Indonesian coal sector needs more regulation

Published by MAC on 2014-10-19
Source: Asia Foundation, Mongabay News

Indonesian Lawsuit Pushes Local Government to Regulate Massive Coal Mining Industry

By Tessa Toumbourou

Asia Foundation 

15 October 2014

In last week’s In Asia, I examined the growing environmental and social costs that the coal mining industry is having on Indonesia’s East Kalimantan province, home to 28 percent of Indonesia’s total coal reserves. Already, 6.6 million hectares have been allocated for mining across the province, and in the provincial capital, Samarinda, where mining expansion is most pronounced, the local administration has allocated more than 70 percent of the municipalities’ land for mining. As plans for expansion continue and attempts by civil society organizations and communities to halt expansion have had little effect, one citizen coalition decided to take the issue to court.

In 2012, a group of NGOs, academics, and local residents – including farmers and indigenous people’s representatives – came together to form the citizen coalition, Samarinda Lawsuit Movement (Gerakan Samarinda Menggugat, GSM), to take the relevant local, regional, and national government bodies to court for negligence and for violating existing environmental laws.

After submitting the case to the Samarinda High Court on June 25, 2013, a year-long trial began. The GSM brought together 19 plaintiffs impacted by coal mining, including rice farmers and fishermen who claimed that their water sources had diminished and that the increasingly scarce water supplies are now polluted with dust particles released from mining and contaminated with increased acidity levels. They also argued that impacts from mining had diminished soil fertility and contributed to a reduction in produce yield. Other plaintiffs included university students, academics, religious leaders, and private sector workers who had been hindered from accessing their places of work and study due to landslides and flooding that directly followed mining expansion in Samarinda. The constant noise and coal dust from mining operations posed health risks, and the unprotected mine holes were identified as dangerous safety risks. (Read more about these risks in the post below.)

The GSM plaintiffs submitted charges against the East Kalimantan government, the Samarinda municipal government and mayor, the national government’s Ministry of Energy and Mineral Resources and Ministry of Environment, and the East Kalimantan provincial parliament. The plaintiffs submitted 14 demands, including that the government review all mining licenses that have been given out; cancel mining permits that are found to violate legal regulations; enact regulations to obligate reclamation and post mining clean-up; protect farming and fishing areas from the impacts of mining; protect child safety in mining operations; provide healthcare and medicines for residents with health ailments related to mining; and install clean water facilities in every village that is near a coal mining concession.

The GSM used 38 different pieces of evidence to support their case. To build their case, the Mining Advocacy Network (JATAM) of East Kalimantan – supported by The Asia Foundation – leveraged the Freedom of Information Act to request the Environmental Impact Assessments (EIA) from 63 coal companies with permits to operate in the city of Samarinda. When no response was received, JATAM pursued the case through the local Administrative Court, which ruled in JATAM’s favor – that the government had to comply with the information request. JATAM is now working together with the law faculty at the University of Mulawarman to analyze the EIA documents from the Environmental Agency to assess legal compliance. These documents were used as evidence in the GSM case, including clarifying where environmental and safety measures should have been in place to mitigate impacts from mining activities.

After a series of 26 court sessions, on July 16, 2014, the judges announced their decision, ruling in favor of GSM’s charges that the government had been negligent in fulfilling their obligations under the 2009 Environmental Law, which states that: “Everyone shall be entitled to a proper and healthy environment as part of their human right,” and that by not fulfilling this requirement, the local government had consequently detrimentally impacted the people of Samarinda. The court also ruled that the government must revise public policies about coal mining including: evaluating all coal mining permits that have been allocated, monitoring reclamation and post mining efforts, making environmental improvements, and strengthening strategic efforts to protect community farming and fishing areas from contamination from coal mining activities. The court also ruled that the government had not managed mining permits appropriately.

Supporters of the case were jubilant as news of the decision made its way outside of the courthouse. “This is a win for all the residents of Samarinda who are tired of flooding and coal dust, and for the people who have drowned in mining holes,” said Merah Johansyah with JATAM East Kalimantan.

Since the July court announcement, the government defendants have lodged an appeal with the High Court of East Kalimantan. The GSM is now working on strengthening their evidence. Many are optimistic that the evidence is strong enough that the decision is unlikely to be overturned. Regardless of how the appeal goes, the case sets a legal precedent for other district governments in Indonesia to change the direction of negative impacts to their environment and communities.

Tessa Toumbourou is a researcher for SETAPAK, The Asia Foundation’s environmental governance program in Indonesia. She can be reached at tessa.toumbourou[at]asiafoundation.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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Indonesia Now World’s Largest Exporter of Coal for Power Stations, But There Are Costs

By Tessa Toumbourou

Asian Foundation

8 October 2014

This post is part of a two-part series.

Flying over Indonesia’s East Kalimantan, the closer we get to the provincial capital of Samarinda, the more bare patches emerge in the island’s lush forest cover. Exposed brown areas dotted with lurid green tailing ponds are telltale signs of the open pit coal mining voraciously consuming Kalimantan’s remaining forests.

Coal mining is booming in East Kalimantan, home to 28 percent of Indonesia’s total coal reserves. Already, 6.6 million hectares – an area the size of Switzerland – have been allocated for mining across the province. This mining expansion is most pronounced in Samarinda, where the local administration has allocated more than 70 percent of the municipalities’ land for mining.

Giant barges filled with coal travel daily down the Mahakam river en route to Samarinda port where they are unloaded onto ships headed for Surabaya, Indonesia’s second-largest city, across the Java Sea, and further afield to China, India, South Korea, Japan, and Taiwan. Indonesia is now the world’s largest exporter of coal for power stations; currently only around 12 percent of Indonesia’s coal is used domestically.

However, this is set to change to meet increasing domestic energy demands – in the past decade, Indonesia’s coal consumption has tripled and two additional large coal fired power plants are in the pipeline. The environmental impact of coal mining is two-fold: coal mining releases harmful emissions when forests are cleared for open pit mining, and again when it is burned to produce energy. By increasing coal dependency to meet its growing energy needs, Indonesia’s emissions from the power sector are on track to exceed emissions mitigated through initiatives to reduce deforestation.

Poor governance, control of resources by powerful elites, a permit process that doesn’t adequately consider the environmental or social impacts of mining, and lack of monitoring, oversight, and clear requirements for post-mining clean-up has allowed coal mining to operate largely unchecked with a high environmental, social, and economic cost to local communities. Samarinda’s revenue from mining from 2006 to 2010 was only 6.3 percent of the municipalities’ GDP, while only 6.8 percent of the population is employed in mining. NGOs are increasingly concerned that the costs, both direct and indirect, outweigh the benefits from mining.

The local government has allocated few resources for overseeing and managing mining operations and post mining clean up. Samarinda has only five government mining inspectors responsible for managing 58 mining business licenses (IUP) and the five coal mining work contract permits in operation. Meanwhile, there are more than 100 abandoned sites where mining has finished, but clean-up to meet basic requirements for reclamation, such as filling in empty pits and replacing topsoil, has not taken place. As an area prone to flooding, the empty pits frequently fill with water: from 2011 to 2014, 11 people, including eight children, have drowned in these pits left by mining companies.

On one of my recent trips to Samarinda, I spoke with Simon Devung, an academic at the Centre for Social Forestry, over the throb of a diesel generator used during one of the frequent power outages. Devung laments the electricity outages in the country’s coal mining capital. “It’s unfortunate that here we have power shortages while we ship coal to Surabaya to supply Java and Bali with energy,” he said.

Not long ago things were different. Devung, who has lived in Samarinda his whole life, remembers when Samarinda’s now murky, brown Mahakam river ran so clear that you could see to the bottom for several meters.

Within the municipality of Samarinda, Makroman village once served as the province’s rice belt and largest producer of forest fruits such as rambutan and durian. This changed in 2007 when the first mining company began coal excavation there. Since then, coal mining has quickly expanded to become a 24-hour operation, dominated by two mining companies with business permits for a total of 1,377 hectares of land. According to reports from local farmers, acids and sulphates from mining are leeching into rivers, contaminating local water catchment areas, fish ponds, and wet rice fields, leading to dramatic reductions in yields, and threatening local food sources.

Siti Maimunah, advisor to the Mining Advocacy Network (JATAM) who is conducting research* on the impacts of mining in Makroman, says that mining has increased land prices up to 10-fold in Makroman. This, combined with a diminishing quality of soil and water, is making farming a far less feasible source of livelihood.

JATAM’s research found that flooding as a result of forest loss in key water catchment areas and swamplands – altering natural drainage function these areas provided – is becoming a more frequent reality for Samarinda residents. Major flooding in 2008-2009 resulted in $9 million in damage to the economy, transportation, employment, and livelihoods, according to a 2012 WWF study. Due to unchecked permit allocations and inadequate spatial planning, only one percent of Samarinda’s total area has been left as forests for water catchments, far short of the 27 percent of urban forests for water catchment the city needs to mitigate flooding. The WWF report estimates that income from coal mining constitutes only 4 percent of the town’s total regional revenue, or $37,000, out of a total $12.4 million. Carolus Tuah, director of an East Kalimantan activist organization Pokja 30, told Mongabay.co.id M that the cost of controlling floods in Samarinda between 2008-2010 reached $9.1 million, a large portion of the costs coming from the province.

For nearly a decade, East Kalimantan NGOs and local communities have pushed through advocacy, lobbying, and protesting to slow the rate of mining expansion and push for more sustainable practices. However, the surging tide of mining expansion continues, and mining practices have made little improvement. In 2012, a citizen coalition, called the Samarinda Lawsuit Movement (Gerakan Samarinda Menggugat, GSM), decided to take the issue to the court. “A law suit was our last hope for change,” said Ocha, an activist with the East Kalimantan branch of JATAM, which has taken a lead role in supporting the GSM.

In the upcoming follow-up post, I will write about how the GSM’s two-year battle to improve mining practices became the first-ever successful environmental civil lawsuit in Indonesia.

*Siti Maimunah’s research project on the impacts of mining in Makroman is made possible through an Asia Foundation-funded research fellowship program in partnership with the Sajogyo Institute.

Tessa Toumbourou is a researcher for SETAPAK, The Asia Foundation’s environmental governance program in Indonesia. She can be reached at tessa.toumbourou[at]asiafoundation.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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Indonesia’s Choice: Coal vs. Environment

By David Fogarty

Mongabay News

17 October 2014

Indonesia cannot build power stations fast enough. And neither can most of its Asian neighbors. Rapid economic and population growth are driving equally rapid demands for electricity as the region builds out power grids to connect up millions of people to fuel prosperity.

Electricity generation is forecast to nearly triple in Southeast Asia between 2011 and 2035, the International Energy Agency says, with fossil fuels providing most of the energy.

With a population of 600 million, nearly twice that of the United States, and about 130 million people without electricity, Southeast Asia faces an immense challenge to meet that demand in a cost-efficient manner that doesn’t cause serious air and water pollution and drive up health costs.

For Indonesia, the Asia energy story is a blessing worth untold riches in terms of royalties, money it needs to develop its economy and provide jobs. The IEA says demand for coal in Southeast Asia will rise 4.8 percent per year, with Indonesia in the geographic sweet spot to be the region’s main supplier.

In the wider Asia-Pacific, demand for coal will increase by 52.8 percent from 2010 to 2035, according to the Asian Development Bank.

With about 30 billion metric tons of coal reserves, according to the Ministry of Energy and Mineral Resources, Indonesia has decades’ worth of supply to fuel its economic expansion and that of its neighbors – provided it limits production growth.

“Coal is still going to be the most significant fuel in the energy mix for the foreseeable future,” said Sacha Winzenried, a senior adviser on mining for PwC, the global business services firm, referring to Indonesia. While Indonesia has large amounts of gas, it doesn’t have a national pipeline network, he said, and it will be hard for renewables, such as geothermal, to dramatically ramp up capacity fast enough because of high capital costs.

It is here that Indonesia faces its trickiest energy balancing act: how to ensure enough coal supplies to meet soaring domestic energy demands, while also meeting the growing needs of its neighbors and facilitating growth expectations of domestic coal producers.

Environmentalists and climate scientists also point to damage from coal mining and growing carbon dioxide (CO2) emissions that will undermine the drive to limit global warming. As a result of efforts to do so, major developing countries are under increasing pressure to limit emissions growth.

More coal mining will mean more deforestation, since most Indonesian coal extraction is done through open pit mining. This involves clearing forest or farmland, removing the top soil and then progressively digging out the coal seams, which can be a few metres to tens of metres from the surface. Once the coal is extracted, the top soil is backfilled into the hole and a new pit is dug.

Increased mining will also result in more water pollution and health risks for local communities, NGOs say. They point to myriad environmental and health problems caused by the industry to date because of poor oversight and corruption. Common examples of graft involve district chiefs offering mining permits in return for bribes and police and mining department officials ignoring threats and intimidation of villagers by mining firms seeking to acquire land.

Power ro the People

For Indonesia, though, there is little choice, the government says. In the world’s fourth most populous nation with 250 million people, 60 million of whom do not have access to electricity. The nation has 54.5 gigawatts (GW) of installed capacity, about the same as neighboring Australia, a country with a tenth of Indonesia’s population.

Electricity demand growth in Indonesia is increasing 9.4 percent a year, according to state utility Perusahaan Listrik Negara (PLN). Abundant coal is the quickest way to connect millions of people to electricity and drive economic growth, the government says.

The central government is trying to address environmental issues, with mixed results. For now, its primary focus is energy security, particularly as production at its existing oil fields declines, leading to more oil and fuel imports.

It is also trying to clamp down on illegal mining and halt illegal exports estimated by the government at a minimum of 50 million to 60 million metric tons per year—an embarrassing loss that is costing hundreds of millions of dollars in royalties.

The Ministry of Energy and Mineral Resources wants to cap coal production at around 450 million metric tons year, said Bambang Tjahjono, the director of coal business supervision at the ministry’s Directorate-General of Mineral and Coal.

Indonesia officially produced 421 million metric tons of coal last year, about 350 million of which was exported. Over the past decade, total output tripled, data from the ministry shows. That level of growth has to stop, said Tjahjono in an interview at his office in Jakarta.

“For Indonesia, we expect coal production, for the next five to 10 years, is still the same. We assume in 2015 we will have flat production, so zero growth. We plan to have 449 million tonnes for the next five years and the next 10 years,” he said.

“Coal utilization in Indonesia will increase. Maybe four percent [per year]. So the exports will be the same or decreasing, but the domestic consumption will increase. That’s the prediction,” he said. He added the ministry was working on a regulation that would enshrine the cap and he hoped it would be approved later this year.

Tjahjono said the cap would be enforced. The government already approves the annual production plans for all major coal miners in Indonesia and can cap or even trim these if the mines exceed approved production plans.

“Very clearly in the approval for the production plans for 2014, the government has been quite strict on maintaining a very minimal increase on 2013,” said Winzenried. “And in 2013, some large coal companies that had exceeded their targets, did get some reduction on the 2014 target.”

Winzenried said the current low global coal prices also discouraged allowing higher production, because coal royalties were based on total sales. “It’s no longer production at all costs,” he said.

Tjahjono expects production this year to be 407 million metric tons, in part because of low prices, but also because of new trade rules aimed at stopping illegal exports. Lower demand from China is also curbing some sales.

Test of Resolve

Already there are signs the global coal market is picking up and this will likely challenge the government’s resolve to cap production, given coal royalties are worth billions of dollars every year.

State utility PLN says Indonesia must ensure domestic coal supplies and also supports curbs on export growth. It forecasts Indonesia’s coal demand for power generation will grow from 73 million metric tons in 2014 to 151 million in 2022, as coal’s share in the total fuel mix rises from 53 percent to 66 percent. The IEA forecasts Indonesia’s electricity demand will triple between 2011 and 2035 and will need to add 100 GW.

The government has also recently changed its mining laws that require value-added processing to minerals before export. This will mean mining firms will have to build energy-hungry smelters, another source of coal demand.

Capping coal production will also upset coal miners, some of which have ambitious production and investment plans.

PT Adaro, one of Indonesia’s largest and most profitable coal mining corporations, expects to produce between 54 and 56 million metric tons this year, up from 52.3 million in 2013, and has a medium-term forecast of 80 million metric tons.

The company, in an investor presentation in September this year, said it saw immense opportunities in exporting to the rest of Southeast Asia. It expects coal consumption in the region to rise from 214 million metric tons in 2013 to 600 million in 2030. Nearly half that demand would come from Indonesia.

It also expected demand from China to wane, while Indian demand would grow over the coming decade. China is looking to impose a national cap on coal consumption and ban the import of low-quality coal under a draft pollution law released recently. On October 9, China announced it would impose tariffs on minerals, including coal, from Oct 15, though Indonesian coal is exempt because of a regional trade agreement.

“Coal demand in China might slow at some point in the next decade. However, that is the time when India’s energy requirements will peak, compensating any potential downfall,” the company says in the presentation.

Adaro expects that out of the expected total growth of 250 GW in new power generation capacity by 2030 in India, around 160 GW will come from coal. However, it is unclear how a decision late in September by India’s Supreme Court to cancel 214 coal permit allocations will affect power station investment plans. Rapid investment in solar could also weaken demand for coal in India.

Another Indonesian coal miner, PT Bukit Asam, is even more bullish. In a June 2014 conference presentation, it cited research by market analysts Wood Mackenzie, which forecast Indonesian coal production would reach one billion metric tons by 2035, with domestic coal consumption about 350 million. That level of production, though, would rapidly eat away at Indonesia’s coal reserves, currently estimated at about 3 percent of the world’s total.

For the moment, Indonesia’s largest overseas customers are India, China, South Korea, Japan and Taiwan, but demand from Southeast Asia is expected to pick up quickly.

Adaro and global miner BHP Billiton are investing in what could become one of Indonesia’s largest coal mines. The IndoMet mine complex on Borneo covers about 350,000 hectares across seven coal mining concessions in Central and East Kalimantan provinces. It is estimated to have 1.27 billion metric tons of coal resources, mainly coking coal used to make steel.

The environmental group Indonesian Forum for the Environment (or Walhi) says the mining would occur in a heavily forested area where smaller mining operations have already polluted local rivers.

They fear such a large mine could be the trigger for a $2.3 billion coal railway in the province, which in turn could prompt other mines to be developed. Coal produced in the north of Central Kalimantan is currently shipped hundreds of kilometers down-river by barge, a costly and time-consuming process.

Australian mining company Cokal, in a June announcement to the Australian Stock Exchange, said it had received in-principle approval from the ministry of forestry to proceed with its plan to develop part of its majority-owned Bumi Barito Mineral Coal Project covering nearly 15,000 hectares. The BBM project is next to one of IndoMet mine’s concessions. The company hopes to eventually produce six million metric tons of coking coal per year.

The central government and the Central Kalimantan authorities have accepted a Chinese-led consortium’s bid to build the 425-kilometre (266-mile) rail project, but have yet to grant final approval. The railway would start in the north of the province at Puruk Cahu on the Barito River.

“If you visit Central Kalimantan, you don’t see many forests in the southern, lowland areas,” said Walhi’s head of research, Pius Ginting, pointing to large-scale logging and deforestation for palm oil plantations.

“But this mine is in the northern part. The last areas of forest are there and the communities depend on the forest. We are really concerned about this. I think BHP is the biggest beneficiary, so if BHP goes there, the coal railway will go there. And this will facilitate all the other mining permit holders to open their areas,” he said in an interview.

Data from the Ministry of Energy and Mineral Resources shows that as of last year, there were 543 coal mining permits of all types in Central Kalimantan covering 3 million hectares, or one-fifth of the province, underscoring the risk from coal mining expansion.

Time to go Green

Indonesia does have energy alternatives, NGOs and green energy investors say. They want the government to focus more on renewables, such as wind, solar, geothermal and hydro, as a hedge against too much dependence on coal.

Greenpeace Indonesia has calculated that with regulatory support, renewable energy could comprise 50 percent of Indonesia’s energy mix by 2035. At present, hydro comprises 5 percent and geothermal 4 percent, according to PLN. Geothermal is forecast to rise to 11 percent of generation by 2022, PLN says, while hydro stays steady at 5 percent.

Indonesia boasts about 40 percent of the world’s geothermal resources, but high construction costs remain an obstacle. Solar and wind are looking increasingly attractive, particularly in remote areas, as costs fall.

Wind and solar investment remains tiny, but that is changing. Asia Green Capital Partners, a company developing renewable energy projects, is seeing positive signs of change from PLN. The government is working on a feed-in tariff for wind power projects and tendered 140 MW of solar power projects for remote islands, triggering a strong investor response.

“We believe in 2020 the potential would be 1 GW of wind energy for Indonesia, growing to 10 GW by 2060, which is due to growing grids and improvement in technology that allows us to build wind farms in lower wind speed areas,” said Asia Green Capital Partners’s project development director, Thijs Sablerolle, in Jakarta.

Singapore-based Asia Green Capital Partners has teamed up with the IFC, part of the World Bank, to develop a 62.5 megawatt wind farm in South Sulawesi. Other projects are in the pipeline.

At present, PLN uses costly diesel generators in many remote areas in Indonesia and is building small coal-fired power stations on some eastern islands. Solar could provide a cost-effective solution, Sablerolle said.

“Eastern Indonesia has up to 2,400 kilowatt/hours per square metre per year, which is very high,” he said, referring to solar energy that could be tapped. “It’s very hard to find something higher in the world.”

PLN, though, has yet to sign power-purchase agreements for solar projects. This cautious approach contrasts with the government’s fossil fuel subsidies that currently consume about one-fifth of its annual budget.

While renewables investment is set to grow in Indonesia, coal-fired generation will remain the main focus for the government. Greenpeace estimates there are 117 coal-fired power stations either planned or currently under construction.

Fueling Climate Change

Not all will get built, either for financial reasons or local protests. But based on projections by the government, IEA and ADB, rapid coal-fired power generation investment will cause a sharp jump in Indonesia’s and Southeast Asia’s carbon-dioxide emissions.

“The region’s energy-related CO2 emissions almost double, reaching 2.3 billion [metric tons] in 2035,” says the IEA in its Southeast Asia Energy Outlook 2013.

Of Indonesia’s 100 GW in new power generation capacity by 2035, half will be coal-fired, says the IEA.

According to the Global Carbon Atlas, Indonesia’s fossil fuel emissions from burning oil, gas and coal and cement production totalled 263 million [metric tons] in 2000, rising to 494 million in 2013. Over the same period, coal emissions rose from 42 million to 171 million metric tons.

The rise in emissions directly challenges the government’s goal of cutting greenhouse gas pollution by 26 percent below projected business-as-usual levels by 2020.

Add to this Indonesia’s increasing deforestation rate, according to recent studies, and annual forest fires. According to the government, about 75 percent of Indonesia’s greenhouse gas emissions come from deforestation, forest fires and clearing and draining of carbon-rich peat swamps.

Given rising fossil fuel emissions, the government would need to dramatically rein in forest loss and curb forest fires if it is to achieve its 2020 climate goal.

Greenpeace says the government has to get its coal production policies right and that NGOs will be turning up the heat on the coal sector to curb production, with campaigns targeting financiers and buyers.

“The story of coal in Indonesia will be similar to the story [of] oil,” said Arif Fiyanto, climate and energy campaigner for Greenpeace Indonesia. “In the past 10 years, Indonesia was a member of OPEC but now it is net importer of oil. Coal will be the same if there are no good policies on coal.”

For ordinary Indonesians, the growth of the coal sector means it is just one of a long line of resource industries that compete for land, placing ever greater demand on the nation’s dwindling forests and farms and customary lands as the population heads towards 300 million by 2035.

Mining concessions of all types already cover about 34 percent of the country. Coal mining concessions alone cover 21.25 million hectares, or about the size of the U.S. state of Kansas, according to government data.

If you include oil and gas, palm oil, timber and logging concessions, it is 68 percent of the country.

“Where do all the people live?” asked Hendrik Siregar of the Indonesian mining NGO Jaringan Advokasi Tambang, or JATAM. “If you overlay all the concessions, where do all the people live?”