Hazel Ilango, Putra Adhiguna | June 2025 | PRESS RELEASE
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Time for Indonesian coal firms to embrace energy transition while conditions favour change
Relatively high prices, market confidence and stable demand may still support maintaining the status quo – but are all temporary conditions sensitive to external volatilities.
Coal mining companies in Indonesia should diversify their business and make an energy transition while they still have the financial heft buttressed by favourable prices and stable supply and demand, the Energy Shift Institute says.
While the cyclical nature of the coal industry is well understood, the global shift to green energy combined with domestic policies that favour short-term revenues over long-term planning risks creating a more complex situation in the future.
The alternative could be a disruptive transition foisted by market forces on coal producers that are too slow to act, according to authors of the institute’s new analysis report. The report is part of a series of analyses on Indonesia’s coal industry and its role for individual businesses and the country in the global transition.
“Coal’s remarkably robust earning power of recent years is but a temporary upswing inherent of a cyclical industry. It is not a structural advantage,” says Hazel Ilango, Energy Shift’s principal researcher and Indonesia coal transition lead.
“The period of protracted high coal prices seems to have passed. While prices still remain above pre-pandemic levels, they have more than halved since 2022.”
Putra Adhiguna, the report’s co-author, singles out market confidence in the sector and steady supply and demand in the medium term, in addition to the ongoing profitability.
“A confluence of favourable factors is positioning the biggest thermal coal export nation in the world to use today’s cash to chart a more orderly transition,” he says. “We call on Indonesian mining firms to shake off their wait-and-see attitude and wake up to the worldwide momentum towards net-zero carbon.”
Coal is an indisputable cornerstone of Indonesia’s economy, supporting state revenues, foreign currency earnings, corporate profits and local jobs. At country level, coal alone has contributed about 3.6% to national GDP in recent years.
Less discussed is its status as the second-most profitable among publicly listed industries. Between FY2019 and FY2023, coal mining and services generated net income of USD31.4 billion, second only to banking.
Indonesia is bucking the global and forecasted trend of slowing demand. Output continues to power ahead, reaching a record 836 million tonnes in 2024, up 7.9% from the previous year, although early signs of moderation are emerging in 2025. The government has estimated the mines are holding another four decades of reserves.
Energy Shift is of the view that a crucial window of opportunity is open, albeit narrowing, for coal producers to capitalise on the current stability, diversify and prepare for long-term viability before profits slide further in the cyclical industry. The institute’s report, “Coal in Indonesia: Paradox of Strength and Uncertainty”, breaks down the sector’s strengths, weaknesses, opportunities and threats using a SWOT analysis of 12 selected Indonesian companies.
Factors in the companies’ favour include highly productive mines, disciplined finances and well-anchored operations – all structural advantages that can help them transform from a position of strength. Their mines, being mature assets, are capable of sustaining output using a modest input of funds, not to mention healthy balance sheets that can act as liquidity buffers.
With industrial stability comes market confidence. Eleven of the 12 analysed coal producers maintain minimal to intermediate financial risk profiles, signifying resilience. The sector’s approach to debt is conservative, averaging just 21% of capital, well below the global peer average of about 101%. Therefore, it has ample headroom to absorb shocks or support investments.
However, much as coal producers may be managing their finances prudently and conservatively in a stable environment, they are not without weaknesses, the authors say.
Concentration is a glaring business risk, and it is manifested in more than one area. China and India combined bought 63% of Indonesian coal shipments in 2023, so their import demand, national policies and geopolitics can all affect the stability of their trade with Indonesia. This exposure became more evident earlier this year, when exports fell to a three-year low between January and April due to weaker demand from both countries.
Internally, the sector has long relied on coal as its overriding commodity, and a small number of key mines for production. In addition, from FY2019 to FY2023, all the earnings – USD31.4 billion – went to just 28 companies, whereas the next two highest-earning sectors, consumer and materials, spread out their combined net income of USD28.4 billion over nine times more firms.
This high level of concentration leaves industry players exposed to disruptions and has the potential to destabilise markets.
Regulations pose yet more challenges. Policies such as the domestic market obligation (DMO), foreign currency retention (DHE) and royalty adjustments that are higher than other major commodities, introduce risks by limiting producers’ earning capacity, though their impacts may vary. Government efforts to extract short-term benefits can discourage major companies from making the transition.
“Coal mining companies are prone to myriad risks, some of their own making and others beyond their control,” says Adhiguna. He notes a lack of credible diversification or transition plans that would help hedge against volatility, be it from the market or the government.
Finding incentives for the sector to switch to more sustainable businesses is crucial to ensure these companies continue to contribute meaningfully to the economic future of Indonesia and its coal-producing regions.
Only a handful of companies have announced partial moves to cut emissions and explore renewable energy and metals. These plans remain at an early stage and are a long way from signalling a sector-wide pivot.
“A company that delays action simply to bask in short-term profits, or to wait for reserves to run down, restricts its flexibility and amplifies long-term risks,” Ilango says.
She warns that the global energy landscape is restless. “China, Indonesia’s largest coal importer, is already meeting more than three-quarters of electricity demand growth through clean energy. This signals a trajectory that Indonesians can no longer ignore and must act on to navigate the changing demand landscape.”
Coal politics lies at the heart of the country. Yet, at this crucial juncture, it is time for the country and its companies to look beyond the horizon and reinvest in sustainable, forward-thinking solutions.
A credible transition starts with clear targets and bankable projects, but ultimately, the real catalyst that can drive this strategy into actual outcomes hinges on the company’s fundamental business and financial strength. Indonesia’s coal producers have the foundation. Now they must act before that window closes.