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espite the World Bank’s revision to its projection of Indonesian economic growth, a result of declines in the economic growth of the country’s main trade partners, Indonesian coal exports for next year will certainly keep growing.

Coal exports to East Asia remain relatively unaffected by the economic crisis in the US and Europe. In 2012, China and India will remain the drivers of Indonesia coal exports.

In the oil industry, Saudi Arabia remains the global leader, while China leads the coal industry. Globally, the total production of coal in China is four times of the percentage of Saudi Arabia’s share in the oil market.

China’s coal consumption is double the demand for oil in the United States. It is clear that the imbalance between China’s demand for coal and its production capacity directly affects the global coal market’s instability.

India is similar to China. Out of its 173,356 MW power plants, almost a half or 93,918 MW are coal-fired power plants.

As demand outstrips national coal production, coal imports become its main option.

Taking into account the map of Indonesia’s coal export potential, how should the country develop its strategy as the biggest coal exporter in the world?

It is projected that Indonesia’s coal production in 2012 will reach 380 million tons, topping the government’s target of 332 million tons.

 In forming its projections, the government only takes into account the 40 contract coal of work (CCOW) holders, a state enterprise and 22 mining permit holders (IUP), while there are many other mining permit holders who have not been registered.

Under the Energy and Mineral Resources Ministerial Decree No. 1991 K/30/MEM/2011, out of the
total production target of 332 million tons, only about 82.07 million tons (24.72 percent) are allocated for obligations in the domestic market.

State-owned electricity company PT PLN will absorb 57.2 million tons while the rest will go to Independent Power Producers (IPP) and other industries.

Comparing national coal production with domestic need, the export market is the priority focus of almost all coal mining companies.

Export potential and prices — which are expected to remain high, although a bit lower than 2011 — have encouraged nearly all coal miners to increase production capacity.

The five biggest coal companies will certainly up their production capacity by about 9 and 15 percent, or 25 million tons, for next year’s export market.

Extra production may come online as several medium-scale mining firms and mining permit holders enter the production phase.

Had the government not reduced the planned production of each company during the deliberation of the budget working plan (RKAB), national coal production would have been much bigger.

Out of consideration for natural resource conservation, the government opted to slash planned production levels proposed by the companies.

The question is, whether the reduction was part of a strategy to influence the price index in the world coal market.

The market for coal is quite inelastic. The economic growth of importing countries depends on the growth of electricity demands, which in turn influence the demand for coal imports.

China and India will certainly become the biggest importers of Indonesian coal.

China’s decision to import coal has nothing to do with its coal reserves and supply. Bottlenecks in the railway facilities throughout the country have caused the price of domestic coal to soar, making imports a cheaper alternative.

The China Electricity Council (CEC) reports that the consumption of electricity up to the end of 2011 is expected to increase by 12 percent to 4.7 trillion kilowatt hours (kwh).

The Chinese government has anticipated the rising electricity consumption by increasing generation capacity from 962 GW in 2010 to 1,050 GW in 2011.

It is projected that power consumption will grow about 8.5 percent annually from 2011 to 2015, topping 6.27 trillion kwh in 2015.

Out of all power plants in China, most of them, or at least those with a capacity of 699,700 MW, are coal-fired. With total coal production reaching 3.73 billion tons, China increased coal imports to 150 million tons in 2011.

Besides China, India is also a main target of Indonesian coal exports. PT Berau Coal, the fifth-biggest company, even has a diversification plan to increase exports to the Indian market.

Identifying India as a top priority is a smart strategic move. Like China, most of power plants in India are coal-fired power plants.

Compared to Indonesia, which has 104 billion tons of coal resources and 22 billion tons of proven reserves, India has 286 billion tons in total resources with proven reserves of 114 billion tons.

However, as the need for coal outpaces national production, India will certainly rely on coal imports.

Next year, it is projected that India will import 140 million tons, continuing to climb each year to nearly 300 million tons in 2016-2017.

The Pacific coal market, especially China and India, will remain the main target of almost all coal mining firms.

The price of coal is expected to remain high, even though it may decline in the first quarter of 2012. However, projections show that the price will claw its way back in the second quarter of 2012, and it is estimated that the index of coal prices during 2012 will be about US$110-115 FOB per ton.

The government should learn from the huge amount of coal resources in importing countries (China and India) and their needs, which are far above their national total production capacity.

With the total domestic demand for coal taking a mere 24.72 percent of annual production, the government should consider construction of as many coal fired steam power plants as possible.

Only by promoting coal as energy and economic booster, rather than revenue driver, can the Energy and Mineral Resources Ministry’s vision of harnessing energy and mineral resources for the public welfare be realized.

The writer is the director of the Indonesian Coal Society (ICS).