Thu, 25 Nov 2010

From: Reuters

By Fitri Wulandari
JAKARTA, Nov 24 (Reuters) - Indonesia's requirement for miners to sell more coal for the domestic market may squeeze supply within the next three to four years as domestic demand rises and production capacity is struggling to expand as quickly, officials said on Wednesday.

A potential cut in supply from the world's top thermal coal exporter could keep coal prices high in the future amid strong demand from Asian countries, particularly China and India.

New coal-fired power plants under the first phase of a government programme to add 10,000 megawatts of additional generating capacity are expected to come onstream starting next year, boosting domestic demand.

At the same time, regulatory changes with the introduction of a new mining and coal law in early 2009, have slowed expansion of existing company and limited greenfields projects from taking place, said Hendro Santoso, director at coal miner PT Padangbara Sukses Makmur.

"The development of new power plants is much faster than the ability of existing miners to ramp up production and it's certainly more difficult for new miners to start up mining now," Santoso said on the sidelines of 4th Coaltrans Coal Mining Operations and Economics in Jakarta.

"I think supply from Indonesia will be squeezed further in 2013-2014 as more power plants come onstream," Santoso said.

The domestic sales requirement decree flows from a mining and coal law passed in December 2008. It aims to squeeze more revenue from the sector and ensure supplies of minerals such as coal for the home market. Indonesia will require coal miners to sell a minimum of 24.2 percent of their annual production for the domestic market next year. New power plants are expected to boost coal consumption for generating electricity to 96.25 million tonnes in 2014, from an estimated 39.25 million tonnes this year, said Misbachul Munir, the head of energy at state utility firm PT Perusahaan Listrik Negara.

"Coal will account for about 60 percent of our energy mix by 2014," Munir said.


Domestic consumption is forecast to account for more than 37 percent of total production in 2015 of 321 million tonnes, compared to an estimated 24 percent this year, data from the government shows.

Local buyers are seen accounting for 56 percent of total production by 2025.

Expansion from existing mines and exploration to increase reserves is progressing slowly because of conflicting regulations. The government stopped issuing new permits ahead of its latest regulations, and has not said when it will resume.

"Indonesia has the lowest proven reserves from all core thermal coal supply countries and is also consuming them at a faster rate," said Nivan Moodley, senior manager energy and resources at Deloitte Consulting Pte Ltd.

Indonesia has total identified coal resources of 104.76 billion tonnes and mineable reserve of about 20.99 billion tonnes. Top miners include Bumi Resources and Adaro Energy .