ICMA says new regulation disrupts coal exports

Related Event: The 2nd Conference on Indonesian Coal Export Policy - Will coal export using non-Indonesian-flagged ship still allowed?

By Tri Subhki R

The Indonesia Coal Mining Association (ICMA) said that a number of coal export contracts may be cancelled or postponed due to the upcoming implementation of Ministry of Trade Regulation No 82/2017 on the requirement to utilize national shipping and insurance services in the export and import of certain commodities including coal.

The government, through Ministry of Trade, issued Ministry of Trade Regulation No 80/2018 regarding the second amendment of Ministry of Trade Regulation No 82/2017 which obliges the use of the services of national shipping and insurance firms in the export of coal and crude palm oil (CPO)starting May 1, 2020.

ICMA on Thursday reiterated that the existing regulation has already negatively impacted the country’s coal exports due to the uncertainty of this regulation, particularly the absence of technical guidance.

“Some foreign coal buyers plan to cancel or postpone the coal shipment from Indonesia as of May 2020 due to this uncertainty,” Hendra Sinadia, Executive Director of ICMA, said.

As reported by petromindo.com earlier, the government will soon issue new shipping regulation which enables national shipping companies to charter foreign-flagged vessels for export-bound shipment.

However, ICMA insists that the international trade is based on the existing regulation, which is Ministry of Trade No 82/2017. ICMA reaffirmed that coal miners are basically supportive of the regulation as long as it does not cause export disruption and additional cost.

ICMA worries the regulation may also cause foreign buyers to look for alternative coal sources other than Indonesia amid current oversupply situation. ICMA suggested the government to review the implementation of the regulation.

“The implementation of the regulation may negatively impact our coal export competitiveness and investment climate,” ICMA said.

Coal and CPO exports are among the biggest contributors to state revenue amid the widening current account deficit (CAD). Meanwhile, coal exports are mainly contributed by ICMA members, which approximately account for about 60 percent of total coal exports.

Hendri Tan, Deputy Chairman for Marketing and Logistics of ICMA, said that most of coal export contracts with foreign buyers are based on Free-on-Board (FOB) scheme, which means that buyers have rights to choose their shipping and insurance services.

“The question is how our shipping regulation is going to be implemented to foreign companies. There are already some objections from foreign counterparts regarding this regulation,” Hendri said.

ICMA claimed that it has repeatedly communicated with the government regarding the potential coal export disruption and asked for immediate solutions. “We are, in fact, directly impacted by the regulation but we cannot do anything,” Hendri said.

ICMA stated that there are several objections from foreign counterparts to the government, including foreign shipping associations and coal-importing countries. “Japan has already voiced its concern and we believe there are many other countries that will share the same voice if they are aware of this regulation,” Hendra said.

Based on compiled data by ICMA from Ministry of Transportation, there were 7,645 coal export-bound shipments in 2018 but national shipping companies only had miniscule contribution to the total market share.

For longer term, ICMA suggested that national shipping companies should have more focus on domestic coal demand rather than competing with export market. “Based on our RUEN, domestic coal demand will increase and coal export will decline,” Hendra said, referring to the National Energy General Plan.

Editing by Reiner Simanjuntak