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Indonesia's new energy policies to weigh on coal exports

The Indonesian government's plans to boost domestic coal consumption and curb production of the commodity will weigh on exports from the country, which is the largest coal exporter in the world, according to Hendra Sinadia, deputy executive director of the Indonesian Coal Mining Association.

Sinadia said in a March 29 interview with S&P Global Market Intelligence on the sidelines of the Mining Investment Asia conference in Singapore that the Southeast Asian country is seeking to keep about 50% of its coal production for domestic use. Currently, over 80% of its coal production ships to other countries, with India, China, Malaysia, Japan and Korea among the major importers.

"India is also trying to increase coal output, and China has a massive coal industry itself so I don't think these two would be affected. Malaysia, Japan and Korea would be more concerned," he said, adding that the Chinese government also hopes to reduce coal imports to support its domestic industry.

The percentage change will be partially supported by the Indonesian government's plan to preserve the resource due to concerns over deficiency, according to Sinadia.

The government is looking to cut domestic coal production to 400 million tonnes per year, from the current level of more than 460 million tonnes, he added.

"The authorities are still trying to balance the situation, as they need the tax income from the industry," Sinadia said. "But when output does start to drop, priority will be given to domestic use, and exports will be affected."

Even with coal output expected to decline, the country's demand for the commodity is expected to go up, along with a national electricity program aiming for additional power supply of about 90,000 MW by 2025.

Sinadia expected the program to result in additional coal demand of about 160 million tonnes when completed, as coal-fired power plants will fuel about 75% of the electricity.

Indonesia's demand for coal is at about 85 million tonnes per year, but as consumption is expected to increase, Sinadia said the government is also promoting new technology for more efficient coal utilization and for improved emissions.

He added that the association, whose members account for over 80% of the country's coal production, has been assisting coal producers in securing a better agreement price with power plants in Indonesia, though the price is decided by the government.

"We are quite confident on coal prices this year," he said, referring to China's capacity and output controls as the largest bullish factor.