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Indonesia's regulatory changes set to bring more uncertainty to coal sector

Business Times - June 27, 2019

Nusa Dua, Indonesia – Indonesian coal miners said upcoming regulatory changes are putting added pressure on their businesses amid depressed prices and rising competition from other energy sources.

The Indonesian government is in the process of amending coal mining rules to enforce implementation of a 2009 mineral law that requires miners to convert their mining permits to a licensing system upon the expiration of their current contracts.

The issue was one of the most talked about by local miners at the Coaltrans industry conference in Bali this week.

The coming change has already affected investment sentiment, an Indonesian coal miners group said, and there are fears the reluctance to invest could spread to related sectors such as power generation, even amid a push to add 35 gigawatts to the country's power capacity and boost infrastructure investment to prop up sluggish domestic spending.

"This is a big concern for us, because coal investment is not a short-term investment," said Hendra Sinadia, executive director of the Indonesia Coal Mining Association, on the sidelines of Coaltrans on the Indonesian island of Bali.

Among the changes the miners are worried about are the rules on how much area a miner can operate under the new permit system, Mr Sinadia said.

The 2009 mining law only allows a maximum of 15,000 hectares under a special mining licence. A government regulation now in force, though, allows the development of mining areas beyond that size when a site operator can present the government with a long-term plan of operation, he said.

Many companies are currently operating mine areas larger than 15,000 hectares, he said. "This is not only affecting the mining sector, because this contradicts government efforts to boost investment," Mr Sinadia said.

In the past few years, especially when the coal price dropped, foreign investment appetite had diminished, said Eviaty Jenie, a lawyer at global law firm HFW in Singapore.

"One of their considerations is the rapidly changing legal environment and its uncertainty. The nationalism principle, while generally good for Indonesia, eventually needs to be accepted by foreign investors," Ms Jenie said.

The negative sentiment could also spread to coal-fired power plants, a much needed infrastructure for the country, according to Mr Sinadia and Ms Jenie.

New coal projects are already facing financing difficulties as global banks refuse to back projects to avoid criticism over climate change, industry participants have said.

Indonesian energy and mining resources are also waiting for President Joko Widodo to approve the terms of the new licensing system, including revisions to the tax and royalty schemes.

Energy and mineral resources ministry officials did not respond to requests for comments.

Similar rules have been implemented in the mineral resources sector and have resulted in long, drawn-out negotiations between the government and mining giants, such as Freeport-McMoRan Inc.

The few foreign investors in Indonesian mines will also be required to gradually divest their ownership in local mines until they are only holding a minority share.

"It's like letting me build a house and then asking me to leave after that," said a foreign investor who declined to be named due to the sensitivity of the matter. (Reuters)

Source: https://www.businesstimes.com.sg/energy-commodities/indonesias-regulatory-changes-set-to-bring-more-uncertainty-to-coal-sector