Chapter 2:
How coal oversupply erodes company profits and state revenues
In this chapter
Indonesia’s coal boom delivered substantial short-term gains but created long-term risks. However, loosened oversight on coal production has created new challenges. The push to ramp up exports in an already saturated market has further added pressure to coal prices, squeezing company profits and eroding state revenues.
Coal prices spiked in 2022, from under 100 USD/ton before the pandemic to over 400 USD/ton. This price surge was driven by a combination of post-pandemic economic recovery and the Russia–Ukraine war. Together, these dynamics created a supply crunch and triggered strong export demand for Indonesian coal.
The Indonesian government capitalised on this momentum to maximise state revenues. Royalty fees on coal were raised through Government Regulation No. 15 / 2022, and companies were granted the flexibility to submit production plans covering three years instead of the previous annual requirement. This regulatory adjustment allowed producers to ramp up output and take advantage of favourable market conditions, while ensuring higher fiscal returns for the state.
2.1
Chasing volumes as coal prices decline
Oversupply is pushing prices lower, yet companies continue to chase volume. While Indonesia ramped up production to meet surging post-pandemic demand, other major producers such as China and India also expanded production. These countries increased production by 147 million tonnes and 104 million tonnes respectively between 2022 and 2023. At the same time, the lifting of Australia’s coal export ban further increased global seaborne supply. Combined, these factors contributed to oversupply in the market and pushed coal prices lower.
Indonesian producers responded by expanding exports. Coal export rose by 53 million tonnes in 2023 and 37 million tonnes in 2024. This strategy might help maintain revenue growth. However, it also contributes to the global oversupply, indicated by rising inventory of 44 million tonnes and 48 million tonnes respectively.
In 2025, nine major coal companies aim to maintain or even increase their production. Among these companies, Bayan Resources and Bukit Asam planned the largest increase with 13.5 million tonnes and 6.7 million tonnes respectively.
In total, these nine companies will increase production by 26.6 million tonnes. And if this is realised and other companies maintain their current production rates, Indonesia’s coal production could reach over 850 million tons.
But this expansion looks unrealistic as also projected by the coal industry association. As of June 2025, the production level only reached 357.6 million tonnes, contributing 48% of the annual coal target of 739.7 million tonnes.
2.2
Prices are falling, costs are rising
Falling prices and rising costs are squeezing company profits. As coal prices continue to fall and DMO prices for electricity and industry remain below market levels, coal companies are also grappling with higher production costs, due to inflation, higher stripping ratio, fuel costs as well as new royalty tariffs.
New policies have added further burdens. Starting January 2025, the government increased mandatory biodiesel blending to 40% or B40. As the blending ratio increases, operating costs rise as well. The Indonesian Coal Mining Association (ICMA) estimated that full implementation of B40 could increase the company’s production cost by 1 trillion IDR annually.
In parallel, the government also increased coal royalty through Government Regulation No. 18 / 2025 and imposed 100% export revenue retention as stipulated in Government Regulation No. 8/2025.
Coal production costs surged in 2022 but were offset by record-high coal prices. Average production cost rose sharply in 2022 amid the global energy crisis. At the same time, coal prices also surged to over 400 USD per tonne, resulting in a net profit spike that year. However, as coal prices gradually decline production costs remain high, resulting in declining net income.
By 2024, average net income dropped below 2021 levels, highlighting growing financial pressure on producers and signalling a major shift in the industry’s outlook.
2.3
Impacts on national and subnational revenues
Coal’s fiscal windfall has already faded. Coal contributes to over 75% of non-tax revenues for the mineral and coal subsector. And with surging coal prices and a 12% production increase in 2022, non-tax revenue from mineral and coal jumped more than 140% from 75 trillion IDR in 2021 to 183 trillion IDR in 2022.
Since then, non-tax revenues have declined. Even with increased production and export volume, non-tax revenues dropped by 4.4% in 2023 and by a further 18.6% in 2024. This decline is attributed to declining average coal prices from 201 USD/ton in 2023 to 121 USD/ton in 2024.
In the first half of 2025, the non-tax revenue for mineral and coal has reached 68.3 trillion IDR or 54.7% of the target set by the Ministry of Energy and Mineral Resources (MEMR). However, even if this target is met, total revenue in 2025 will remain below previous years.
Royalty revenue sharing to coal-producing regions has also declined in the past few years. Provincial fiscal transfers fell between 2023 and 2025 by 41% to East Kalimantan, 30% to South Kalimantan, and 23% to South Sumatra. This underscores growing fiscal vulnerability in coal-dependent regions and highlights the need for economic diversification and stronger local revenue sources.
