ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) i

ASEAN Coal TrendChallenges and Opportunities on Facing

ASEAN Economic Community (AEC)

Asra Virgianita, Ph.D Santi Hapsari Paramitham, S.SosMeliana Lumbantoruan, M.A

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ASEAN Coal Trend : Challenges and Opportunities on Facing ASEAN Economic Community (AEC)

ISBN : .....KDT : .....

WriterAsra Virgianita, Ph.D.Lecturer, Department of International Relations, Faculty of Social and Political Sciences, University of Indonesia

Santi Hapsari Paramitham, S.Sos.Paperer, ASEAN Study Centre, Faculty of Social and Political Sciences, University of Indonesia

Meliana Lumbantoruan, M.A.Research and Knowledge Manager, Publish What You Pay Indonesia

Reviewer Maryati AbdullahNational Coordinator, Publish What You Pay Indonesia

Jensi SartinProgram Development Manager, Publish What You Pay Indonesia

All Right ReservedFirst Edition, 2015

This paper was published by Yayasan Transparasi Sumberdaya Ekstraktif-Publish What You Pay Indonesia, with supported by Natural Resources Governance Institute and United State Agency for International Development (USAID). The contents are the responsibility of Publish What You Pay (PWYP) Indonesia and do not necessarily reflect the views of USAID, the United States Government, or the Natural Resource Governance Institute (NRGI).

Publish What You Pay IndonesiaJl. Tebet Utara 2C No.22B, Jakarta Selatan 12810, IndonesiaTelp/Fax :+62-21-8355560 | E: sekretariat@pwyp-indonesia.org

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) iii

Contents

Abstract ...................................................................................................................................................................... iv

Introduction ..............................................................................................................................................................1

Coal Trade Pattern and Global Value Chain: An Overview ........................................................................2

ASEAN Economic Community: The Way towards Integration.................................................................5

Coal Trends and the Readines of ASEAN Countries on Facing the AEC ...............................................7

Coal Prospects in ASEAN Region ..................................................................................................................7

ASEAN Energy Policy ........................................................................................................................................8

ASEAN Countries Strategy .............................................................................................................................9

Clean and Efficient Coal use in ASEAN: The Economic Benefit ........................................................10

Challenges and Opportunities of Coal Sector on Facing AEC ..............................................................11

Closing.......................................................................................................................................................................15

Short Bibliography of Authors ..........................................................................................................................17

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ASEAN energy consumption is forecasted to rise because of the significant growth of economy and population in the region. Coal use continuously increase as a replacement for oil and natural gas.

ASEAN plays significant roles in coal consumption and production in Asia Pacific. Using the value chain approach, it is projected that coal producer countries in ASEAN will have the chance to maximize the market through bilateral trade or AEC framework. The AEC can foster market integration in ASEAN, builds awareness of ASEAN countries to develop their infrastructure in energy sufficiency, as well as develops clean coal technology. Coal production in ASEAN will still leant on Indonesia as the main exporter in ASEAN. Energy policy of each country in ASEAN has a lot of things in common, which provides the space of building further regional coooperation in managing energy features. The future of coal sector in ASEAN will highly depends on advancement of technology, improvement of governance, effeciency of transportation, and connectivity between the countries. Strengthening cooperation and coordination must be a key strategy for ASEAN countries to ensure readiness in facing AEC.

Keywords: Coal, ASEAN, AEC, energy, value chain, governance

Abstract

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 1

Economic growth and industrial activity are the two strongly related aspects. In the era of global and regional market,

countries are expected to be competitive to survive the flow of foreign commodities, as well as compete their domestic commodities into foreign market. This condition requires high quality of infrastructure, including the technology, transportation, electricity, and energy supplies. Adequate energy supplies ensure sustainability of energy consumption for transportation, electricity, and technology.

Use of coal is continualy rising for producing electricity. Even, coal is forcasted to replace the use of oil and natural gas due to its abundance and affordability. With its

Introduction

BP Statistical Review of World Energy 2014 © BP 2014

Coal production/consumption by regionMillion tonnes oil equivalent

Production by region Consumption by region

Figure 1. Coal Production and Consumption by Region

Source: British Petroleum (BP) Statistical Review 2014 of World Energy 2014, accessed on December 21st 2014, through http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy/review-by-energy-type/coal/coal-consumption.html

cheaper price, coal comes out as a “new favourable option of energy source” in fulfilling energy demands. This is supported by volatility of oil price, scarcity of world’s oil reserves which uplifts necessity to seek alternative energy resources such as coal.

Data in figure one shows a general increasing number of world’s coal consumption and production, which Asia-Pacific region contributes a quite significant amount. This contribution shows a likelihood of growth of coal production and consumption in the regional and global level. In the trading context, Indonesia listed as the biggest coal export country in the world (around 46% of the world’s total coal trade), while China is

2

the country with the highest consumption of coal in the world.1

According to figure 1, coal has an abundant resource and has the security aspects in its supply. World Energy Outlook predicts that the global coal demand will grow by 15% in 2040. The coal main producers are China, India, Indonesia, and Australia. In Asia Pacific, ASEAN plays significant roles in coal consumption and production. Nowadays, in ASEAN countries, with the implementation of AEC-which will be in place in 2015-, the economic growth will stimulates industrial activities. Then this stimulus will affects ASEAN energy consumption. Furthermore, ASEAN energy consumption is forecasted to rise continously because of the significant growth of economy and population. These trajectory will place ASEAN as a key player in global energy system for now and the future.2 Although, ASEAN has plenty of natural resources, ASEAN countries are still relying on energy imports. Also, each country individually have different pattern of energy use.

This paper aims to look on challenges and opportunities of coal sector on facing AEC.This paper will use value chain approach, good governance, ASEAN framework and cooperation which is strenghtened through each countries member strategies.

Coal Trade Pattern and Global Value Chain: An Overview

Value chain explains set of activities of different production phases, including the combination of physical transformation and service input from producers, the process of

1 BP Statictical Review of World Energy 2014, accessed on December 21st, 2014 through http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy/review-by-energy-type/coal/coal-consumption.html

2 Maria van der Hoeven, Southeast Asia Energy Outlook, accessed on December 20th 2014 through http://www.iea.org/publications/freepublications/publication/southeastasiaenergyoutlook_weo2013specialreport.pdf

delivering the product to the consumers, and the waste of using.3 Value chain puts attention to the dynamics of inter-linkages between production activities which takes further to the traditional modes of economics and social analysis. Moreover, the full value of a product is regulated in this value chain.

In the case of coal, value chain can be illustrated through the set of activities of preparation, exploration, management and logistic, marketing, upgrading and investment. From this set of activities, exploration, production, management (including governance) and logistic are the key elements in assuring the value of coal. Next are marketing, investment, and guarantee towards the sustainable development of coal and mining usage. This process describes that investment for the infrastructure improvement, including rail and ports are crucial to deliver and distribute the end-products. The simple value chain is shown at Figure 2.

Thus, it is important to determine pattern of current coal trade in regard to the value chain. It is found that there is no significant change in the pattern of trade, both in exports and imports. The steam coal exports is more favourable, compared to cooking and lignite. However, the countries which produce steam coal are still limited.

Furthermore, the global steam coal trade value in 2013, was about 1028 Mt, which pattern of trade is led by the exports of coal steam product from Indonesia (432 Mt), Australia (182 Mt) and Russia (118 Mt).4 At the same time, the biggest importers come from China, Japan, India, South Korea, Chinese Taipei, and Germany. This proves that the coal trade center is currently heading to Asia. In 2013, China produced 3034 Mt of

3 Raphael Kaplinsky and Mike Morris, A Handbook for Value Chain Paper, 4.

4 World Coal Association, “Coal Fact 2014”, International Energy Agency , Coal Information 2014, BP Statistical Review of World Energy 2014.

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 3

coal which assembled it to the 1st position of coal producer country, above US (756 Mt), India (486 Mt), and Indonesia (486 Mt). This condition puts an interesting fact that China takes both roles as the biggest coal importer as well as the biggest coal producer.

Meanwhile, in ASEAN, Indonesia has the largest coal reserves with 22,5 billion tonnes, followed by Vietnam with 3.4 billion tonnes

and Thailand with 1,1 billion tonnes. However, in term of coal resources, Vietnam ranks first with 203.4 billion tonnes, while Indonesia has only 92,3 billion tonnes.

Although, the usage in domestic level is still low due to the high dependency on gas and oil supply, in the context of trading in ASEAN, Indonesia leads the pattern of coal trade. Indonesian coal is mostly exported to

Philippines, Myanmar, and Singapore. The detail of coal and mining trade intra ASEAN is described in the table 2

The data in the table 2, shows that coal and mining trade intra ASEAN is potential to be explored. Producer countries will have the chance to maximize the intra ASEAN market through bilateral trade or AEC framework. For instance, Thailand is reported to produce

approximately 1,372 Million Ton coal per year (2009). However, the produced coal is categorized as lignite to sub bituminous coal, which is a low quality coal.5 This situation opens the opportunity for trading with other

5 Viroj Sivavong , Electricity Generating Authority Thailand, Coal Demand/Supply Outlook in Thailand, 2009, 2, accessed on November 10th 2014 through http://www.kier.re.kr/upload/2009APEC-EGCFE/%28Session3-B%29Coal%20Demand-Supply%20Outlook%20in%20Thailand.pdf

Preparation: Infrastructure,

Policy, technology

Exploration and

Development of Product

Management/Governance and Logistic

Marketing Investing

• Host Country: ASEAN Countries

• Direct Use• Conversion

• High Quality of Coal and Mining

(Upgrading)

• Ensuring Revenue Transparancy

• Energy Security• Transportation/

delivery/distribution

• Intra Trade ASEAN (based on

AEC)• Outside ASEAN/

Global Market

• CCTs• Energy Efficiency

• Sustainable development

Figure 2. Value Chain of Coal

Source: Modified from various sources

Tabel 1 Coal Reserve and Resources by Country and Type, 2011 (billion tonnes)

Hard Coal Brown Coal Total

Reserves Resources Reserves Resources Reserves Resources

Indonesia 13.5 73.3 9 19 22.5 92.3

Vietnam 3.1 3.5 0.2 199.9 1.4 203.4

rest of ASEAN 0.4 2.4 1.7 2.2 2.1 4

Total ASEAN 17 79.2 11 221.1 27.9 300.3

Share of the World 2.30% 0.50% 3.90% 5.30% 2.70% 1.40%

Source: Table is adopted from Maria van der Hoeven, Southeast Asia Energy Outlook, accessed on December 20, 2014 through http://www.iea.org/publications/freepublications/publication/southeastasiaenergyoutlook_weo2013specialreport.pdf

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ASEAN countries to get the expected coal quality. In addition, coal trade becomes potentially beneficial in intra ASEAN, because they are in the same phase on enhancing their industrial capacity on facing AEC.

Nevertheless, several ASEAN countries only place coal as minor commodity on their whole intra ASEAN export. Reserving the coal for their own purpose is the essential factor of their acts, because they already have high domestic energy demands for industries and electricity, such as Laos and Vietnam. That’s why then some other countries with limited coal resource needs to import from other countries, while based on its proximity, neighbouring importer from ASEAN is an attractive option. Malaysia is one sample of

CountryBrunei

DarussalamCambodia Indonesia Lao PDR Malaysia Myanmar Phillippines Singapore Thailand Vietnam

Brunei

Mining - 531.195.045 - 370.727.641 - 73.860.279 378.122.631 466.747.623 593.266.643

Coa l - - - - - - - - -

Cambodia

Mining - 522.537 - 1.184 16 1.004 749.477 2.673.466 42.336.525

Coa l - 19.006.068 - 1.246.633.530 - 802.148.711 28.934.970 962.556.934 117.701.068

Indonesia

Mining 10.946.750 22.177.064 15.434 5.279.104.587 84.376.438 1.609.142.244 6.788.530.765 2.303.483.460 368.384.679

Coa l 21.511.813 - 1.136.928.627 1.546.249 1.007.207.109 19.608.561.066 834.864.654 130.606.674 755.000

Lao PDR

Mining - - 3.122.743 733.697 - - - 704.231.954 102.806.500

Coa l - - - - - 497.580 16.497.799 876.926 -

Malaysia

Mining 249.025.497 10.399.660 4.837.167.607 153.689 226.842.937 461.976.182 10.650.869.362 2.800.851.009 751.037.765

Coa l - 173.109 504.999 - - 25.945.558 - 5.518.537 -

Myanmar

Mining - - 15.136.482 - 733.482 727.253 117.896.275 3.765.764.484 49.120

Coa l - - - - - - 799.200 - -

Philippines

Mining 1.412.272 183.223 189.796.451 5.141 303.945.904 1.521.561 444.319.340 178.005.850 32.408.726

Coa l 2.362 13.201.200 66.278.084 31.747 361.236 2.262.000 16.794.594 263.395.991 89.653.832

Singapore

Mining 103.048.201 580.590.615 15.955.904.738 104.223 20.418.909.369 780.488.527 1.140.933.034 1.086.288.936 2.559.611.766

Coal 3.506 264.704 - 206.286 112.869 - 32.933 - -

Thailand

Mining 21.037.629 997.766.847 979.352.633 1.345.661.415 2.702.160.901 740.171.772 671.166.580 3.856.884.031 973.621.382

Coa l 1.742 81.497 6.684 474.358 232.001 14.062 21.961 - -

Vietnam

Mining 621.687 1.363.956.350 464.294.156 244.760.576 1.231.615.244 66.125.090 239.662.441 383.614.651 460.642.517

Coal 750 4.147.504 10.963.990 23.836.954 - 12.326.804 835.221.845 16.160.492 -

Table 2 Export-Import on Mine & Coal Intra ASEAN 2013 (in USD)

Source : ASEAN Stats Database based on the ASEAN countries’ report, accessed by request to the ASEAN Stats Database Officer in 2014

coal producer in ASEAN which produces coal, but still needs coal supply from imports. It happens since Malaysia can only produce 1 million tons per year, while its coal demand is about 30 million tons per year.6 Thus, Malaysia should imports coal from ASEAN countries, especially from Indonesia which is now recognized as reliable source of Malaysian primary energy.7

6 IEA Clean Coal Centre, http://www.iea-coal.org/documents/82373/7605/Prospects-for-coal-and-clean-coal-technologies-in-Malaysia-%28CCC/171%29

7 Ibid.

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 5

Table 3. ASEAN Mine and Coal Trade 2010 – 2013 (USD)8

Source : ASEAN Stats Database based on the ASEAN countries’ report, accessed by request to the ASEAN Stats Database Officer in 2014

The table 3 above explains that since 2010 until 2013, during the period when 3rd APAEC Plan is implemented, the exports of coal and mining rise significantly on some ASEAN countries. It further provides the evidence that the import also faces some gains. This phenomena suggest that the upcoming ASEAN Economic Community fosters the integrated market of ASEAN, as well as building awareness of ASEAN countries to develop their infrastructure in energy sufficiency for electricity and industrial activities.

The impact of ASEAN market integration opens the door for foreign companies to invest and conduct the coal and mining exploration in ASEAN countries. In 2013, the Government of Cambodia reported that the company which has licensed to do the exploration activities was 91, consisted of domestic and foreign companies.9 The

8 This data is measured on following kinds of resource : Mining (iron and steel; articles of iron and steel; ores, slag, and ash; copper and articles thereof; alumunium and articles thereof; lead and articles thereof; zinc and articles thereof; tin and articles thereof) and Coal (anthracite coal not agglomerated; bituminous coal not agglomerated; other coal not agglomerated; briquettes, ovoids, similar solid fuels from coal).

9 Chrea Vichett, Current Situation of Mining Industry in

companies contributed in exploration in Cambodia were from Australia, China, Thailand, and Vietnam.

Nevertheless, it should be noted that foreign investment is one of important factors not only for the development of coal and mining industry, but also for the development of eco-friendly coal and mining industry. It corresponds with the usage of clean coal technology which also needs the investment for the technology installation and other related process. Thus, the international cooperation has to be realized equally in investment, technology, and human resources.

ASEAN Economic Community: The Way towards Integration

ASEAN Economic Community (AEC) is one of three pillars that designed to implement the establishment of ASEAN Community by 2015. The idea of ASEAN Community 2015 formation was made through the Summit in Kuala Lumpur, Malaysia, in 1997 which agreed upon the ASEAN Vision 2020, aimed

Cambodia, General Department of Mineral Resources of Cambodia, 2013.

YearCountry E I E I E I E IBrunei Darussalam 818.450.727 287.302.215 1.429.178.511 413.557.339 1.248.681.128 551.270.625 2.413.919.861 407.612.209Cambodia 6.477.649 1.736.181.566 1.272.968 2.532.482.403 4.999.898 2.747.191.945 3.223.265.489 2.992.941.773Indonesia 15.622.651.672 18.544.618.722 15.317.893.317 20.552.598.175 21.621.354.440 21.328.473.993 39.208.142.614 23.073.252.218Lao PDR 889.808.661 863.559.029 712.239.553 1.129.360.367 620.958.285 1.445.296.146 8.282.767.199 2.752.178.450Malaysia 12.729.699.087 22.158.194.175 14.535.309.602 28.935.047.677 17.728.160.664 31.122.993.454 20.020.465.911 31.556.817.894Myanmar 2.963.400.096 2.008.252.380 2.945.464.591 1.001.307.797 2.268.839.598 1.358.840.844 3.901.106.297 2.921.336.316Phillippines 972.203.554 5.476.287.895 1.298.606.006 5.276.410.303 828.685.216 5.082.631.287 1.796.276.353 25.662.595.508Singapore 36.900.984.567 15.162.277.865 44.605.001.469 16.814.626.185 44.769.653.129 23.887.909.044 42.626.499.706 23.535.038.241Thailand 7.804.496.361 10.465.497.274 11.307.853.909 11.973.504.100 12.299.508.276 11.849.134.052 12.288.800.705 13.131.789.570Vietnam 3.662.483.628 5.668.484.811 4.279.796.783 7.696.818.404 4.686.403.623 6.703.502.867 5.357.951.051 5.631.633.006

2010 2011 2012 2013

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to create a stable and competitive region, and balanced economic development. Nevertheless, during the Summit in 2003, ASEAN Vision 2020 was accelerated to 2015. There are two main reasons why the establishment of ASEAN Community is fast-tracked. 10 First, the increasing influence and competition of China towards the region. Second, the rise of economic integration in various regions in the world without ASEAN participation.

AEC is expected to work in cooperation with ASEAN Socio-Cultural Community and ASEAN Political Security Community in succeeding the ASEAN Community.11 The aims of AEC itself is to achieve higher level of economic dynamism, sustained prosperity, inclusive growth, and integrated development of ASEAN by realizing the increasing interdependence amidst ASEAN countries. Three key characteristics of AEC are as follow, (1) Single Market and Production Base; (2) Competitive Economic Region; and (3) Equitable Economic Development. These points, highlight the implementation of agreement in which the signatories will be able to trade and invest optimally with the intra region partner.

However, there are pros and cons toward the AEC. The pros often view that AEC can stimulate the intra ASEAN trade, in which provide the strengthening integrated market of ASEAN. On the other hand, like every classic cons toward market integration, the concern revolves around, the “wide-opened door” of market which may result the tight competition and put the domestic commodities into danger.

Despite debates on postitive and negative view towards AEC, the supports for AEC can

10 Justyna Szczudlik-Tatar, “Regionalism in East Asia: A Bumpy Road to Asia Integration,” Policy Paper No. 16, (2013), 3.

11 ASEAN Economic Community Blueprint, (ASEAN Secretariat, 2008), 5, accessed on November 20th 2014 through http://www.asean.org/archive/5187-10.pdf

be indicated using the AEC Scorecard achievements. Based on AEC Scorecard data in 2011, from 277 sizes of expected liberalisation, ASEAN has done 187 or about 67,9% of them. In 2014, that percentage grows to 82,1%.12 Clearly, it describes the common efforts of ASEAN countries in realizing ASEAN liberalization and integration through AEC.13

The AEC implementation not only eliminates tariffs on trade and free flow of investment, but also discusses the agremeent upon the energy and mining. Exclusively in point B4, the energy aspect is mentioned, as part of AEC to-do list to promote the infastructure development, involving the completion of energy and mining cooperation.14 The energy cooperation, including the coal and mining is regulated in AEC Blueprint Article 53-56 which explicitly put the energy security and strengthening trade and investment in energy as the common goals.15 Meanwhile, the framework of trade coal and mining trade cooperation appeares on the formation of ASEAN Forum on Coal (AFOC) in 1999 which is a transformation of Coal Sub-Sector Network, previously built under the ASEAN Energy Cooperation Program.

It is agreed that the regional energy policy which enables the fulfillment of those goals, is required. This is to ensure implementation of the AEC goals as a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy by 2015.

12 The 12th AEC Council Meeting, August 26, 2014 accessed on December 28th , 2014, through http://ditjenkpi.kemendag.go.id/website_kpi/index.php?module=news_detail&news_content_id=1501&detail=true

13 ASEAN Economic Community Scorecard: Charting Progress Toward Regional Economic Integration Phase 1 (2008-2009) and Phase II (2010-2011) accessed on November 23rd 2014, through http://www10.iadb.org/intal/intalcdi/PE/2012/10132.pdf

14 Ibid., 20

15 ASEAN Economic Commnuity Blueprint, ASEAN Secretariat, 2008. Accessed on November 23rd 2014, through http://www.asean.org/archive/5187-10.pdf

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 7

APAEC 2010-2015 mentions that the energy policy agenda of the AEC is targeted to acquire these following ultimate objectives:16 1) to ensure a secure and reliable supply of energy including, bio-fuel, which is crucial to support and sustain economic and industrial activities; 2) to expedite the development of ASEAN Power Grid (APG) and the Trans-ASEAN Gas Pipeline (TAGP) which allow the optimization of the region’s energy resources for greater security and provide opportunities for private sector involvement in terms of investment, including financing and technology transfer. Integrated networks of electricity and gas pipelines offer significant benefits both in terms of security, flexibility, and quality of energy supply; 3) to ensure sustainable energy development, through mitigating greenhouse gas emission by means of effective policies and measures, among others; and 4) to strengthen renewable energy development, such as, bio-fuels, as well as to promote open trade, facilitation and cooperation in the renewable energy sector and related industries as well as investment in the requisite infrastructure for renewable energy development.

Coal Trends and the Readines of ASEAN Countries on Facing the AEC

Coal Prospects in ASEAN Region

ASEAN can be recognized as a region with adequate energy sources, especially in coal production. Geographically, ASEAN countries remains in the land inherited with coal and mining resources. This is proven by the latest report which shows that almost every country in ASEAN has the self-capacity to supply its energy demands, where the government of each country takes the biggest part. Like what Vietnam does by optimizing the role of Vinacom, the state-owned enterprise, to

16 ASEAN Plan of Action for Energy Cooperation, 2, accessed on November 10th 2014, through http://aseanenergy.org/media/filemanager/2012/10/11/f/i/file_1.pdf

operate the coal extraction 100%.17 Vinacom also responsibles to control the coal production, with the aims to secure the coal reserve. In 2001-2005, Vietnam faced a fast growing coal production which was considerable as a threat to domestic reserve. However, this fast growth were sucessfully managed by the authority of the government for the domestic reserve reason.18

In the case of Indonesia, the coal prospect is high and predicted to sustain until 2035.19 Indonesian coal production takes 85% of production in ASEAN which places Indonesia as the biggest coal exporter in the world. The value of Indonesian coal resource is 120,53 Billion Ton and the reserve is 31,36 Billion Ton, contributes only 6% of the world’s total coal reserve.20

Indonesia is also reported as the largest energy consumer in ASEAN, followed by Thailand and Malaysia on the second and third place. Nonetheless, its domestic consumption is lower than Indonesian coal export. This situation leads to the dependency and the multiply oil import value of Indonesia, even the whole ASEAN.

In other hand, the growth averages of energy demand including coal of four of the larger ASEAN countries in 2011-2035 are very diversified. The growth of demand for coal will occur in each country with percentage around 5.5% to 3.9% (Chart 1).21 In meantime, the highest growth of demand for oil and gas will occur in Philipines , while for hydro, bio-energy and other renewable energy, Malaysia will positioned as the country with the highest growth of demand for these kind of energy.

17 Global Methane Initiative accessed on December 12, 2014 through https://www.globalmethane.org/documents/toolsres_coal_overview_ch37.pdf

18 Ibid.

19 Maria van der Hoeven, Op.Cit.

20 BP Statistical Review of Energy 2013.

21 Maria van der Hoeven, Op.Cit.

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Coal prospects in ASEAN seems to be quite high, as electricity in ASEAN still uses coal as the source, and electricity plays an important role not only in daily uses but also in succeeding the industrial activities. It’s supported by the fact that though some countries have the abundant resources of coal and mining, the quality of the commodities are somehow distinct from one place to another.

The current conditions above indicates two important things. First, the coal production in ASEAN will still be leant on Indonesia as the main exporter in ASEAN. Second, the alternative way to use coal as the fuel of choice gives the prospect upon the coal trade value both intra ASEAN, and outside the region.

ASEAN Energy Policy

The upcoming AEC cause the economic growth of ASEAN countries as the intra ASEAN trade opens the opportunity of all commodities to pass through the other countries in region with no boundaries. This economic growth is followed by the massive industrial activities in ASEAN countries which is undeniably increasing. In purpose to fulfil

the market demand, the sufficient energy sources (such as oil, coal, and gas) are needed, so that the industrial activities are conducted properly.

Regarding the huge energy needs, ASEAN creates the common initiation for energy, called ASEAN Centre for Energy (ACE) to deepen the energy cooperation among ASEAN countries. A factual plan of ACE is ASEAN Plan of Action for Energy Cooperation (APAEC). APAEC aims to achieve the energy security and the sustainable of ASEAN in health and environment through the further utilization of Clean Coal Technology. Not limited to that, APAEC also points to facilitate the coal trade in ASEAN within the advance regional energy security. APAEC has been done in 3 periods, which is 1999-2004, 2005-2009, 2010-2015. The two latest plans are made to accomplish the ASEAN’s energy needs which is forecasted to double from 2005 to 2030 along with the implementation of AEC.22

In terms of coal, the existence of APAEC is expected to promote coal and clean coal technology, also foster the intra-ASEAN coal trade an investment for the regional energy

22 Ibid.

Chart 1. Percentage of Growth Averages of PRimary Energy Demand in Selected ASEAN Countries by fuel (Mtoe) 2011-2035

Source: Data are based on Maria van der Hoeven, Southeast Asia Energy Outlook, accessed on December 20th 2014 through http://www.iea.org/publications/freepublications/publication/southeastasiaenergyoutlook_weo2013specialreport.pdf

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 9

security. These plans are implemented through the ownership of AFOC under the ACE supervision as the secretariat, which involves the officials of Ministry of Energy from ASEAN countries. Each year, AFOC holds a meeting to receive each ASEAN country’s report on the mining and coal reserve and trade. This kind of meeting is advantageous to picture the challenges of mining and coal trade intra ASEAN, share about the energy needs, and suspect the potential partner for trade.

On this stage, the existence of ACE acommodate the grand framework for the ASEAN countries, related to the aspects that are important to be done, such us the use of clean coal technology and building of coal power plant. The cooperation made under the ACE gives the guidance for each country to formulate the national energy policy which is harmonized with the regional goal.

The policy in regional level agreed in 2009 for example, elaborates two important aspects: the pursue of reducing regional intensity of at least 8% by 2015, based on 2005 level (under Program Area No. 4 Energy Efficiency and Cooperation); and the effort to achieve a collective target of 15% for regional renewable energy in total power installed capacity by 2015 (under Program Area No.6 Renewable Energy).23

The ultimate programs in regional level are : buiding of an ASEAN coal image, development of ASEAN Coal Price Index, setting up coal laboratory and standards, promote intra ASEAN coal trade by facilitating bilateral and multilateral long term coal supply agreement, formulater an MOU similar to ASEAN Petroleum Security Agreement to enhance regional and security of coal supply, and developemnt of strategy/

23 Energy Management Policy in Indonesia and ASEAN, presentation for Workshop for ASEAN Coal Database and Information System 9-12 July 2012, accessed on December 10th 2014 through http://www.aseanenergy.org/media/documents/2012/08/03/f/i/file_2.pdf

action towards harmonization of local practices to encourage coal trading and sharing of resources and facilities.24 These programs affirms the ASEAN attempt to build a commitment in undertaking energy problem.

ASEAN Countries Strategy

ASEAN countries highlight aseveral important things related to energy, such as sufficient domestic energy fulfillment, fair and stable energy pricing, the exploration of sources within the territory, energy efficiency and conservation, and the environmental impacts. In general, it can be said that the energy policy of each country in ASEAN has a lot of things in common, which provides the space of building further regional coooperation in managing energy features.

Specifically in coal aspects, intra trade coal has been regulated in the Programme Area No.3 through the establishment of AFOC. Along with AEC, AFOC works to create the guidelines of coal specifications, producers, and consumers in ASEAN, as well as organise a network of coal laboratories in ASEAN to harmonise standards of coal analysis, to enhance the intra trade coal.25 Nevertheless, with regard to different capacity of coal production, each country in ASEAN implements different kind of policy related to its domestic needs and goals. The different kind of policy is sometimes also affected by the resource reserve and resource capacity constraint. Countries with the abundant resources of coal and mining, such as Indonesia and Malaysia relatively trade their coal resource with other countries in the region more than countries which resource is less. In addition, the different energy policy is reflected on the energy trade decision. For example, the energy policy of Laos to not

24 ASEAN Plan of Action for Energy Cooperation (APAEC 2010-2015), Op.Cit.

25 “Programme Area No.3”, accessed on December 10th 2014 through ASEAN Secretariat Website http://www.asean.org/news/item/programme-area-no-3-coal

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export its coal production and reserve all types of coal for supplying its high domestic consumption.

On the other hand, Singapore as the country with insufficient energi resources, is highly dependent to the import of energy. It puts Singapore in the fragile position under the dynamic of energy supplies. In purpose to face this condition, one of the implemented policy is by enhancing the enegy efficiency within Energy Conservation Act 2013.26 This agenda meets the energy policy in ASEAN which considers the efficient and clean energy as a crucial issue to ensure the energy reserve and sustainability in ASEAN. On the other hand, similar with Singapore, Philippines also concerns about improving the energy efficiency consumption. Although it’s recorder as the second biggest geothermal producer in the world, Philippines is still dependent on the import of energy. This makes a ground for Philippines to focus in efficiency energy and domestic energy access assurance.

The different natural resources ownership which causes to the various policies, becomes the justification to maximize the energy policy in ASEAN. This accomplishment foster the energy supply and sustainability, as well the domestic energy policy of each ASEAN country.

Clean and Efficient Coal use in ASEAN: The Economic Benefit

The abundant resource and competitive price of coal, put coal as the considerable energy option. It’s forecasted that the use of coal will steadily rise and reach to 58% in 2035, in business as usual scheme. On the other hand, coal is one of the primary environmental polluters. Large number of coal requires a good arrangement as the

26 “Singapore: Energy Efficiency in the Industry”, accessed on accessed on December 23rd, 2014 through http://www.sgc.org.sg/fileadmin/ahk_singapur/DEinternational/IR/diffIR/Energy_Efficiency_in_the_Industry_June_2014.pdf

environmental responsibility and the effort in maximizing sustainable economic benefit. ASEAN needs to create clean and efficient coal technology which costs much and capable human resources to operate the technology optimally. With regard to coal as a future energy alternative, it demands not only the ASEAN countries interests to secure the coal reserve, development, and sustainability, but also the contribution of developed countries to assist the funding and improving ASEAN human resources which orientation is up to clean and coal technology development.

A technology which is introduced to be the solution upon the environtmetal effect of coal usage is Clean Coal Technologies (CCTs). According to Shi and Jacobs,

“CCTs cover technologies ranging from the perspectives of coal through combustion and the clean up of waste gases to carbon capture and storage (CCS), will reduce the pollution emission intensity of coal and make coal cleaner.” 27

They also argue that the development and application of clean coal technologies (CCTs) are believed not only as the key to reconciling the tensions between coal use and the environment, but also the economic benefit, as they noted,

“While CCTs typically incur additional costs, they can also provide economic benefits in addition to environmental ones. For example, Integrated coal Gasification Combined Cycle power plant technology can increase efficiencies by 20–30 per cent compared with conventional coal-fired power plants; the captured carbon dioxide from CCS power plants can be injected into

27 Xunpeng Shi and Brett Jacobs, Clean Coal Technologies in Developing Countries, accessed on December 23rd 2014, through http://www.eastasiaforum.org/2012/09/25/clean-coal-technologies-in-developing-countries/ Details see also, Xunpeng Shi,China’s Attempts to Minimize non-CO2 Emissions from Coal: Evidence of Declining Emission Intensity, Environment and Development Economics 16. (2011): 573-590.

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 11

oil fields to increase the oil recovery rate by 4–18 per cent; and carbon storage technologies, such as the creation of bio-charcoal, can improve soil fertility, agricultural productivity and water quality. CCTs can also bring new export opportunities for developing countries. Upgraded low-rank coal — such as brown coal in Indonesia, which has had no previous market — may develop export opportunities clean and efficient coal technology. ”28

In addition, the World Energy Report 2013 explains that energy efficiency through the oil import reduction and the alternative to coal and natural gas will provide economic gains to ASEAN. This will increase the ASEAN countries’ import cost savings that eventually contribute to the rise of Regional GDP of about 2% (chart 2). 29 The same argumentation will also justify the necessity of coal usage efficiency to give the sustainable economic gains in the future.

In ASEAN, the implementation of CCTs was arranged during the Ministerial Statement (JMS) at the 32nd ASEAN Energy Meeting (AMEM) on September 23rd, 2014 in

28 Ibid.

29 Maria van der Hoeven, Op.Cit

Vientiane, Lao People’s Democratic Republic. In the attempt of CCTs implementation, the cooperation with dialogue partners (Japan, China, and Korea) is fostered, especially in the technology development and funding.

The implementation of APAEC shows its contribution to country’s awareness about the energy reserve, like what Indonesia experienced in 2010 to 2013. Indonesia gained its coal reserve from 21,13 in 2010 to 31,36 Billion Ton in 2013.30 Indonesia is also affected by the APAEC plan in realizing the clean coal technology as Indonesia’s coal long term strategy.

Challenges and Opportunities of Coal Sector on Facing AEC

According to the value chain and overview explanation above, to arrive at the answer of prospect of coal value chain of mining and coal trade in ASEAN, the paper should be determined to several factors which affected

the flow of production and trade, such as the trend of trade, the technology, governance, transportation and connectivity, and

30 “Country Reports Updates of Indonesia”, Ministry of Energy and Mineral Resources, delivered in 12th AFOC Meeting, Thailand, 21-22 May 2014.

Chart 2 Economic Gains on Energy Efficiency

Source: Chart is adopted from Xunpeng Shi and Brett Jacobs, Clean Coal Technologies in Developing Countries, accessed on December 23rd 2014, through http://www.eastasiaforum.org/2012/09/25/clean-coal-technologies-in-developing-countries/

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definitely the ASEAN energy policy. These factors are examined with the consideration of upcoming ASEAN Economic Community.

First, the trend of trade. Oil used to be the major resource consumed by the ASEAN countries. However, as the reserve of oil in ASEAN is being depleted, coal appears as another possible resource to explore. Based on the data of ASEAN energy outlook during the 1999 to 2007, the coal is an energy source that has the fastest growth. The high demand of coal is the result of the larger number of coal-fired power plant installation all over ASEAN countries. The consumption of coal is projected to increase approximately 7.7% per year from 2007 to 2030, due to the power plant installment and industries. The trend of coal and mining is further explained by the increasing amount of intra ASEAN Trade31 on coal and mining sector in 2010 that doubled in 2013 and reached more than 11 billion US Dollar in balance.

This situation proves that the energy consumption in ASEAN is getting higher as well as the demand of coal in the region, when the time is getting closer to the AEC implementation. It also guarantees the continuation of value chain in terms of supply and demand, because while the coal and mining are continuously produced, the demand is coming again and again.

Second, the technology, governance, transportation, and connectivity. This four aspects are interlinked to the success of production, since the value chain stresses on the flow of production, which involves the easy access of modern technology and distribution. The modern technology development is needed by the countries to cultivate the energy production. The more sophisticated the technology, the production will be more efficient and resulting the high quality. However it’s built widely vary across the countries, as Myanmar and Cambodia still

31 Both in export and import

has limited access to modern technology while Singapore has reached 100 percent of access.32 This triggers some countries in ASEAN, which Government and state-owned company unable to build high-technology to manufacture the coal and mining materials, to open the opportunity for foreign companies to explore the mining and coal within their land under specific regulations and permission.

Since coal is claimed as the preferable energy source than oil for its cheaper price and flexibility to be distributed, the problem no longer spins around the coal as a material. The challenge occurs on how fast and how easy the coal is carried from the producer to the consumer, for example from Indonesia to Cambodia. According to the nature of market integration, the border restraint gradually perishes as the AEC is approaching, which means the less cost for coal trade intra region.

Governance is the inseparable key element of value chain. Regarding the attempt to build a global and regional value chain, domestic policy (including the added-value of coal and mining process) becomes so essential. The governance issue is also related to the revenue transportation which is collected from the coal and mining industry. Resources Governance Index (RGI) which measures the quality of governance in the oil, gas and mining sector of 58 countries by looking at four key areas of transparency and accountability such as institutional and legal setting, reporting practices of government disclosure of information, the presence and quality of checks and oversight mechanisms that encourage integrity and guard against conflicts of interest, the broader governance environment, based on more than 30 external measures of accountability, government

32 Hanan Nugroho, “ASEAN Energy Cooperation: Facts and Challenges”, Jakarta Post May 19th 2011, accessed on December 11th 2014 through http://www.thejakartapost.com/news/2011/05/19/asean-energy-cooperation-facts-and-challenges.html

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 13

effectiveness, rule of law, corruption and democracy. Chart of RGI below, showing that most ASEAN countries still perforrm poorly on the index.33

Source:Resources Governance index, 2013, Asia Pacific Index Revenue Watch Institute (Country by country report : http://www.resourcegovernance.org/rgi)

Main finding of RGI report showing that ASEAN countries still lack laws and institutions that encourage integrity and openness, leading to poor performance, lack effective monitoring of licensing decisions, and poor government effectiveness, control of corruption and the rule of law, and Cambodia, Myanmar and Vietnam publish very little information on resource revenues.34 From this conditions, important to push countries on ensuring revenue from oil, gas and mining sector used for society welfare.

For the future value chain, integrated connection between each countries in ASEAN needs to be realized. The realization of integrated connection in ASEAN enhances the efficiency of distribution in ASEAN. Singapore, with its strategic location and modern technology is ideal to be placed as a hub to connect the coal and mining trade of

33 Resources Governance Index: A measure of transparency and accountability in the oil, gas and mine sector, Revenue Watch Institute: 2013

34 Ibid

the entire countries in region. Singapore has been well-known as a key hub for oil and maritime commerce for a long time, as it covers the activities of the entire valuechain from exploration management, refinery, and marketing and trading for energy products.35 Consequently the plan will also work for the coal and mining trade.

Third, ASEAN energy policy. The continuation of ASEAN Centre for Energy, especially the APAEC Plan, gives the guidance for each country in ASEAN to compose the national energy policy that meets the standard of regional purpose, for example the power plant building, the agreement to reduce the carbon emissions, and the use of clean coal technology. An agenda to foster the intra-ASEAN coal and mining trade also signs that ASEAN is moving forward to achieve the regional self-sufficiency. The reason why it is important, as explained previously, because the energy self-sufficiency leads to the growth of economy and industrial activity, which is crucial in facing the ASEAN Economic Community. In precise, harmonized policy will make unproblematic production and distribution in the region, so that each country has the ability to export and import the commodity thoroughly, which directly affects the fulfillment of national demand of energy.

Closing

Besides, the proliferation of modern technology is also necessary to cultivated for the countries with limited access. It helps the countries to manage and conduct the coal and mining production properly and produce the high quality products. With the ability to reach the demand and standard of good coal and mining those countries will then actively support the intra ASEAN coal and mining trade. Additionally, to tackle the challenge of

35 Mark Hong, “Overview of Singapore’s Energy Situation”, Energy Perspectives on Singapore and the Region, (Singapore: ISEAS, 2007), 2-3.

Chart 3: East Asia and Pacific Index scores and ranking

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coal as energy source which contributes to the environmental pollutant, an advanced technology is also required. In this context, strengthening regional cooperation on both intra ASEAN and ASEAN with its dialogue partners will be an alternative to acquire a coal and mining trade which economically and environmentally advantageous.

Moreover, the readiness of ASEAN countries in the face of the AEC , especially in coal and

mining trade, not only rely on domestic strategy of each country , but cooperation and coordination on energy issues Including coal and mining sectors in ASEAN level should be maximized. Potential cooperation for development and trade of mining and coal must also be a key strategy of ASEAN countries. The good common framework in the management, development, and trade should be built, as without it, the AEC will become merely an ASEAN’s rhetoric.

ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 15

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ASEAN Coal TrendChallenges and Opportunities on Facing ASEAN Economic Community (AEC) 17

Asra Virginianita, lecturer at Depertment of International Relations at Faculty of

Social and Political Sciences, University Indonesia. Got her Ph.d. from Meiji

gakuin University, Japan in 2014. She is research manager at Japan study

centre University of Indonesia, lead researcher in DIKTI on “Perception and

Local Government Policy on facing ASEAN Economic Community (AEC)”.

She ever become speaker in some seminars about AEC in Makasar, Jambi,

International Seminar that held by Centre for International Relations

Studies (CIRes)- FISIP UI. She also active writing opinion in Media and journal

such as Jakarta Post, Global and Strategies Journal Airlangga University.

Santi H Paramitha was born on March, 11st, 1992 in Surabaya,

East Java. She graduated from Department of International

Relations - University of Indonesia in 2014. She actively

engage as contributor and research assistant in ASEAN Study

Centre, Faculty of Social and Political Sciences, University of

Indonesia. She concern in ASEAN China free trade agreement

and Asean Economic Community (AEC) issues.

Meliana Lumbantoruan was born on July, 5th, 1987 in Indrapura-North

Sumatera. She got her Master degree from Department of International

Relations - Gadjah Mada University in 2013. She manage research and

knowledge management division and also manage programme of Southeast

Partnership for Extractive Reform in Publish What You Pay. She interested

on Value chain, Asean Economic Community, extractive indsutry

governance, community advocacy and sustainable development issues.

Short Biography of Authors

PWYP Indonesia is a coalition of civil societies for transparency and accountabilityof extractive resources governance in Indonesia. PWYP Indonesia was established in2007, legalised under Indonesia’s law in 2012 as Yayasan Transparansi SumberdayaEkstraktif , and affiliates to the network of PWYP global campaign. PWYP Indonesia

works in transparency and accountability along the chain of extractive resource, fromdevelopment phase of contract and mining operation (publish why you pay and how

you extract), production phase and revenue from industries (publish what you pay), tothe spending phase of revenue for sustainable development and social welfare (publish

what you earn and how you spent).

Website: www.pwyp-indonesia.orgEmail: sekretariat@pwyp-indonesia.orgFacebook Fanpage: Publish What You Pay Indonesia Twitter: @PWYP_Indonesia