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Jakarta Post

Coal contracts in limbo

  • Editorial Board

    The Jakarta Post

Jakarta   /   Fri, October 4, 2019   /   08:47 am
Coal contracts in limbo 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)

Only an inept government would allow the legal status of an industry that is vital to national power generation and contributes significantly to tax revenue to remain in limbo.But imbroglio is truly the biggest problem that seven major coal mining companies are now facing after deliberations on the amendment of the 2009 Mining Law were postponed.

President Joko “Jokowi” Widodo openly expressed outrage upon learning from a World Bank report early September that Indonesia was one of the least attractive countries in ASEAN for foreign direct investment.

But legal uncertainty, as currently encountered by coal mining companies, is one of the main barriers to investment. Discouragingly, too, the President only has himself to blame for allowing such imbroglio.

The long delay in the enactment of new regulatory guidelines for the extension of coal mining contracts of work (CoWs) of the first generation in Kalimantan had resulted in one major coal producer stopping production when its contract ended.

Worse still, the previous House of Representatives failed to complete the Mining Law amendment by the end of its term on Monday. Hence, there is currently no regulatory guidance whatsoever for contract extensions.

Six other major coal companies with contracts that will expire within the next three years have virtually stopped new investment over uncertainty in their contract extensions.

Despite all pledges to develop renewable energy, the big concern is that these coal firms supply about 70 percent of the needs of state-owned electricity company PLN, which derives 40 percent of its power production from coal-fired plants.

Given such an emergency, it is crucial that the newly installed House makes the bill on the 2009 Mining Law amendment a top priority in its National Legislation Program during its current session period.

Since the amendment covers not only coal but also other mining businesses outside oil and gas, the political process for the new Mining Law could take a few months.

But whatever amendment is made, it is imperative that the new law maintains provisions in the current law on coal mining, which requires the return to the government of all coal concessions with expiring CoWs and gives state-owned enterprises the right of first refusal for relinquished coal concessions. These provisions are crucial to give the government tighter control of the coal industry.

Stipulations in the current law that restrict the size of a coal concession to a maximum of 15,000 hectares should also be maintained because the size of coal mining concessions awarded before the 2009 law was unlimited. Some of the first generation coal mining contracts, which will end within the next two to three years, even cover hundreds of thousands of hectares.

Time is of the essence for the enactment of a new law because coal mining, like other mining businesses, requires a big investment and mining firms need certainty about the legal status of their contracts at least five years prior to their expiry before they can make new investment decisions.