The flip-flop on FDI policy coupled with potential restrictions banning export of low rank coal are impacting Indian investors in Indonesia’s mining sector.
In February 2012, Indonesia policy makers passed a law (PMA) that requires foreign companies to reduce stake-holding in mines to a maximum of 49 per cent over a span of 10 years.
While the implementing regulations are yet to be promulgated, speculation is rife that the country may ban export of low rank fuel – that forms bulk of the production profile.
Though the Indonesian government hasn’t confirmed the move as yet, investors feel the move is in tune with the rise of neo-nationalist forces in the country demanding preservation of the low cost fuel to promote local industrialisation.
It has already brought in a norm that forces miners to reserve at least one-fifth of production for domestic use at indexed (HBA) rates. This means nearly 70 million tonne of the 350 mt annual country production is out of bounds for exporters. Beginning middle of the last decade a number of Indian companies started acquiring mining interest in Indonesia – the single largest source for importing thermal coal to India.
While Tata and Adani were among the first movers, those followed next include Essar, GMR and others. The investment flow particularly increased once Indonesia resumed granting 100 per cent FDI in mining sector in 2009, after a gap of nearly five years.
Everyone started planning more investments in Indonesia’s coal mines. “We are looking for acquisition of more coal reserves in Indonesia,” Adani Group Chairman Gautam Adani had told Business Line in 2008. But life has changed since then. Gautam Adani now talks on his upcoming 60 million tonne Australian project, which is expected to be operational by 2015-end.
The group’s only existing overseas asset at Indonesia produces 4.5 mt of coal. While company officials claim that they are “ramping up” production in Indonesia, in reality, current production is either same or less than the April-May 2010 levels.