At a time when the government had put in place a pass-through mechanism for imported coal to ease supplies from Coal India to power producers, which had helped alleviate their problems somewhat, Indonesia has announced its intention to ban exports of low-grade coal. The move is set to hit companies such as Tata Power, Adani Power, GMR, Essar Power and NTPC as it will lead to hike in generation costs. To understand the reasons behind this move, Infraline spoke to Indonesia’s Ambassador to India Mr Rizali W Indrakesuma. Excerpts:
Why is there an ambiguity about what the Indonesian government plans to regulate coal exports? What is your country’s exact position on the overall coal exports to India?
As far as our coal exports are concerned, the important thing to take into account is the supply that we have. That is the first and the second is the way by which our minerals—be it coal or oil—could have an added value when we export them. There are other considerations also in terms of operation. Our supply is now decreasing and in relatively short future ..i.e...by 2017 or 2020 we might be a coal importing country. At present we are exporting huge amount of coal to India, China, Japan and South Korea and other countries. What we need to do now with the knowledge of these decreasing supplies of coal is to regulate them.
There are many ways to regulate our coal supplies and how it will be used for our domestic as well as export purposes. The first would be pricing. How much are we going to sign? Second, what category of coal can be exported just as it is or may be needs to be more regulated. May be the most extreme would be to do a ban on exportation for certain qualities of coal. That would be easy but again there are aspects that need to be considered when we want to impose a ban. So this is what’s really being looked at by our government with experts also in Indonesia to see what would be the best policy. How do we manage our coal trade with foreign friends such as India, Korea and Japan. This is one aspect of supply.
India has always looked towards Indonesia for coal to meet its energy needs and that too coal of lower grade. What kind of regulation can we see on this front?
Although I cannot specify as to what kind of measures can be taken by the government but, as I said, we have to look at it in terms of what are the real concerns from the Indonesian side. We have to look at the supply and demand there in Indonesia and then the amount that can be exported. We have not put a limit on it in the past. Perhaps now we need to put a limit on the amount that is exported, and also the grade, the quality of coal which can be exported and which can’t be. There is also one aspect which perhaps our buyers, importers could think about. As we are not able to get this lower grade coal, why don’t we go with the higher one which is available?
Although at the first glance it’s not economical and may seem like wasting money on buying higher grade coal, but with the situation we are facing, we are trying for a win-win for all. So, perhaps it is also time for the buyers and importers to think about it. And then, as I see it from our own experience, if and when there is a ban on certain categories of coal, it will not be a permanent one. Probably once a best solution is found, may be then whatever was tightened may be loosened a bit. But that takes time.
Can u give us a sense of overall coal exports from Indonesia to India and whether it has come down in recent times?
In terms of coal I don’t think decrease has been really significant. Last year we exported 77 mt of coal to India (40 per cent increase from the year 2011-12). But I know from my engagements with Indonesian ministers, big producers of coal owners over there…exports to India are decreasing. I would also like to say that India’s coal import is expected to surge to a level of around 165-180 mt during the current fiscal, up from 135 mt in the year 2012-13.
Is Indonesia’s plan to regulate coal exports a sign of resource nationalization?
At this point of time it is still not very relevant to talk about nationalization. I don’t think Indonesia has taken drastic nationalization measures. What we try to do is to prevent internationalization of Indonesian companies, but not nationalization. We have this experience that nationalization of foreign companies or operations or partners is not the solution to our problems in terms of economy. We tried that in the past, we did not succeed.
Can limiting exports hurt bilateral ties with India and China?
No, not really. Specially with these two major countries Indonesia’s engagements go far beyond trade. They go far beyond coal. For instance, as a matter of fact I think in the coming future it will shift from just trade to more of investment. Even now Indian companies are already investing in Indonesia in the field of coal. They are not merely buying from Indonesia, but will also invest over there which makes ties even stronger. They have more say in the control of coal in Indonesia.
I don’t think the situation regarding coal would hurt our bilateral relations. There are many more aspects of bilateral relations. It is not only economic field, it is also political and socio-cultural. In economic field alone, there are many aspects of our relations with India. We are also importing more from India including garments and machineries. India is also investing a lot in other areas apart from mining.
By when is the Indonesian government likely to take a final call on curbing coal exports to India?
It will take some time. Last year, we had decided that by next year we would be able to have a final say on this. But we are already in the middle of 2013. There is delay because it takes time to look into the matter, to make the assessment, evaluate how our trade has been going and then what are the options other than if we are going to take a certain measure, certain kind of policy, what would be the repercussion, what would be the impact on trade as a whole and then also with our importers and of course the government also. It is still not final. The process is on. The government would also lose by more delays. Time is really not on their side. I am still optimistic that sooner rather than later we will able to come up with a final decision which will be beneficial for all.