Fitch: Indonesia’s coal sector can benefit from clearer regulations

In a new report, “Indonesia: Coal Mining - Strong Medium-term Outlook; Clearer Regulations Highly Desirable,” Fitch Ratings says Indonesia’s coal mining sector can expect to see strong growth but can benefit from clearer and more predictable regulations.

“Fitch expects medium term demand supply dynamics for thermal coal to remain well balanced, leading to healthy prices and strong operational cash flows for Indonesian coal miners,” says Shahim Zubair, Associate Director in Fitch’s Asia-Pacific Energy & Utilities team. Low production costs are a major advantage for Indonesian coal producers.

The agency notes that the regulatory environment of the Indonesian coal industry is in a transitional state. Further clarity is required on certain major aspects, including the proposed ban on low-rank coal exports. If implemented, the ban can hit certain operators who have significant reserves in low-rank coal. Most of the large coal miners in Indonesia are export-oriented and their coal reserves are either below or marginally above this threshold.

“It is a tough act to balance the health of the industry against long-term domestic energy security of Indonesia” says Mr Zubair. “Fitch believes that Indonesia will take a pragmatic approach to industry regulations as failing to do so can have negative consequences for the sector in the long-run.”