Member Article

Under Law No. 4 of 2009 on Mineral and Coal Mining in conjunction with Government Regulation No. 23 of 2010 on Mineral and Coal Mining Business Activities, for the national interest, the Government can control the production and export of coal. In this regard, the Minister of Energy and Mineral Resources (“MEMR”) has authority to determine the annual production of coal in each province. In connection with this authority, the MEMR issued Regulation No. 34 of 2009 (“MEMR Regulation 34”) on 31 December 2009 under which coal mining entities, such as contractors under contracts of work, can only export their coal after the fulfillment of their domestic market obligations (“DMO”).

For the fulfillment of their DMO, coal mining entities can only sell their coal to certain purchasers, which include:
(i)    domestic end-users (a) that will use the coal as raw materials and/or fuel and (b) whose purchases are included in the domestic market needs as determined by the MEMR (and these end-users are prohibited from exporting the purchased coal);
(ii)     companies engaged in coal sale and purchase business activities holding a license to conduct mining activities (Ijin Usaha Pertambangan – “IUP”) related to a production operations license specifically for transportation and sale (sales to these companies may only take place from June to November of the current year based on sales contracts submitted to the MEMR together with their work and budget plans); and
(iii)     other parties but only if any of the domestic end-users referred to in item (i) fail to purchase coal under the relevant agreements and subject to prior approval from the MEMR.

To monitor the fulfillment of the DMO by coal mining entities, MEMR Regulation 34 provides certain periodical filing requirements to be observed by coal mining entities. Any failure to comply with the DMO and filing requirements will be subject to administrative sanctions in the form of up to three written warnings (each for a period of one month) and a reduction in coal production by up to 50% of total production for the following year. It remains unclear exactly how a reduction in coal production will be enforced by the authorities.

The minimum percentage of the DMO for 2010 was determined by the MEMR on 19 April 2010 under its Decree No. 1604 K/30/MEM/2010 of 2010 (“MEMR Decree 1604”) but this only applies to the 36 coal mining entities listed in Attachment II of the decree. Total coal demand for 2010 has been estimated at 64.96 million tons and the minimum percentage of the DMO which must collectively be met by these 36 coal mining entities is 24.75% of that demand. MEMR Decree 1604 also includes a list of the Indonesian coal users to which the coal constituting 24.75% of the DMO will be supplied, the respective coal volume and quality needed for 2010. However, MEMR Decree 1604 is silent as to which Indonesian coal users listed in the decree the 36 coal mining entities will need to supply their coal to.

By current unwritten policy of the MEMR, coal mining entities which are not included on the list of 36 entities may, however, still export coal. The MEMR is currently trying to compile data and information on the remaining coal mining entities (by, among other ways, coordinating with other Indonesian authorities to identify coal producers which export coal), so that they also will have to meet the minimum percentage of their DMO. It remains unclear whether the MEMR will amend the list of coal producers which are subject to the DMO before the end of 2010 or will issue a new list for 2011 instead.

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