Indonesia’s coal export ban: No way out

27 January 2022

On 31 December 2021, Indonesia’s Directorate General of Mineral and Coal (“DGMC”), on behalf of the Ministry of Energy and Mineral Resources (MEMR), banned all coal exports from 1 to 31 January 2022 by Circular Letter No. B1605/MB.05/DJB.B/2021 of 31 December 2021 regarding the Fulfilment of Coal Needs for Public Electricity (“Coal Export Ban”).

The following important issues arise out of the Coal Export Ban:

• The government appears to have a sound legal basis for imposing the Coal Export Ban over all coal companies, even over those that have complied with their domestic market obligations (“DMO”), regardless of any fairness considerations. 
• It is not yet clear whether the government will focus its coal requirements by only focusing on coal companies that have failed to comply with their DMO rather than those that have complied.
• Business reaction against the Coal Export Ban is strong and could influence the government’s manner of implementing the Coal Export Ban.
• Coal companies impacted by the Coal Export Ban will need to evaluate their contractual obligations to coal off-takers and other relevant stakeholders (including shippers, insurers and lenders), and should consider taking immediate steps to inform all relevant stakeholders of the Coal Export Ban.
• Depending on their particular circumstances, coal companies may be able to declare a (political) force majeure event due to change in law or government policy to their relevant stakeholders and may need to try to renegotiate with the relevant stakeholders, supply commitments and schedules, demurrage payments, penalties, indemnities and loan repayments.

This is an extract of an article by Soemadipradja & Taher, our network firm in Indonesia. To read the full article from the Soemadipradja & Taher website www.soemath.com, please click here.