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Ban on Coal Exports in Early 2022

Coal Ban

On the last day of 2021, coal mining business actors were surprised by a policy issued Ban on Coal Exports by the Government. This policy is related to the ban on coal exports issued by the Directorate General of Mineral and Coal (“DGMC”) of the Ministry of Energy and Mineral Resources of the Republic of Indonesia (“MEMR”) through Letter Number B-1605/MB.05/DJB.B/2021 December 31, 2021, on Fulfillment of Coal Needs for General Electricity (“Letter 1605/2021”).

In Letter 1605/2021, the DGMC states that the consideration for the issuance of the letter is the Letter issued by the President Director of the State Electricity Company (Perusahaan Listrik Negara, “PLN”) (Persero) Number 77875/EPI.01.01/C01000000/2021-R dated December 31, 2021, regarding Coal Supply Crisis of PT PLN Persero and Independent Power Producers (“Letter from PLN”). The Letter from PLN informs that there has been a coal supply crisis and very low coal availability at the Steam Power Plants (Pembangkit Listrik Tenaga Uap, PLTU”) of the PLN Group and Independent Power Producers (“IPP”).

Coal Ban

The conditions mentioned under the Letter from PLN has raised concerns about the disruption of the PLTU operation which will have an impact towards the national electricity system causing widespread blackouts. This condition has encouraged the DGMC to issue Letter 1605/2021 to secure coal supply and to anticipate extreme weather in January and February 2022. Letter 1605/2021 stipulates obligations and prohibitions for all companies holding the following permits: (1) Mining Business Permit (Izin Usaha Pertambangan, “IUP”); (2) Special Mining Business Permit (Izin Usaha Pertambangan Khusus, “IUPK”); (3) IUPK as a continuation of Coal Contract of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara, “PKP2B”); and (4) Coal Transportation and Sales Permit, as follows:

  1. they are prohibited from exporting coal for the period 1 – 31 January 2022;
  2. they are obligated to supply all coal to meet the electricity needs of the public in accordance with: (1) obligation to fulfil domestic needs; (2) assignment from the Government to companies; and/or (3) contract with PT PLN Persero and IPP; and
  3. if the coal has been placed at the loading port and/or loaded onto the vessels, the coal must be immediately delivered to the PLTU owned by PT PLN Group and IPP.

The ban on coal exports will be re-evaluated and reviewed based on the realization of coal supply to the PLTU owned by PT PLN Group and IPP.

Commercial and Legal Risks

Letter 1605/2021 mentions that the basis of the issuance of the coal export ban policy is Point 3 of Decree of the MEMR Number 139.K/HK.02/MEM.B/2021 regarding Fulfillment of Domestic Coal Supply (“Decree 139/2021”). Under Decree 139/2021, in an emergency situation due to insufficient domestic coal supply, the DGMC may appoint holders of : (1) IUP; (2) IUPK; (3) IUPK as a continuation of PKP2B; (4) and Coal Transportation and Sales Permit to fulfill domestic coal supply.

Although the Ban on Coal Exports has legal basis, this policy carries commercial and legal risks for Indonesian coal producers who have had a commitment to meet the demands of their buyers. This condition creates uncertainty in the market and potential disputes between Indonesian coal producers and their buyers. The following are commercial and legal risks that may arise from coal export ban that Indonesian coal producers must take into account:

  1.         delay in coal delivery;
  2.         demurrage charges; and
  3.         claim and lawsuit from buyers

Coal Ban 

Qualification of Coal Export Ban as Force Majeure

In the earlier part, it has been mentioned that there will be some commercial and legal risks for Indonesian coal producers due to the coal export ban. To reduce commercial and legal risks, Indonesian coal producers may submit Force Majeure Notice to their buyers by referring to the Force Majeure Clause regulated under the coal sale and purchase agreement.

Based on the standard coal sale and purchase agreement, there is a force majeure clause that contains the definition of force majeure events and the procedures for submitting Force Majeure Notice. In general, circumstances that can be categorized as Force Majeure in the Force Majeure clause in a contract/agreement include:

  1. natural disasters or events that occur beyond human control, including but not limited to fires, volcanic eruptions, earthquakes, droughts, tidal waves, and floods;
  2. war, hostilities (either non or declared war), invasion, mobilization, or civil war;
  3. radioactive contamination of any nuclear fuel or of any nuclear waste from the combustion of nuclear fuel, radioactive toxic explosives, or other hazardous properties of explosive nuclear assemblies, or nuclear components of such assemblies;
  4. riots, strikes, delays, closures or chaos;
  5. acts or threats of terrorism;
  6. changes in the Government regulations; or
  7. other unforeseen circumstances beyond the control of the parties, which is unreasonable for the affected parties to take preventative measures that the affected parties cannot avoid with the best efforts.

But, what if the Force Majeure clause in the coal sale and purchase agreement does not mention the change in the Government Regulations as a Force Majeure event? There is a possibility that the buyers will reject the Force Majeure Notice, and the parties will have to go with a dispute resolution. However, it would still be best to pass a Force Majeure Notice as a preventive measure.

Further, the Force Majeure events mentioned above need to be reviewed further by referring to Article 1244 of the KUHPER, where there are three conditions that must be proven by the party suffering from a Force Majeure event so that the Force Majeure situation is considered to have occurred, as follows:

  1. unpredictable or unforeseen circumstances;
  2. circumstances beyond the will and power of the party suffering from the Force Majeure situation; and
  3. there is no bad faith from the party suffering from Force Majeure situation.


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