Mandiri Sekuritas Coal sector: GoI may ban low-rank coal export in 2014

􀂄 Government of Indonesia (GoI) plans to ban exports of coal with caloric value less than 5,600kcal/kg (GAR) since 2014. The ban is aimed to help PLN secure coal supplies when the additional 10,000 MW of powerplants are completed in 2014.

􀂄 Mr Witarto Soelarno, the secretary to the director general of coal and minerals at the Ministry of Energy and Mineral Resources said that they will release the regulations later within this year. This regulation encourages coal producers to increase their CV by blending their coal. However, this is not valid for some coal producers that only have homogenous low rank coal reserve.

􀂄 This regulation seems inconsistent with the previous ministerial regulation on the Preferential Supply of Domestic Mineral and Coal Demand (“Permen No 34/2009), otherwise known as the domestic market obligation (DMO).

􀂄 We don’t think such regulation is effective to implement, since inline with future robust production growth, domestic market will be unable absorb all those production increase in our view. DMO regulation is more valid in our view.

􀂄 ADRO, BRAU and INDY (Kideco) are the most affected companies in the industry if such regulation applied due to its highest exposure to low rank coal output. While ITMG, BUMI, PTBA and HRUM have lower exposure due to its higher sold coal qualities.