A coal barge being pulled by a tugboat on Batanghari River in Jambi, Sumatra. (Antara Photo/Wahdi Septiawan)

Moody's: Indonesian Coal Miners' Earnings Threatened by Regulatory Challenges


MAY 08, 2019

Jakarta. Indonesian coal miners are facing regulatory and economic challenges that may potentially hurt their earnings, international rating agency Moody's Investors Service said in a statement on Wednesday.

The global rating acessor said regulatory and economic development in both Indonesia, one of the top producers and exporters of coal in the world, and China, the world's biggest coal consumer, are expected to weigh on the earnings of Indonesian coal producers this year.

Meanwhile, climate-energy policies for low-carbon transitions, which will affect fundamental changes in technologies and fuels used for infrastructure and various facilities, are predicted to pose a "long-term risk to the credit quality of coal miners," Moody's said.

When there are some policies for carbon transition in some economies, typically there is also declining demand for fossil-based fuel like coal and ultimately producers will also have to deal with price pressure.
"The Indonesian thermal coal sector is subject to a degree of regulatory uncertainty, including around the extension of certain mining licenses and a price cap on thermal coal sales to domestic utilities, which we expect will weigh on the credit quality of our rated thermal coal producers," analyst Maisam Hasnain said in the statement.

"In addition, tightening environmental policies and slower economic growth in China will reduce that country's overall demand for thermal coal, further weakening coal prices and the Indonesian coal producers' earnings," he said.

Among its rated portfolio in Indonesia, Moody's expects coal miners Bayan Resources and Bukit Asam, a subsidiary of Indonesia Asahan Aluminium (Inalum), "to be well positioned to maintain their credit profiles amid these challenges."

On the other hand, coal producer and mining service contractor ABM Investama and coal producer Geo Energy Resources may see their credit quality weaken.

Moody's said "the continued long-term slowdown in coal demand in Asia also has the potential to weaken the credit quality of Indonesian coal miners."

The rating agency expects pricing pressure on thermal coal to linger due to the global transition toward renewables and a move away from coal power.

"However, if coal demand falls more quickly than in our baseline scenario, credit risk for Indonesian coal producers will rise materially," Hasnain said.

The rating agency also said "funding options for Indonesian coal companies will also decline as investors and banks are under growing pressure to decarbonize their portfolios."