June 1 (Bloomberg) -- Regulations by Indonesia to protect the environment and to designate mining areas may reduce production from the world’s biggest exporter of power plant coal, an official said.

Indonesia plans to impose a moratorium on deforestation, a new environmental law and is currently undertaking an exercise to classify areas for mining and as forest reserves, Bob Kamandanu, chairman of the Indonesian Coal Mining Association, said in an interview yesterday.

“The new environmental laws are the biggest issue facing the industry,” Kamandanu said at the Coaltrans Asia Conference in Bali, Indonesia. “Violating the law becomes a crime.”

Indonesia’s coal production may increase 7 percent this year to 320 million metric tons from about 300 million tons in 2009 as demand from buyers in India and China remains “bullish,” Kamandanu said. Coal demand in Indonesia may almost double in five years as the biggest economy in Southeast Asia adds power-generating capacity, a government official said.

President Susilo Bambang Yudhoyono said last week at the Oslo Climate and Forest Conference, where a global climate and forest partnership is being established, that his country will “protect” its rainforest. The two-year moratorium may effectively stop open cast mining, a prevalent form of mining practice in Indonesia of extracting rock or minerals from the earth by their removal from an open pit, Kamandanu said.

“It’s not clear if it applies to new mining areas or existing ones,” Kamandanu said. “We hope the Indonesian government will not put the industry on hold.”

Rising Demand

The new environmental law may allow anyone to complain against a mine on degradation of the land, such as flooding or acid rain, and empowers the authorities to criminally punish a person or organization for such crime, Kamandanu said. The industry is working with the government on clarifying the rules, he said.

In addition to green laws, the central and local government authorities are classifying separate areas for forest and mining every five years, said Kamandanu, who’s also a company official at PT Berau Coal.

“There are gray areas in the regulations,” he said.

The new regulations will also require producers to obtain an environmental permit in addition to forestry and mining licenses before exploiting the land, he said.

Indonesia’s coal consumption may increase to 120 million tons by 2015 from about 64 million tons this year, said Bambang Setiawan, director general of mineral resources.

--Editors: Jane Lee, Ryan Woo.

To contact the reporters on this story: Yoga Rusmana in Jakarta a yrusmana@bloomberg.net; Dinakar Sethuraman in Singapore at dinakar@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net.

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