NUSA DUA, Indonesia, Dec 7 (Reuters) - Indonesia will let coal producers keep exporting, despite missing domestic sales requirements as smaller firms undercut them, a senior mining official said on Monday, in an apparent delay to a 2008 rule.
The official also said that in the metal mining sector, the goverment would not push miners to set up their own smelters to process minerals locally, particularly if production was low.
The policy change is likely to be welcomed by mining firms, many of which had complained that the requirement to process all mining products into metals locally, either by setting up their own smelters or using another smelter for processing, could inflate costs and deter investment.
Indonesia's new coal and mining law passed in December 2008 require coal producers to sell a certain portion of their output to the domestic market since demand at home is expected to surge in coming years as new power projects are completed.
The requirement to process all mining products locally is also part of the new coal and mining law that aims to squeeze more revenue from the sector.
A draft of implementing rules attached to the new mining and coal law said coal miners could only export production as long as they met domestic demand for coal or minerals.
But many big coal producers holding coal works contracts have not been able to meet the domestic sales obligation as local buyers, including state electricity firm PT Perusahaan Listrik Negara (PLN), prefer to buy cheap coal from smaller rivals, Bambang Setiawan, Director General of Mineral, Coal and Geothermal at the Energy Ministry said.
"Coal contractors can continue exports of their coal even if their domestic sales doesn't reach requirement. It's not their fault if they don't have local buyers for their coal," Setiawan said on the sidelines of the Indonesia Mining World 2009 Conference on the resort island of Bali.
Holders of a coal contract of works -- a long-term agreement between both foreign and domestic firms and the central government -- normally sell coal at higher prices, as the pact gives the government a 13.5 percent cut of coal revenue.
This contrasts with smaller rivals, who hold a mining authorisation or KP -- available only to domestic firms and signed with local governments -- who pay a lower coal royalty of between 3-7 percent, depending on the coal varieties.
Producers holding coal contracts of work, such as PT Bumi Resources Tbk (BUMI.JK) and PT Adaro Energy Tbk (ADRO.JK), account for 80 percent of total output in the world's top exporter of thermal coal, which is seen at around 230 million tonnes this year.
The domestic market obligations will be implemented once new implementing mining regulations attached to the new mining law are completed. The government expects to issue the new regulations in January 2010, Setiawan said.
The government has said it plans to cap coal exports at 150 million tonnes a year, as soon as 2010, to help supply new power stations coming on stream as part of a crash programme to boost generating capacity and ease power shortages.
But analysts said it was unlikely to crimp global supplies for as long as five years, when the new power plants finally fire up domestic demand.
Setiawan said the goverment will not push miners to set up their own smelters to process minerals locally, particularly if production is low.
The requirement will only apply for minerals where concentrate production has exceeded the capacity of local smelters, such as copper and nickel, Setiawan said.
"But it won't apply for other minerals where production is still low, such as lead and zinc. We won't force it if it's not economical," he said.
Indonesia is the world's top exporter of tin and thermal coal and one of the key producers of zinc, copper, nickel and gold.