Improving Coal Governance

Indonesia is one of the largest coal producers in the world, with a total production of 616,16 million tons in 2019. Indonesian coal production trend over the last two decades has significantly increased, although Indonesia’s coal reserves total is ranked the ninth-largest in the world, namely only 2.2% from the world’s coal reserves. The significant increase in coal production is the cumulative impact of the mining permits “boom” since the early decentralization in Indonesia. Since then, coal production significantly keeps increasing. Around 70-80% was exported from the product total and made Indonesia the second-largest coal exporting country, with total exports reaching 454,4 million tons in 2019.

Coal is one of the primary sources of non-tax state revenue. In 2018, coal contributed to PNBP of Rp22,4 trillion, contributing around 1,2% of state revenue total. Not to mention state revenue from taxes, hefty enough contribution of coal companies cause coal to be exploited and exported on a large scale. Unfortunately, large-scale exploitation does not yet have good governance in the coal sector. There are many loopholes for the private sector to avoid paying taxes in the coal sector. Its estimated revenue from coal is not optimal and not comparable with the losses due to environmental damage, deforestation, and the loss of communities around the mine livelihoods.

In Indonesia’s energy mix policy, coal use is set at 30% in 2025, then decreases to 25% in 2050. Indonesia’s Government National Energy General Plan (RUEN) has determined the annual maximum coal production to support the energy mix policy. For example, in 2019, coal production should not exceed 400 million tons. Coal production control efforts are also contained in the 2015-2019 National Medium-Term Development Plan (RPJMN), which mandates a gradual coal production limitation to a maximum of 400 million tons per year in 2019, exports limitation, and coal utilization for domestic needs.

However, the lack of monitoring and evaluation causes many deviations in coal production control and trade control. First, the target of gradually decreasing coal production, which was targeted at 400 million tons in 2019, was not obeyed, even production realization up to 616,16 million tons. Second, there are inconsistencies in coal control policies, especially regarding coal production quota determination, that become the Central and Regional Government authority. Third, weak supervision and law enforcement. Fourth, the tug DMO policy and export control.

In the fiscal context, the coal sector has become one of the state revenue sources to help increase fiscal performance. Considering this, the coal export convenience option becomes more interesting than selling it to the domestic market, especially in Domestic Market Obligation (DMO) form. The last discourse is the DMO revocation and coal export optimization so that the coal mining sector can contribute significantly to state revenue. However, it should be noted that state revenue from coal has not been fully optimized, with many indications of poor governance and the potential for tax avoidance and evasion risks.

Based on this situation, efforts are needed to accelerate the energy transition in Indonesia, especially from coal to renewable energy sources in the national energy mix, which will not be achieved without strengthening efforts to control coal production and trade as well as improving coal industry governance, primarily related to state revenue and commodity trade aspects. Therefore, PWYP Indonesia will continue to advocate policies in the energy sector and development plan to control the coal exploitation rate and in the anti-corruption sector related to closing the potential of coal tax avoidance and evasion that harm the state. PWYP Indonesia also plays an essential key role in the policy-making process, especially in the National Medium-Term Development Plan in line with the national energy policy and its implementation and details at the regional level.

PWYP Indonesia will encourage strengthening monitoring of coal production control policies oriented towards national energy mix fulfillment; encourage transparency and accountability in coal production quota determination at national and regional levels. Such as the National Medium-Term Development Plan and Energy and Mineral Ministry Medium-Term Plan, monitoring RUEN implementation, especially in the coal sector; and analyze the Regional Energy Plan (RUED) in coal-producing provinces and their implementation. We also encourage transparency and accountability of coal DMO policies in Indonesia regarding company compliance. The final goal is to encourage clean energy transition through transparency and accountability of coal production management/trade at the national and regional levels.

In the anti-corruption context, PWYP will analyze general tax avoidance and evasion practices in the coal sector. PWYP Indonesia will follow up on research findings and recommendations related to illicit financial flow in the coal industry sector, conduct a risk mapping study of tax corruption in the coal sector, review tax court decisions, and promote tax decision transparency. Furthermore, develop policy recommendations for greater transparency and in the coal and mining sector, and monitor the implementation of Beneficial Ownership data disclosure in Indonesia. The final goal is to encourage the improvement of a transparent and accountable coal trade tax and fiscal system to give benefit the country.