Industry expert warns of far-reaching impacts from 2026 coal output cap

By Cepi Setiadi

The government’s plan to cap coal production at below 700 million tons in 2026, as part of the approval of the Work Plan and Budget (RKAB), is set to have significant and wide-ranging consequences for the coal industry, according to an industry expert.

Ardhi Ishak, Chairman of the Industrial Relations Division at the Indonesian Mining Professionals Association (PERHAPI), cautioned that the proposed cap could lead to reduced production levels among mining permit holders (IUP), increased idle capacity for heavy equipment and barges, and a slowdown in the coal-related supply chain.

“Coal’s contribution to state revenue will inevitably decline, as will the income for coal-producing regions such as East Kalimantan, South Kalimantan, and South Sumatra,” Ardhi told Petromindo.com on Thursday.

He also highlighted that the Domestic Market Obligation (DMO) ratio, which currently stands at around 35%, would likely increase as domestic demand remains at approximately 250 million tons, while national output is capped below 700 million tons. This could push the DMO ratio higher, affecting supply dynamics.

“If the government moves forward with the Dimethyl Ether (DME) project, funded by Danantara, domestic coal demand will rise even further,” Ardhi added.

Read also: Indonesia plans to cut 2026 coal output target below 700 million tons

While the proposed cap poses challenges, Ardhi sees a potential upside in terms of market prices. “The production cap could help stabilize prices, though the increase will likely be modest, as global seaborne thermal coal prices are on a downward trend due to the ongoing global energy transition,” he said.

He further pointed out that many analysts predict a decline in global seaborne coal demand, from about 1 billion tons in 2024 to around 900 million tons in 2025-2026, with continued declines expected through 2050.

Ardhi stressed the importance of coal-related businesses developing medium- and long-term strategies to adapt to these changes, noting that many major players have already diversified their portfolios over the past five years.

“The real concern lies with the new miners who started operations in the last three years, spurred by the coal price surge in 2022–2023. They will face significant challenges unless they have secured captive markets for the next few years,” he said.

However, Ardhi emphasized that the cap does not signify the end of Indonesia's coal sector. “Coal will remain a key pillar of national energy security at least until 2050, as Indonesia still holds vast reserves, sufficient for more than a century of production,” he concluded.

Editing by Alexander Ginting