Moratorium expected to salvage mining business

11 May 2016

The Jakarta Post

A moratorium on mining permits may be the mining sector’s solution for keeping its head above water on the back of weak commodity prices.

Data from the Energy and Mineral Resources Ministry show that there have been 10,364 mining licenses ( IUP ) issued, 3,960 of which carry a non-clean and clear ( non-CnC ) status, leading to over-mining and oversupply and, eventually, lower commodity prices.

Of the licensed, non-CnC mines, 2,799 are mineral businesses and 1,161 are coal businesses.

Lead economic policy researcher at Publish What You Pay ( PWYP ) Indonesia, Wiko Saputra, said on Tuesday that it welcomed the government’s plan to pause the issuance of mining permits, but added that it should also revoke several existing permits.

“Before putting the moratorium in place, the government must first revoke existing non-CnC permits. This is the right moment, while prices are still low,” he said.

Last month President Joko “Jokowi” Widodo announced that the government would issue a moratorium on new mining permits as well as on oil palm plantation permits as a follow-up to a 2011 forestry moratorium.

The plan is considered timely, since there has been declining demand from China — a major coal importer — that has put pressure on global coal prices.

Australia’s Newcastle coal price, an Asian benchmark, was set at US$54.19 per metric ton at the end of March, according to figures from Reuters. The price fell by an average of 47 percent year-on-year and by almost 60 percent since its heyday in 2011.

Indonesia’s coal reference price for April, on the other hand, was set at $52.32 per metric ton, down from $64.48 per ton in April 2015.

Wiko said that a moratorium on new mining licenses would also ensure that the government turned its focus toward the downstream industry in the non-coal mining sector, which the government has been trying to develop in order to increase non-coal commodity prices.

The government has already ordered mining companies to develop smelters, but many have been reluctant to comply.

Meanwhile, Indonesian Coal Mining Association ( APBI ) deputy director Hendra Sinadia told The Jakarta Post that his organization agreed with the moratorium as it might help minimize overexploitation and increase the country’s ability to maintain its reserves.

The government stated in 2014 that the country had around 32.3 billion tons of coal reserves, 70 million of which is being be used to produce 20 gigawatts ( GW ) of electricity by 2019 under the ambitious 35 GW energy program.

The APBI, however, is still uncertain on how the halt will affect mining companies with existing permits. “We are concerned about those with existing permits and how it will affect our ability to renew permits in other sectors, such as the forestry sector,” Hendra said.

“Those outside [of the Energy and Mineral Resources Ministry] may perceive a moratorium on mining permits as a pause on all permits associated with mining. It is already difficult for us to get such permits and it might prove even more so afterward.”

Regarding price, the APBI agrees that the moratorium could slightly improve local prices, even though the global situation and demands would still play larger role in determining price tags.

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