Indonesia's 100% exports earning deposit mandate to impair coal miners' cash flow

The Indonesian government's recent regulation for commodity exporters to deposit 100% of their dollar-denominated export earnings into the domestic financial system for one year is likely to exacerbate cash-flow challenges for coal miners, who are already facing prices at multi-year lows, and further strain the financial stability of the country's coal sector multiple sources said.

This is a significant change from the previous requirement, which mandated that exporters only reserve 30% of their revenue in Indonesian financial institutions for a minimum of three months.

Coordinating Minister for the Economy Airlangga Hartarto stated in an official statement seen by S&P Global Commodity Insights Jan. 22 that the process for DHE (Dollar Earnings from Exports) has been completed and that the preparation of the Government Regulation (PP) is underway. He mentioned that harmonization is being conducted, followed by coordination with Bank Indonesia, the Financial Services Authority, and the banking sector.

The updated policy is expected to increase foreign exchange reserves, further strengthening Indonesia's economy, he further added.

"The recent mandate could result in increased financing costs for coal producers. With many miners likely facing the need to borrow additional funds to manage their operational expenses due to shrinking profit margins, this will result in additional financial burden and even shutting down of mines" said a mid-sized Indonesia-based miner with mines in Sumatra and Kalimantan

However, exports with a value below $250,000 per transaction are not required to follow the provisions for managing DHE. "These provisions aim to provide leniency to small exporters who have limited capital and transactions and to protect small businesses so that they remain competitive in the international market" the release further said.

Although the official document doesn't mention a date, local media reported that the regulations will be implemented on March 1.

The mandate comes at a time when small miners are already navigating challenging times with demand from the major consumers, China and India at all-time lows, and prices for Indonesia thermal coal across grades reaching multi-year lows.

The Kalimantan 4,200 kcal/kg grade coal was priced at $48.25/mt FOB Jan. 22, the lowest since April 15, 2021, according to data from Commodity Insights. The price of this grade had touched the $158/mt level Oct. 20 2021, the highest in the last five years when China's unofficial ban on Australian coal made Indonesia the most favored destination for imports.

Another market source closely monitoring the developments said that if the difference between loan interest and deposit interest in Government banks is very small or zero, new DHE rules may not be a problem.

Large proceeds from Indonesian commodity exports are placed overseas because of higher interest rates and favorable tax treatment. According to a recent document by Bank Indonesia—the nation's central bank— the country's official foreign reserves assets position at the end of December 2024 amassed $155.7 billion, up from $150.2 billion at the end of November 2024. The increase was attributed to revenue from tax and service receipts, the government's foreign loan withdrawal, as well as oil and gas export receipts.

However, in November 2024 Indonesia recorded a trade surplus of $4.42 billion, a significant increase from the $2.48 billion surplus reported in October 2024.

"Indonesia is a fragmented market with hundreds of producers. While it will let miners withdraw IDR as loans, the additional interest incurred from these loans is higher than the financial incentives offered by the national government, increasing business costs in the long term" added another Indonesia-based producer

The world's largest coal exporter sold 555.7 million mt to foreign countries in 2024, witnessing an increase of 7.6% from 2023, S&P Global Commodities at Sea data showed. The largest export destination country was China, with a volume of 245.8 million mt, while supplies to India were 108.3 million mt in 2024.