A tug boat pulls a coal barge along the Mahakam River in Samarinda, East Kalimantan province, Indonesia. - Reuters filepic
JAKARTA: Indonesian insurance rules that come into effect on Feb. 1 are causing huge coal supply backlogs, with dozens of ships held up outside ports unable to load as authorities start checking to see if vessels are in compliance with the new policy.
A regulation issued in August last year requires Indonesian exporters of coal and palm oil to use local insurers from Feb. 1, and also requires them to use local shipping companies from May 2020.
Indonesia is the world's biggest exporter of thermal coal, used mostly for power generation. The country exports between 25 million and 30 million tonnes of coal per month to its main customers in India, China, Japan and South Korea.
Hendra Sinadia, executive director of Indonesian Coal Mining Association, told Reuters that during an initial month-long trial period beginning on Friday exporters without Indonesian insurers would not be penalised.
Port surveyors, however, were checking which exporters have proper insurance, he said.
Sinadia said "exports won't be disrupted" and that the association was telling its members it was "business as usual".
Coal traders, though, said the new insurance rules were already causing a considerable backlog in Kalimantan, Indonesia's biggest coal-mining region.
"It is pretty chaotic at the moment. Some shippers haven't prepared their new insurance, others have, but the authorities and insurers are slow to register," said one trader who exports Kalimantan coal.
There were not enough surveyors to handle the fleet of ships, he said, and insurers and port authorities were taking a long time to issue and recognise the new insurance documents.
The main concern was the daily charter rate of a ship that sits idle for weeks running up a bill in the tens of thousands of dollar, he said.
More than two dozen large dry-bulk ships are currently sitting outside the port of Samarinda in East Kalimantan, waiting to load coal, according to Refinitiv ship tracking data. The situation is similar in the South Kalimantan ports of Taboneo and Bunati.
Indonesian coal prices have so far not been heavily affected, traders said, as Asian supplies are ample. Prices were hovering slightly above $90 per tonne for most of January.
"Add the usual port and mining constraints in Kalimantan, and you have many ships that have been sitting outside its ports for many weeks," the trader said.
Most Indonesian coal is sold on a free-on-board (FOB) basis, where insurance is the responsibility of the buyer.
PT Bukit Asam, a state-controlled coal miner that exports on an FOB basis, has recommended a number of Indonesian insurance companies to their buyers, said Director Adib Ubaidillah.
Palm oil exporters, meanwhile, are still waiting for lists of insurers from the country's Financial Service Authority, according to Togar Sitanggang, deputy chief of the Indonesia Palm Association. - Reuters
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