India set to be top Indonesia coal importer

India will surpass Japan to become the leading buyer of Indonesian coal this year, taking as much as 60 million tonne to help meet India's burgeoning power demand, the Indonesian Coal Mining Association said on Monday.

India will import 5 million tonne more coal from Indonesia, the world's largest exporter of thermal coal, in 2011 compared to last year, with the total set to jump to 90 million tonne by 2013, Bob Kamandanu, chairman of the association told Reuters.

"In the past, Japan has traditionally been the leader of importing Indonesian coal, but now India is surpassing it," Kamandanu said on the sidelines of the Coaltrans Asia conference. "In terms of tonnage, India is moving towards 50-60 million tonnes... very strong.

"There is a lot of new IPPs (independent power producers) on board," he added. "It could go up to 90 million tonne (in 2013) for India."

Electricity demand in India, Asia's third-largest economy, is expected to rise 56% to 1,400 billion kwh by the fiscal year ending in March 2017.

Kamandanu added that India has been able to access such large amounts of Indonesian coal through long-lasting relationships with existing Indonesian producers, which are ramping up output.

"Of course also from the acquisition of the assets," he said. "A lot of Indian investors (are) acquiring the assets."

For example, Coal India, the world's top coal miner, is in advanced talks to buy up to 40% of Indonesian low-grade coal producer Golden Energy Mines for up to USD 1 billion, three sources with direct knowledge of the deal said.

Most Indonesian coal is mined in East Kalimantan, Central Kalimantan, South Kalimantan and South Sumatra.

Although Indonesia's coal is largely sub-bituminous material with a lower heating value compared with standard Australian grades, Chinese and Indian utilities have been snapping up more and more of its exports to help sate booming domestic demand.

Kamandanu said that Japan, which suffered a devastating earthquake and tsunami in March this year, would import around 57 million to 58 million tonne of Indonesian coal this year, down from previous year's highs of around 65 million tonne and unchanged from 2010.

On the earthquake and resulting power crisis, Kamandanu said: "There is going to be an impact, however Japan always takes high-quality coal mainly from Australia... They should start looking at lower quality, if they want to secure the supply of coal."

Output steadily rising

Indonesia will produce 340 million tonne this year, compared with 320 million tonne in 2010, Kamandanu said.

"All the big guys are increasing their numbers," he said of Indonesian coal producers.

In an effort to support the domestic industry and add value to its coal exports, the Indonesian energy and minerals ministry has been drafting a regulation that would by 2014 require coal producers to upgrade low-quality coal to a medium-quality coal before exporting.

"If there is a regulation saying you cannot export it before being processed, it's a bit mistaken," said Kamandanu. "We don't mind having that kind of regulation, but then we have to have proven technology."

Another challenge for Indonesian miners, is the freshly signed two-year moratorium on new permits to clear primary forests.

The moratorium ordered a freeze on new permits to log or convert primary forests and peatlands - worrying palm oil, timber and mining firms in Southeast Asia's biggest economy - but not going far enough for environmentalists.

"We're still waiting for the final map and which locations are allowed and not allowed," Kamandanu said. "We're still waiting for the definitive map."

"In terms of the idea, I'm not for it, I'm against it," he added. "The emissions of Co2, in Indonesia is well below the developed countries... Indonesia's income is mainly based on the natural resources."