Recently, the Indonesian government, in accordance with Decree No. 72.K/MB.01/MEM.B/2025 issued by the Ministry of Energy, implemented a new coal export pricing policy, drawing significant attention from the international market. Effective from 1 March 2025, the Ministry of Energy and Mineral Resources requires coal export enterprises to use the Indonesian Coal Price Reference (HBA) for transactions. This move aims to ensure greater pricing autonomy for Indonesia and prevent export coal prices from falling below domestic benchmarks.
- Market Reaction
Indonesia's Minister of Energy and Mineral Resources announced the approval of new regulations related to the HBA for coal exports, sparking strong reactions in the domestic coal market. Representatives from the Indonesian Coal Suppliers Association indicated that the new rules might prompt coal exporters to raise their prices, potentially impacting overseas demand. Chinese importers, in particular, have adopted a cautious stance toward the new pricing scheme due to sufficient domestic coal production, stable imports from other countries, and weak winter demand. Meanwhile, the China Coal Transportation and Distribution Association noted that some Chinese companies might renegotiate or cancel long-term contracts to adapt to market changes. At least one major importer has already suspended spot purchases to reduce inventory pressure.
Despite uncertainties in the Chinese market, Indonesia's energy sector generally believes that coal exports can still be redirected to Southeast Asian countries such as Malaysia, the Philippines, Vietnam, and Thailand. According to data from Indonesia's Central Bureau of Statistics, coal exports to East Asian markets have declined in recent years. For instance, in 2023, Japan and South Korea imported approximately 25 million tons of coal, down from the previous range of 28 to 30 million tons.
- Impact of Policy Implementation
Although the Indonesian government has mandated the use of HBA pricing and requires export enterprises to adopt this benchmark when paying royalties, the lack of a transition period in the new policy makes it difficult for exporters to adjust long-term contract arrangements in a timely manner. This could even lead to default risks, significantly affecting international market competitiveness, contract performance, and Indonesia's domestic and foreign trade environment.
- Reduced International Market Competitiveness
For a long time, Indonesian coal exporters have primarily used the Indonesian Coal Index (ICI) or international market prices (such as Newcastle coal futures) as pricing references. However, the HBA price is typically higher than these market prices. For example, in February 2025, the HBA price for high-quality Indonesian coal was 124.24 per ton, while the average price of Newcastle coal futures during the same period was only 105 per ton. This price gap forces exporters to bear higher costs when paying royalties, leading to increased export prices and a loss of price competitiveness in the international market. Price-sensitive buyers may turn to other coal suppliers such as Australia and Russia, thereby weakening Indonesia's share in the global coal market.
- Increased Risk of Contract Defaults
Due to the government's unilateral adjustment of the pricing mechanism and the absence of a transition period, export enterprises cannot adjust long-term contract arrangements in advance. This may result in difficulties in fulfilling some contracts due to price changes, leading to default risks. Some overseas buyers might invoke force majeure or material adverse change clauses in contracts to demand renegotiation or even cancel orders. Additionally, certain importers may argue that the Indonesian government's policy adjustments constitute "commercial impracticability," seeking legal means to avoid performance obligations.
If large-scale defaults occur, it could not only damage the reputation of Indonesian coal exporters but also increase the risk of legal disputes. To mitigate market shocks, the Indonesian Coal Suppliers Association has called on the government to provide a transition period of at least six months, allowing enterprises sufficient time to renegotiate contract terms with overseas buyers and reduce the likelihood of contract disputes.
- Exacerbation of Trade Frictions
The implementation of this policy could also negatively impact Indonesia's energy cooperation with major trading partners such as China and India. If the Indonesian government enforces the HBA price rigidly and imposes administrative penalties on enterprises that fail to comply, importing countries or overseas buyers might view the policy as a trade barrier or unfair competition. This could lead to trade investigations or dispute resolution proceedings against Indonesia under WTO rules.
Furthermore, some importing countries might adopt retaliatory measures, such as increasing import tariffs, setting import quotas, or strengthening environmental reviews of Indonesian coal, further undermining the competitiveness of Indonesia's coal exports.
- Government and Enterprise Responses
Faced with the impact of the HBA pricing policy, coal export enterprises need to actively adjust their business strategies to mitigate risks arising from market uncertainties. At the same time, they must maintain close communication with buyers to renegotiate long-term contracts during the policy transition period, ensuring business continuity and stability. Additionally, as China and India increase domestic coal supply, the demand landscape may shift. Enterprises should proactively explore emerging markets to optimize export structures and reduce dependency on specific markets, thereby enhancing resilience to risks.
Moreover, the Indonesian government's next policy direction remains unclear, with no clear signals yet regarding a transition period or adjustments to the HBA pricing mechanism. Therefore, enterprises must closely monitor policy developments and prepare for various possible scenarios. If the government maintains the current policy, enterprises may face higher export costs and need to adjust pricing strategies and market layouts. If the government makes moderate adjustments in response to market reactions, enterprises should seize the opportunity to renegotiate contract terms with overseas buyers, minimizing losses caused by pricing changes.
Conclusion
In summary, while the HBA pricing policy may help increase government revenue, it could have a short-term impact on market demand and the international competitiveness of Indonesia's coal exports. In this context, if the Indonesian government maintains appropriate flexibility during policy implementation and enterprises actively adjust their strategies to enhance their ability to cope with market fluctuations, Indonesia's coal industry can still maintain relatively stable development in the global market.
