests, which are no-go zones for mining. In addition, the permits cover five million hectares of protection forest, which are prohibited for open-pit mining.

A study published earlier this year found that coal mining was one of the top causes of deforestation after palm oil, logging and clearing for pulp plantations. The study examined forest loss within industrial concessions between 2000 and 2010 and found that coal mining had caused 300,000 hectares of forest loss versus 1.6 million hectares in oil palm concessions. With more coal mining comes an increased threat to remaining forests.

Changing the mindset

Jatam takes a harder line on coal mining than most NGOs. It wants coal mining stopped altogether, an unlikely scenario since the Indonesian government expects domestic coal demand for power generation, currently around 73 million tons per year, to double by 2022.

"We agree that everyone needs energy. But we don't want the energy to come from threatening the people, coming from land grabbing. We need to change the mindset of people," said Johansyah's colleague, Hendrik Siregar.

Jatam works with local communities under threat from coal mines, advising on legal options and encouraging villagers and farmers not to sell. It's easy to see why. Samarinda is known as the city of coal mines. Roughly 70 percent of the city and surrounding area is under mining permits and the landscape is littered with the scars of mines and abandoned coal pits, many now filled with water.

About a 40-minute drive from the city is the village of Makroman. Farmers earn a living growing rice and fruit, such as rambutans and durians. The village is under threat of being cleared and developed by an adjacent coal mine run by an Indonesian firm called CV Arjuna.

About six years ago, a company official came to the village to take soil samples and measurements. This was the first the villagers heard about the company or the planned mine.

"He was like a thief," said farmer Niti Utomo, 66, who, like many of the other villagers, has been resisting CV Arjuna's efforts to buy their land.

The company began developing its mine several years ago and it now surrounds the village and its farmlands on two sides. Huge pits have been dug to extract the coal, leveling hills and forests and disrupting water supplies for the rice fields.

While the mine has built a dam for irrigation, this sometimes runs dry, leaving the rice crops to wither in the dry season. Ultimately, CV Arjuna wants to acquire all of the 365 hectares in the village and has offered large sums of money to owners, some of whom have accepted.

Utomo, who has farmed in the area for over 40 years, has refused the money. "I will fight till I die to keep the land," he said as we spoke next to his rice field.

In an e-mailed response to questions, a company official said CV Arjuna's permit to operate, granted by the city government in 2011, was fully legal. The official provided a list showing the company had met the mining ministry's clean and clear status and said the company would rehabilitate the large coal pit next to the village.

There are about 200 coal mines in East Kalimantan, according to the provincial environment office, which handles environmental impact assessment reports and helps carry out mining inspections. Of these, about 20 percent were not complying with the government's environmental regulations, officials said. The situation was not improving.

"Tidak bagus," said Wiwit Guritno, head of water pollution control for the provincial government, meaning "not good." "It's getting worse, I think," he added after conferring with his colleague Priyo Harsono, the provincial head of environmental impact assessments (EIAs).

A major problem was the quality of oversight at the district level, which issues most of the EIAs. While the quality of the EIAs was generally good, it was the monitoring of mines and enforcement of regulations that was a consistent problem.

Mines are rated according to water quality, how they manage solid and hazardous wastes and particularly whether mines have followed the strict reclamation and re-vegetation of mined-out pits. Companies failing to comply are given warnings and the environmental office can recommend law enforcement action.

"We have given the information to the district head but they haven't closed the mining," said Harsono.

Abandoned pits remain a big problem in the province but new rules aim to incentivize companies to rehabilitate their pits before they can expand production. While efforts to improve the sector are laudable, some question the value of coal mining.

Greenpeace wants coal exports wound back and says coal mining acts like a double-whammy for climate change because of toxic emissions caused during production and burning.

"I think coal mining is the silent killer for Indonesia, not only for the environment but also for people," said Arif Fiyanto, climate and energy campaigner for Greenpeace Indonesia.

"The government is always using the argument of coal is the key contributor to Indonesia's economic growth. In reality, the coal export contribution to our GDP is three percent. "The benefit doesn't justify the damage coal mining causes."

[This article was first published on Mongabay.com and has been edited for reprint on the Jakarta Globe. A continuation of this story will appear in the Globe on Monday.]

Source: http://thejakartaglobe.beritasatu.com/news/indonesia-clamp-coal-industrys-worst-excesses/