Impact of the China-induced coal boom in Indonesia

Abstract

Though Indonesia is well-known as a major oil and gas exporter, it became a net oil importer. It then turned out as a major coal exporter during the China-induced coal boom. Meanwhile, coal mines are criticized as harmful to ecology and local livelihood, as many of them are located in the forest. Against this backdrop, this chapter analyzes how the China-induced coal boom has affected resource governance in Indonesia. It employs the typology on natural resource governance presented by Luong and Weinthal (2010) to assess how Indonesia’s democratic decentralization and the revision of its Forest Law affected coal mining and deforestation. This chapter reveals that democratic decentralization changed the ownership structure from state ownership without control to private ownership with control, and generating duplicate licensing authorities as well as inconsistent and contradictory rules between the central and local governments. All of this has resulted in weak central control and widespread corruption. Chinese companies have capitalized on this weak control, backing local companies or their joint companies to obtain licenses – thus accelerating open cast mining. They have also invested in major Indonesian miners, gaining the political power to protect their vested interests and making it difficult for the Indonesian government to enforce more stringent environmental and social safeguard policies to move toward a low CO2 emissions development.