26/05/26
Indonesia’s coal policy shifts test investor confidence
Singapore, 26 May (Argus) — Indonesia's plan to route coal exports through a new
state entity is rattling traders and mining firms, raising concerns that a
policy aimed at curbing revenue leakage could disrupt the world's largest
seaborne coal market. Indonesian president Prabowo Subianto's plan to channel
coal and two other commodity exports through Danantara Sumber Daya Indonesia
(DSI) was announced on 20 May, and it lacks sufficient regulatory, technical or
operational clarity or stakeholder consultations, market participants said. The
move is the latest in a series of policy shifts designed to tighten government
control over the coal sector and boost revenues — changes that are steadily
eroding investor confidence. The government's 2025 decision to revert to annual
RKAB mining quota approvals, scrapping the three-year system introduced in 2023,
had already upended investment planning. "Whatever plans they had made on the
basis of the three-year RKAB are of no use now," a Jakarta-based trader told
Argus . Cuts to production quotas and delays in approvals have forced some mines
to halt operations, with vessels in some cases waiting at ports for up to a
month without cargo, an Indonesian producer said. The proposed DSI framework
adds another layer of uncertainty. "All calculations, projections and forecasts
will change significantly," the producer said, adding that risks now extend
beyond price volatility to unresolved legal and compliance questions. A trader
familiar with a Middle Eastern investment in Indonesia said frequent policy
changes weighed on its investments, with the mining and trading group exploring
ways to recover the exposure. An offtaker — a trader that finances mines in
exchange for guaranteed supply — said a single-window export system may work for
homogenous commodities, but coal's variability makes centralisation difficult.
"There is a difference even between seams of the same mine," the trader said,
noting his firm has suspended mine financing for six months because of RKAB
delays and policy uncertainty. A second offtaker echoed this view, adding that
coal's commercial complexity makes centralised sales — a core part of the DSI
plan — impractical. Even within the same nominal grade, differences in
specifications and end-use markets drive pricing. An India-based trader said the
erosion of investor confidence has been gradual, driven by successive policy
changes spanning HBA-linked pricing, domestic market obligation (DMO) rules,
sale proceed repatriation requirements and the 2022 export ban. Chinese
investment, largely focused on equipment supply and downstream processing, could
also be indirectly affected. One large Chinese group with Indonesian coal assets
said recent clarification from Indonesia suggest full implementation of DSI may
be deferred to January 2027 and expressed doubts whether the policy will proceed
in its current form. Operational hurdles loom Indonesia exports about 500mn t/yr
of coal. Revised RKAB quotas may reduce output by approximately 100mn t this
year, but volumes remain substantial, making centralised trading operationally
challenging, market participants said. "Even established trading houses struggle
to manage 40mn–50mn t/yr," the Jakarta-based trader said. Handling Indonesia's
full export volume could require as many as 900–1,000 specialists across coal
grades and destination markets, and getting skilled and experienced headcount
will be a challenge for the DSI. Coal trading also involves multiple technical
and commercial variables — calorific value, ash, moisture and sulphur content,
blending requirements, freight logistics and payment terms — all of which
require specialised expertise. Market concerns span mine planning, barge
loading, trans-shipment logistics and dispute resolution. "Will a counterparty
dare to take a monopoly, sovereign entity to court or arbitration?" the trader
asked. The Indonesian Coal Mining Association (APBI) has warned that the absence
of technical clarity on how existing contracts will transition could jeopardise
long-term agreements, particularly multi-year offtake deals. Policy rollout
Under current plans, exporters can continue normal operations from 1 June but
must begin reporting transactions electronically to DSI, including
documentation, financial details and counterparty information. An evaluation
phase or the second phase will precede full implementation on 1 January 2027,
when DSI is expected to assume the role of exporter of record across contracts,
customs clearance and payments, according to a 26 May briefing. Traders said the
interim phase already appears difficult to implement, raising concerns about the
future of hundreds of intermediaries active in the supply chain. But Indonesian
authorities think that the appointment of Luke Thomas Mahony, a former director
of Vale Indonesia, as DSI president director may support the execution, given
his commodity trading experience. Some participants expect the policy could
ultimately be diluted, with DSI functioning more as a pricing or monitoring
authority rather than a fully centralised seller. Precedents such as the East
Kalimantan government's logistics systems — covering stevedoring and floating
cranes — faced initial resistance from the industry but proved workable over
time. Others say Jakarta's primary objective is to ensure export proceeds are
retained domestically, with stricter transaction monitoring through DSI helping
address this. Prabowo has cited an estimated $908bn in lost revenue over the
past 34 years from under-invoicing, transfer pricing and weak oversight. The
policy move comes at a delicate time for the country. Indonesia's currency has
been among Asia's weakest performers in recent months, while the Jakarta
Composite Index is down about 30pc since the start of the year . The government
is seeking to strengthen public finances against an uncertain global backdrop,
with geopolitical tensions adding to macroeconomic risks. Ratings agencies Fitch
and Moody's also downgraded Indonesia's outlook earlier this year. By Saurabh
Chaturvedi Send comments and request more information at feedback@argusmedia.com
Copyright © 2026. Argus Media group . All rights reserved.
