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usinesses are urging the government to bring all coal traders and brokers under control, after the unbridled fraud in the trading of the commodity claimed several foreign investors recently in Kalimantan and Sumatra.

Coal trader Edi Suhardi said the lax control in the industry had made foreign investors the easy targets of fraudsters.

"The government should guarantee legal certainty in the sector, otherwise the fraud cases will keep happening," said the Palangkaraya-based businessman over the weekend.

Recently, US global financial services firm Morgan Stanley was deceived by local partner PT Kerja Sama Tim Enterprise (KSTE), which defaulted on a US$3.9 million coal deal, causing the foreign investor losses of more than $1 million.

KSTE had been contracted to supply 50,000 tons of coal to Morgan Stanley through its branch office in Singapore. But the local partner only sent 16,000 tons in two shipments, with the second consignment falling short of the specifications detailed in the agreement.

A court in Banjarmasin, South Kalimantan, recently sentenced KSTE president director Zul Qamar to two years in prison for the crime.

"Zul Qamar received $1.9 million from Morgan Stanley Capital Group Inc., but the value of the coal shipped was less than $900,000," said prosecutor Ai Suniati.

Another major fraud case has seen US firm Glencore, a widely diversified commodities trading business, suffered losses of $2 million to a local company in Kalimantan last year.

Central Kalimantan coal trader Imam said the increase in global demand for coal had drawn illegal brokers into entering the lucrative business. "Many of them try to make as big a profit as possible by violating the regulations," he said.

"Their only capital is a bundle of documents, which they use to win over less-scrutinizing foreign investors."

Barnabas Irianto, a consultant for Australian company PT GMT Indonesia, which is involved in surveying and trading of coal in South Kalimantan, said the widespread fraud had also claimed local businesses as victims.

"These cases, however, of local sellers being cheated, aren't all that widely publicized," he said.

The case of PT Nusantara Thermal Coal (NTC), which had defrauded local investors in Bungo regency, Jambi, of $8 million, is one such example.

Imam said that to prevent more investors falling victim to fraud, the government should implement a mechanism that got rid of all loopholes that could be manipulated.

"Sometimes there's been an overlap of coal mining areas as laid out in documents," he said.

"So certain concessions are licensed in multiple documents. This *overlap* is made possible because coal mining concessions can be issued by the government as well as local authorities, although the latter are limited to 10,000-hectare concessions.

"But they can, for instance, issue five licenses per person, each for 5,000 hectares," he went on.

"So it can happen that certain areas granted by the government in one license are also included in another license issued by regents."

Imam added coal concessions could also be subcontracted to multiple investors, thereby putting the latter in a quandary when supplying coal to buyers.

"The government should end this kind of uncertainty," he said.