How Can Indonesia Wean Itself Off Coal?

In Indonesia, coal has long been a huge source of wealth for certain business elites and because of the system of concessions and contracts that depend on government permits and sign-offs, closely tied to the political powers of the time as well. But now the tide of public opinion – worldwide - has turned against coal and coal-fired power stations, with ream after ream of high-powered reports from scientists and UN bodies placing coal firmly in the cross hairs of the environmental firing squad. And Indonesia, at COP26, in the cold light of NGO and activist-driven publicity, promised to abide by the promise to reduce dependence on coal and greatly increase renewable energy. Well done. Now comes the hard bit. Taking the candy back from some very big babies.

Let’s first look back into some history. Prior to the country’s independence, in 1861, the Dutch colonial government began mining coal in Palaran, East Kalimantan, before kicking off production in Ombilin, West Sumatra, the year after. In fact, Kalimantan and Sumatra islands are Indonesia’s “supermarkets” of coal. As of 2020, coal reserves on the two islands reached 25.84 billion tons and 12.96 billion tons, respectively, while their coal resources stood at 88.31 billion tons and 55.08 billion tons. These alone are quantities to make other counties very jealous.

In 1976, then Indonesian President Soeharto issued a decree to prioritize the rehabilitation of mining facilities to boost national coal production. Global coal demand was on the rise following the 1973 Arab oil embargo. However, the real momentum came in the early 1990s after Soeharto reopened Indonesia’s coal mining sector for foreign investment. Ever since, the country’s annual coal production kept soaring from one year to another, from merely 13 million tons in 1991 to 606.7 million tons in 2021.

By the end of 2021, there were 66 coal miners operating in Indonesia under the old system of work contracts (PKP2B) and 1,162 under the more contemporary mining business permits (IUP).

Of course, massive profits have been made by exporting to countries still locked into the industrial revolution’s magic energy source, but very importantly Indonesia uses its own coal to fuel steam power plants and various domestic industries. As of 2021, the capacity of the nation’s power plants reached 74 gigawatts (GW), of which 37 GW, or 50%, came from coal facilities. Indonesia needed a total of 113 million tons of coal to operate all of its steam power plants. All coming from a very small number of sources as we shall see.

Now as we said above the burning of fossil fuels is very much under fire from all sides for a very simple reason. Based on the US Energy Information Administration (EIA) calculations, every million tons of coal burned emits up to 3.17 million tons of carbon dioxide, meaning that Indonesia’s coal facilities released about 358 million tons of CO2 in 2021. You can’t see it or feel it but the effects are now indisputable. Coal burning generates a large number of harmful pollutants and chemicals, and according to a 2015 study by Harvard University and Greenpeace, the emissions from Indonesia’s coal power stations could be the cause of an estimated 6,500 premature deaths annually. The number was projected to increase to 15,700 in line with the development of new coal facilities across the nation. Not a pretty picture. But very hard to draw that definite line of proof between all these factors which is why it all continues – as normal.

But the challenges don’t stop there, the actual coal mining activities are said to pose a threat to health and the environment themselves. Examples include Muara Enim, a regency with the largest coal reserves in South Sumatra, where state-owned coal miner PT Bukit Asam mainly operates. There, NGO reports say, rivers are polluted, floods and landslides occur routinely, forest areas and agricultural lands are shrinking, land conflicts are common, illegal mining is everywhere, and locals are vulnerable due to the poor quality of their health. Again all unproved and no legal action taken, so remains just “ activist” news. But as they say, rather appropriately” there’s no smoke without fire”!

In spite of all this evidence both scientific and community-led, Indonesia today still puts a premium on coal, which is portrayed as the cheapest energy source, meaning that the coal business is deemed essential by the government, as it helps boost non-tax state revenue and ease the country’s trade deficit. And, of course, at the same time, it makes the owners of the mines richer, giving them more resources to lobby and persuade.

In fact, some observers suspect that the presence of a number of coal business owners with strong networks and political influence in the government has led to policy changes in some crucial energy and mining measures over the past several years. For example, the government cancelled a plan to cap annual coal production at 400 million tons starting in 2019. It also backtracked on the coal export ban within less than two weeks after the policy was announced at the end of 2021.

So who are these business owners who appear to wield such influence? In fact, they are not secretive figures, but prominent business figures firmly in the public eye and often with substantial publicly held shareholdings in their enterprises. As noted in 2020, Indonesia’s five biggest coal holding companies or business groups were:

PT Bumi Resources, run by the Bakrie family,

Sinar Mas Mining Group, owned by the Widjaja family,

PT Adaro Energy, controlled together by the Thohir and Soeryadjaya families,

PT Indika Energy, steered by the Sudwikatmono family and

PT Bayan Resources, led by Low Tuck Kwong.

State-owned mining holding firm Mining Industry Indonesia (MIND ID) only sat in sixth place. The list is based on data from the Energy and Mineral Resources Ministry, annual reports and official websites of numerous mining firms, as well as information published by various news outlets. The people behind these six coal business groups are also far from secretive and mysterious, but themselves are almost all household names, the captains of industry, namely: Aburizal Bakrie, Fuganto Widjaja, Sandiaga Uno, Edwin Soeryadjaya, Garibaldi “Boy” Thohir, Erick Thohir, Agus Lasmono, and Low Tuck Kwong.

There are other more politically based figures in the coal business, albeit with smaller outputs than the six above, and just to add spice to the mixture, several chairmen of political parties also have coal businesses. However, the size of their coal businesses is relatively small as they earn a bigger fortune in other sectors.

But let us be very clear about one thing: no one is accused of doing anything illegal. It is not illegal for politicians to own businesses, nor businesses to own and operate coal mines. What we are establishing here is the exceptional difficulty “the government” is going to have to persuade these groups to give up voluntarily their cash cows which – if they keep their other promises (the ones they didn’t make at COP26) to keep the coal-fired power stations operating “ to the end of their productive lives” ie at least 20 more years then the fortunes of these businesses are made for that time even if the rest of the world stops importing coal altogether, which it won’t.