The future of coal export after Permendag 48/2018

Starting August 2018, the country’s coal exporters must use domestic insurance services in the shipment of the commodity as stipulated under the new Trade Ministerial Regulation No. 48/2018.

Under the new regulation, there will be no more exemption as was the case last year (under previous Ministerial Regulation No 82/2017) particularly when the relevant insurance products from Indonesian insurance companies are limited or unavailable. 

Therefore, ready or not, starting August all coal export activities from the country must use marine cargo insurance services provided by domestic insurance companies.  

Data from the Indonesian General Insurance Association (AAUI) shows there are 76 general insurance companies of the association’s members, of which 73 companies have exposure in marine cargo insurance business, including for coal commodity.

For years, the country’s coal exports have been delivered by using Free on Board (FOB) contracts, under which the buyers are responsible for the freight and insurance services, and thus assume all liability from the loading point to the destination point.

In contrast, under the Cost, Insurance and Freight (CIF) contract, the seller pays for the freight costs and insurance against all risk of loss and damage from the loading point to the destination port.

The new regulation, however, does not specify the type of coal trade contracts, whether to use FOB or CIF.

The coal exporters should also regularly report the insurance used in covering the export to the Directorate General of Foreign Trade at the Ministry of Trade. Violating terms of use of national insurance would be suspension / revocation of business licenses.

The Permendag 48/2018 however, stated that the mandatory use of Indonesian ships in the export and import the commodities would be delayed to May 1, 2020 from the initial plan of April 26, 2018.

A must-attend conference would discuss the future of coal export from Indonesia, the world’s largest thermal coal exporter and exploring the readiness of local insurance company and Indonesian-flagged ships to cover export activities of coal.

The conference would also explore the legal status of existing and long-term contracts of coal export of which the parties agreed on the use of foreign insurance services from foreign insurance company if the Permendag 48/2018 take effective.