Indonesia coal shipment halt forces users to look elsewhere

Two Indonesian coal ports have blocked ships from leaving to the Philippines due to safety concerns following a spate of ship hijackings in the southern Philippines. The Indonesian Coal Mining Association expects more areas to suspend coal shipments to the Philippines.

“So far we are not aware of any stopped shipments” from Indonesia, Luis Miguel Aboitiz, chief operating officer of Aboitiz Power Corp. “We can get coal from Australia or South Africa but at higher cost,” he told Reuters.

The Philippines imports 15 million tons of coal a year mainly for power plants, 70% of which is sourced from Indonesia.

The Philippines’ Department of Energy is seeking to meet with coal importers to discuss supply options, agency officials said. The energy department is also drafting a letter to the Department of National Defense seeking military assistance for vessels carrying imported coal, they said.

South Luzon Thermal Corp., which imports from Indonesia about a quarter of the one million tons of coal that it uses annually, can buy more locally, said company president Virgilio Francisco.

“If necessary, we can draw from Australia and Russia,” Mr. Francisco said.

Semirara Mining and Power Corp. is the Philippines’ biggest coal miner but it exports more than half of its output because some domestic plants cannot use the lower-grade coal that it produces. That limits its ability to boost local coal supply, importers said.

Output from Semirara reached 7.98 million tons in 2015.

However, Global Business Power Corp., a utility that serves the central Philippine islands, can double its purchases from Semirara, which currently stand at around 800,000 tons, said fuel manager Jose Eduardo Co.

Global Business Power buys around 500,000-600,000 tons of Indonesian coal, mainly from Adaro Energy, and a similar volume from Russia, said Mr. Co. Increasing the volumes from Russia is also an option, he said.

Shipping permits to the Philippines were no longer being approved at the ports of Banjarmasin and Tarakan in Indonesia’s Kalimantan, an area home to some of the biggest coal mines operated by Adaro and Bumi Resources.

In a separate report, Reuters said Indonesia fears piracy on a busy shipping route along its maritime border with the Philippines could hit levels seen in Somalia unless security is tightened, its chief security minister said on Thursday, following a spate of kidnappings.

The route lies on major shipping arteries that analysts say carry $40 billion worth of cargo each year and is taken by fully laden supertankers from the Indian Ocean that cannot use the crowded Malacca Strait waterway.

For the first time, concerns over the rising tide of maritime attacks by suspected Islamist militants are disrupting coal trade between the Southeast Asian neighbors, with two Indonesian coal ports suspending shipments to the Philippines.

Up to 18 Indonesians and Malaysians have been taken captive in three attacks on tugboats in Philippine waters along the route, by groups suspected of ties to the al Qaeda-linked Abu Sayyaf militant network.

Abu Sayyaf, a small but violent group, which has posted videos on social media pledging allegiance to Islamic State militants in Iraq and Syria, has demanded P50 million ($1.1 million) to free the Indonesian crew.

“We don’t want to see this become a new Somalia,” Indonesian chief security minister Luhut Pandjaitan told reporters, referring to the southern Philippine waters of the Sulu Sea, where the abductions took place.

Piracy near Somalia’s coast has subsided in the last few years, mainly due to shipping firms hiring private security details and the presence of international warships.

The foreign ministers of Indonesia, Malaysia and the Philippines will meet in Jakarta to discuss the possibility of “joint patrols in order to secure the passage from Indonesia to the Philippines,” Mr. Pandjaitan said.

He did not give a date, but said the armed forces chiefs of the three countries would meet in Jakarta on May 3.

A company with a fleet of 40 dry cargo ships saw a silver lining, however.

“If Indonesia bans tugs and barges from exporting coal then it will have to travel in larger cargo ships, of 32,000 to 64,000 tons,” said Khalid Hashim, managing director of Bangkok-listed Precious Shipping. “All this would of course be beneficial for shippers like us.”

Indonesia, the world’s largest thermal coal exporter, supplies 70% of the Philippines’ coal import needs, which Indonesian government data show stood at about 15 million tons, worth around $800 million, last year.

The Kuala Lumpur-based Piracy Reporting Centre has warned ships sailing in the Celebes Sea and northeast of the Malaysian state of Sabah on the island of Borneo to stay clear of small suspicious vessels. — Reuters