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Indonesia to review mining licences, push consolidation in coal

[NUSA DUA, Indonesia] Indonesia will push for consolidation in its mining sector while coal prices are low and may soon revoke more than 4,000 licences that have caused problems in the coal and minerals sectors, its mining and energy minister said on Monday.

Indonesia ships about US$2 billion of coal a month, making it the world's top exporter of the power station fuel, but it wants to keep more of the fuel to feed ballooning domestic power demand and also wants more revenue from the mining sector.

"At the end of the day it's about equilibrium," Sudirman Said told a coal conference in Bali, noting Indonesia had issued around 10,100 of the newer mining licences known as IUPs, but only around 6,000 of these had been certified as complying with government rules.

"We enjoyed huge profits that were abnormal. Abnormal money drives abnormal behaviour," Mr Said said, referring to a jump in the number of problematic licences during the commodity boom.

According to the energy ministry, there are 960 coal firms at production stage. Around 900 of these are IUP permit holders that contribute about 80 million tonnes, around 20 per cent of total output.

"This month we will decide whether their permits will be revoked," Coal Enterprise Director Adhi Wibowo said, referring to the 40 per cent of IUPs with problems such as overlapping permits and unpaid royalties.

The ministry plans to hand over licensing to the investment coordinating board (BKPM) this year, he said.

The review will only apply to the IUPs. Larger, older-generation firms with so-called Contracts of Work such as Bumi Resources and Berau Coal Energy will be unaffected.

"This is the perfect time to consolidate," Mr Said said, referring to depressed coal prices. "We will create opportunities for players who are serious, who want to invest and who always comply with government rules."

The Asian benchmark Newcastle coal index was at $60.32 a tonne for the week ended June 5, down 10 per cent this year and less than half of the post-2008 recession peak of $136.30 in January 2011.

Indonesia will probably exempt low-grade coal from a planned increase in royalties paid by coal miners, Said said.

The government plans to build 70 gigawatts of new power stations by 2025, although critics say this target is unlikely to be met.

"Going up to 35 gigawatts is quite daunting," said Roleva Energy coal industry analyst Bart Lucarelli.

"What hasn't changed is the unrealistic schedule," he added, referring to previous programmes to build power plants that faced long delays or never materialised.

The plans could increase coal consumption from around 90 million tonnes a year at present to 250 million tonnes, Said said, and they may include pushing coal miners to build power stations.

"(We) will reach a new balance. The domestic market will be strong while the rest we can play with on the export market, but that won't be the dominant market."