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Jakarta Post

The imbroglio in coal mining

  • Editorial Board

    The Jakarta Post

Jakarta   /   Fri, July 19, 2019   /   07:37 am
The imbroglio in coal mining Black gold: This file photo shows coal being loaded onto a barge on the Mahakam River in Samarinda, East Kalimantan. State electricity company PLN is heavily reliant on coal to fuel its power plants. (AFP/Bay Ismoyo)

The government’s foot dragging in the enactment of new regulatory guidance for the extension of coal mining contracts of work (COWs) of the first generation does not bode well, with President Joko “Jokowi” Widodo’s pledging last Sunday that he would remove all barriers and clobber anyone who hindered investment.

The long-delay in the issuance of the new regulation has not only caused legal uncertainty but also threatens six major mining firms in Kalimantan, which together account for almost 40 percent of national coal production of more than 500 million tons a year.

The House of Representatives’ mining and energy commission last week lambasted the Energy and Mineral Resources Ministry for allowing such regulatory uncertainty for such an important sector, which fires about 40 percent of state electricity company PLN’s power generation capacity and has been one of the country’s largest export commodities.

In fact, one major mining company, Tanito Harum, which held a 31,000-hectare concession, was forced to close down in May because its COW, which was signed long before the enactment of the 2009 Mining Law, ended early this year, while the new regulatory rule on COW extension, already more than one year in the drafting, has yet to be signed by the President.

Energy and Mineral Resources Minister Ignasius Jonan took the initiative to establish legal certainty by approving a 20-year extension of Tanito Harum’s COW, based on the old regulation. But Jonan was forced to humiliate himself by revoking the COW renewal in May after the Corruption Eradication Commission protested and notified the President in a special note that the COW extension breached the Mining Law.

It is right and mandatory for the government to amend Government Regulation No. 23/2010, which has been used as regulatory guidance for COW extensions, because this rule does not fully comply with the 2009 Mining Law. But allowing such a long delay in the enactment of the new rule has caused legal uncertainty because the COWs of six big companies, which together supply 70 percent of PLN’s coal needs, will end within two years and another COW with an almost 120,000 ha concession expires in 2025.

The new regulation should be welcomed because it will allow for tighter government control of the coal industry as it will require the return to the government of all concessions once their COWs end. Like in the oil sector, the new rule will also give state-owned enterprises (SOEs) the right of first refusal for relinquished concessions. At present, SOEs account for less than 10 percent of national coal output as the sector is dominated by private companies, which obtained their COWs long before the enactment of the 2009 Mining Law. The new rule also sets the maximum size of renewed concessions at 15,000 ha.

The question then is why the President has not signed the new regulation. Coal mining needs big investment and the investors or mining firms need more than two years to decide on their future business.