Indonesia coal, tin quota hit by crisis
JAKARTA (Reuters) - Indonesia, the world's top exporter of thermal coal, may have overestimated the amount of coal needed for the domestic market in 2009 due to the global financial crisis, a senior government official said on Tuesday.
Plans to set an output quota on tin for this year may also be unnecessary due to the impact of the crisis, Bambang Setiawan, director general of mineral, coal and geothermal told Reuters.
Based on estimated demand from the state power firm and other local coal users, producers in Indonesia must allocate 68.3 million tonnes of coal for domestic use this year, including 41.4 million tonnes for electricity plants.
"I don't think this year they can absorb all the coal we have dedicated to them," said Setiawan, who said the government's 2009 coal output target of 230 million tonnes looked "more realistic" than some industry projections of 250-260 million tonnes.
Prices of power-station coal from Australia, a benchmark for Asia, have shed nearly 70 percent since striking a record high of $201 a tonne last July, hit by slumping demand from industry.
Industry sources have also noted coal stocks piling up at power stations in Indonesia.
The government is still completing formal regulations for the domestic market obligation for coal along with other regulations under a new mining and coal law passed on December 16, Setiawan said.
"We know it is very important to finish (regulations) ... to make certain implementation of the law," he said, adding that the government was targeting July completion.
The new mining law, which replaced one issued 41 years ago, promises more certainty for investors, but some have questioned whether it will do much to help attract fresh investment due to contentious issues such as dropping current licensing via a contract of work in favor of shorter term mining permits.
But Setiawan said there would be flexibility on another controversial part of the law requiring requiring investors to process all mining products into metal locally.
"We would like to see case-by-case. It's impossible to apply to all commodities," he said, using the example of some lead and zinc mines where the amount of ore mined may not be sufficient to make it economic to require smelting to take place domestically.
Indonesia hosts international resource firms such as Freeport-McMoran Copper&Gold (FCX.N: Quote, Profile, Research, Stock Buzz) and Newmont Mining Corp, but has struggled to get big new foreign investment in recent years.
Setiawan said Indonesian state mining firms would not generally receive special treatment under the new law, although they would get priority if land set aside to conserve resources, known as state reserve zones, was released for exploitation.
TIN QUOTA MAY BE ACADEMIC
On coal, he said local governments had already been sent a circular from the ministry instructing them on the lowest price they should charge under a new price formula.
After coal prices hit record highs last year, Jakarta said it planned to introduce a new benchmark index to reset prices to squeeze more from royalties linked to coal sales.
He said the index -- which combines the Indonesian Coal-price Index (ICI) managed in partnership with London-based Argus Media Ltd, international coal price indexes and average prices in spot trade in previous months -- was now complete.
Authorities have already put pressure on some producers to rework earlier contracts that are considered out of line.
Adaro Energy (ADRO.JK: Quote, Profile, Research, Stock Buzz), Indonesia's second-largest coal producer, declared force majeure in December against three customers after failing to reach a new price agreement as required by the government.
Setiawan said the new index should end the problem of transfer pricing, a practice where firms sell coal to affiliates in countries such as Singapore at artificially low prices.
"I think with this kind of procedure there will be no problem with transfer pricing in the future," said Setiawan.
The government was still negotiating with local authorities on a tin output quota for this year, which could be around 90,000 tonnes, but slowing global demand from the crisis was already cooling production, he said.
"In this kind of situation, we don't really need (a) quota." The government has said it planned to cap tin output in Indonesia, the world's top exporter of the metal, to support prices and reduce environmental damage.
But many small smelters in Bangka-Belitung island, Indonesia's key source of tin, have been idle since October last year as the global economic slowdown dented metal demand.
The price of tin has fallen around 56 percent from an all-time high of $25,500 a tonne last May as the global economic crisis bites.
(For summit blog: blogs.reuters.com.com/summits/)
(Editing by Ben Tan)
Plans to set an output quota on tin for this year may also be unnecessary due to the impact of the crisis, Bambang Setiawan, director general of mineral, coal and geothermal told Reuters.
Based on estimated demand from the state power firm and other local coal users, producers in Indonesia must allocate 68.3 million tonnes of coal for domestic use this year, including 41.4 million tonnes for electricity plants.
"I don't think this year they can absorb all the coal we have dedicated to them," said Setiawan, who said the government's 2009 coal output target of 230 million tonnes looked "more realistic" than some industry projections of 250-260 million tonnes.
Prices of power-station coal from Australia, a benchmark for Asia, have shed nearly 70 percent since striking a record high of $201 a tonne last July, hit by slumping demand from industry.
Industry sources have also noted coal stocks piling up at power stations in Indonesia.
The government is still completing formal regulations for the domestic market obligation for coal along with other regulations under a new mining and coal law passed on December 16, Setiawan said.
"We know it is very important to finish (regulations) ... to make certain implementation of the law," he said, adding that the government was targeting July completion.
The new mining law, which replaced one issued 41 years ago, promises more certainty for investors, but some have questioned whether it will do much to help attract fresh investment due to contentious issues such as dropping current licensing via a contract of work in favor of shorter term mining permits.
But Setiawan said there would be flexibility on another controversial part of the law requiring requiring investors to process all mining products into metal locally.
"We would like to see case-by-case. It's impossible to apply to all commodities," he said, using the example of some lead and zinc mines where the amount of ore mined may not be sufficient to make it economic to require smelting to take place domestically.
Indonesia hosts international resource firms such as Freeport-McMoran Copper&Gold (FCX.N: Quote, Profile, Research, Stock Buzz) and Newmont Mining Corp, but has struggled to get big new foreign investment in recent years.
Setiawan said Indonesian state mining firms would not generally receive special treatment under the new law, although they would get priority if land set aside to conserve resources, known as state reserve zones, was released for exploitation.
TIN QUOTA MAY BE ACADEMIC
On coal, he said local governments had already been sent a circular from the ministry instructing them on the lowest price they should charge under a new price formula.
After coal prices hit record highs last year, Jakarta said it planned to introduce a new benchmark index to reset prices to squeeze more from royalties linked to coal sales.
He said the index -- which combines the Indonesian Coal-price Index (ICI) managed in partnership with London-based Argus Media Ltd, international coal price indexes and average prices in spot trade in previous months -- was now complete.
Authorities have already put pressure on some producers to rework earlier contracts that are considered out of line.
Adaro Energy (ADRO.JK: Quote, Profile, Research, Stock Buzz), Indonesia's second-largest coal producer, declared force majeure in December against three customers after failing to reach a new price agreement as required by the government.
Setiawan said the new index should end the problem of transfer pricing, a practice where firms sell coal to affiliates in countries such as Singapore at artificially low prices.
"I think with this kind of procedure there will be no problem with transfer pricing in the future," said Setiawan.
The government was still negotiating with local authorities on a tin output quota for this year, which could be around 90,000 tonnes, but slowing global demand from the crisis was already cooling production, he said.
"In this kind of situation, we don't really need (a) quota." The government has said it planned to cap tin output in Indonesia, the world's top exporter of the metal, to support prices and reduce environmental damage.
But many small smelters in Bangka-Belitung island, Indonesia's key source of tin, have been idle since October last year as the global economic slowdown dented metal demand.
The price of tin has fallen around 56 percent from an all-time high of $25,500 a tonne last May as the global economic crisis bites.
(For summit blog: blogs.reuters.com.com/summits/)
(Editing by Ben Tan)