The lack of clear and consistent mining regulations in Indonesia, the world's second-largest coal exporter, is the main culprit for a slowdown in its coal production, a conference held on Monday.
The top five coal producers in Indonesia, including Bumi Resources and Thai-headquartered Banpu , said the industry is also challenged by rising costs as producers are forced to move further inland to mine coal, resulting in higher transport costs.
"One of the key issues the industry faces is the uncertainty in the new mining law," Herlan Siagian, General Manager of Marketing of Bumi Resources, said at the Coaltrans conference in Bali.
"Companies cannot invest and expand their operations without knowing what is in store and how they can be affected."
The Indonesian government and parliament have been debating the draft of a new mining law since February last year, holding up an initiative meant to improve the environment for investing into Indonesia's rich coal, copper, gold, tin and nickel deposits, a key driver of economic growth.
Despite a global price boom for most commodities that has prompted a fresh flurry of investment and mega-mergers, investment in Indonesia has been stymied by regulatory uncertainty, widespread graft and bureaucracy.
The new legislation aims to inject fresh funds into the sector, but mining firms have expressed concerns over some aspects of the law, including plans to replace the use of working contracts with shorter, less rigid mining licences.
The government has said that new law will be positive for investment in the mining sector.
Producers said clear policies on forestry regulations were also essential for miners wishing to expand their production.
"Having a manageable and predictable forestry clearance policy is very important for producers trying to gain practical access to reserves," said Philip Gasteen Head and Senior Vice President of Marketing and Logistics of Banpu.
Indonesia's coal production, which has surged over 50 percent in three years, is expected to rise just four percent in 2007, according to a government forecast.
Reynard Hanoppo, Marketing Manager of Indonesia's third-largest producer PT Kideco Jaya Agung, said production and exploration costs are also under pressure due to higher fuel prices and more challenging mining locations.
Besides Bumi and Banpu, the other top five coal producers are PT Kideco Jaya Agung, PT Berau Coal and PT Adaro Indonesia.
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