Mining amendments a boon for Indonesia’s coal industry

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  • A deregulation bill currently working its way through Indonesia’s parliament could ring in “unbridled exploitation” of the country’s coal reserves, experts warn.
  • The bill offers a slate of incentives to coal miners and cuts various safeguards and oversight mechanisms, including taking away local governments’ authority to issue permits.
  • Observers question whether the government will be able to keep the industry in check under the proposed changes, given its failure to fully enforce environmental obligations under the current laws.
  • They also warn of the “destruction” of regions with previously unexploited coal reserves, including Papua.

JAKARTA — The coal industry in Indonesia, one of the world’s top exporters of the fossil fuel, has laid waste to large swaths of forest, polluted waterways, and disenfranchised local communities, observers say. Under a new deregulation bill being deliberated in parliament, things could get even worse, they warn.

The bill, one of two so-called omnibus bills containing more than 1,000 proposed amendments to at least 79 laws, calls for a loosening of several restrictions on mining companies to boost industry growth. This lifting of oversight shows the deregulation initiative is meant to maximize natural resource exploitation instead of ensuring sustainable extraction, said Satrio Swandiko, a climate and energy campaigner at Greenpeace Indonesia.

“The interests of the coal industry clearly play a huge role [in the bill] and have been accommodated by the government in the drafting of the bill,” he said.

Among the key changes: Coal miners will be exempt from having to rehabilitate their concessions, as that requirement only applies to mining companies whose permits have expired. Many companies already shirk this obligation to rehabilitate mining sites, and the change could make the problem worse, said Muhammad Iqbal Damanik, a researcher at the environmental NGO Auriga Nusantara.

“We’ve investigated some mining sites with abandoned pits and there are many concessions that are no longer active but still have coal deposits,” he said, adding some had been abandoned for up to 10 years.

“In the end, they avoid their responsibility to rehabilitate [the concession]. Imagine if this was to be legalized under the omnibus law,” Iqbal said.

The Cilacap coal power plant is located near a port for local fishermen. Image by Tommy Apriando/Mongabay-Indonesia.

More incentives, fewer restrictions

The bill also drops the threat of imprisonment and fines for officials who take bribes or commit other crimes in issuing mining permits.

It offers companies various incentives to invest in downstream facilities such as power plants and gasification plants, including royalty waivers and an exemption from having to prioritize supplying the domestic market, meaning they can focus on the more lucrative export market. At present, miners must pay up to 7% of their net profit in royalties and allocate 25% of their production for the domestic market, where the price is capped at $70 per ton.

The bill will also allow mining companies to renew their permits indefinitely if they also invest downstream. Currently they can only renew twice, for a maximum of 10 years each time. Under the proposed change, they will be able to continue mining until the coal deposits are exhausted. (Those without downstream investments will still see a doubling of their maximum permit validity to 40 years.)

Another proposed change is for companies to be able to automatically renew their permits without first having to offer the concessions to state-owned companies, as is the case now.

Observers say this change will benefit several major private companies whose contracts are set to expire soon. They include PT Arutmin Indonesia (whose permit expires this year), PT Kaltim Prima Coal (2021), PT Multi Harapan Utama (2022), PT Adaro Indonesia (2022), PT Kideco Jaya Agung (2023), and PT Berau Coal (2025).

“If this omnibus bill is passed, then there are eight contract holders who will automatically be granted special mining permits without having to undergo an assessment of whether or not they have reclaimed [the mining pits in their concessions],” Iqbal said.

A black liquid effluent from the Sepang Bay coal plant’s treatment facility, believed to be toxic. Image by Yozi/Mongabay Indonesia.

‘Unbridled exploitation’

Irwandy Arif, the chairman of the Indonesian Mining Institute (IMI) and an adviser to the minister of mines, denied that the omnibus bill gave mining companies hefty privileges with respect to their permits. He said there would still be requirements for the companies to meet to ensure their permits were renewed.

“There are some requirements, such as good mining practices, paying taxes, protecting the environment,” Irwandy said. “So don’t worry. Once they can’t fulfill their responsibilities well, their permits can’t be extended.”

Iqbal said he was skeptical the government would be able to ensure all permit holders met those requirements, given that it can’t even compel them to meet their existing obligation to rehabilitate their degraded concessions.

He said that with the offer of incentives and the withdrawal of safeguards, the omnibus bill threatened to open up new coal mining frontiers in currently unexploited parts of the country.

“This bill gives incentives for unbridled exploitation because there’s no limitation and there’s no notion that if I, as a coal miner, want to exploit as much as possible, then I also have big responsibilities to protect the environment,” Iqbal said.

He cited the case of Papua, the easternmost and least-developed region of Indonesia, where 98 mining permits were issued. Sixty of them were terminated for various reasons, but could conceivably “be activated again if the omnibus bill is passed,” Iqbal said.

“Even though these permits have been terminated, the concessions are still located inside designated mining areas, which means they could be auctioned off again,” he said.

“If benefits are given to companies without taking into account the environmental impact, as in the omnibus bill, then we can only imagine the destruction that will happen in Papua.”

Protesters show a sign saying “The People Are Showered with Coal Ashes.” Image by L. Darmawan/Mongabay-Indonesia.

Cutting out local authorities

The omnibus bill seeks to loosen coal mining regulations principally by taking away local governments’ authority to issue permits and handing that power back to the central government — a reversal of the decentralization wave that started in 1999 to devolve power to local authorities from Indonesia’s pre-1998 dictatorship.

That raises the question of just how effectively officials in Jakarta will be able to monitor an industry spread throughout the country, said Maryati Abdullah, the national coordinator of watchdog Publish What You Pay (PWYP) Indonesia. According to data by the Ministry of Environment and Forestry, there are 8,663 unlicensed mines in 352 locations in Indonesia, a quarter of them gold mines.

“Illegal mining could flourish because the distance between the central government and regions is very far,” Maryati said. “Will it be possible for the central government with its human resources to monitor mines down to the village level?”

Local governments won’t step in either because their powers will be curtailed, she added.

“There won’t be a sense of ownership or a sense of belonging [among local governments],” Maryati said. “Regional administrations will not care to protect the environment because economically there’s no incentive to them, and they won’t have the authority either.”

Among the local officials who currently oversee the mining industry is Deri Deriawan, the chief geologist for the mining department in Banten province, on the outskirts of Jakarta. He questioned the readiness of the central government to take over all of local departments’ roles in managing and monitoring mining companies.

In the case of Banten, he said, there are more than 200 mining companies, but only two officers monitoring the companies for the provincial mining department. Ideally there should be one inspector for every five companies, Deri said.

“When the authority to monitor and manage permits was moved from the district level to the provincial level under the 2014 law on regional administration, we were overwhelmed,” he said. “If the authority is moved to the central government, will the human resources be ready? Facilities, methods, institutions?”

In addition to cutting out local departments like Deri’s, the omnibus bill would leave parliament out of the process of designating which areas are permitted for mining. The government currently has to seek parliamentary input when zoning areas for mining.

“I think this is dangerous because the checks and balances will be poor if there’s no more consultation with parliament,” Maryati said.

Deri said the boom in coal mining that the bill encourages could lead to various environmental problems, and called for careful planning by the central government to minimize the impact.

“That’s why [we] need to be ready,” he said. “Local people have a connection with the natural resources in their regions. So if these resources are explored and exploited, it’s only normal that they would also be affected.”

The water around heaps of coal destined for the Pangkalan Susu power plant has turned black. Image by Ayat S Karokaro / Mongabay-Indonesia.

Overlapping legislation

Most of the changes in the omnibus bill are already proposed in another piece of legislation making its way through parliament: the bill of amendments to the 2009 mining law. Having failed to pass that bill last year at the end of the previous lawmaking period, the new batch of legislators is reportedly working nights on end to pass it this year.

The wide overlap in business-friendly changes proposed by both the omnibus and mining bills indicates that both were drafted to cater to industry, said Bisman Bakhtiar, the executive director of the Center for Energy and Mining Law (PUSHEP).

“Almost all of the content of the omnibus bill is the same as the mining bill,” he said. “In reality, if the material is already included in the mining bill, there’s no need to include it again in the omnibus bill.”

The government has already asked for deliberations of all bills on issues covered by the omnibus bill to be paused to prioritize the latter. But parliament has continued to discuss the mining bill at record pace, with an eye to passing it by August. At the same time, the government is targeting passage of the omnibus bill as soon as May. Irwandy, the Indonesian Mining Institute chairman, said the provisions in the omnibus bill were still subject to revision.

 

Banner image: A dead pufferfish amidst coal spill on a beach in Indonesia’s Aceh northern coast. Image by Junaidi Hanafiah/Mongabay-Indonesia.

 

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This story first appeared on Mongabay

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