(EnergyAsia, March 14 2012, Wednesday) — US ratings agency Fitch said Indonesia’s coal mining sector faces strong growth prospects but “can benefit from clearer and more predictable regulations.”

“Fitch expects medium-term demand-supply dynamics for thermal coal to remain well balanced, leading to healthy prices and strong operational cash flows for Indonesian coal miners,” said Shahim Zubair, Associate Director in Fitch’s Asia-Pacific Energy & Utilities team.

While it has the advantage of low production costs, the Indonesian coal sector is in transition and requires clear operational and regulatory guidelines for investors to make sound decisions.

Fitch cited the proposed ban on low-rank coal exports as an example in need of clear rules as most of the large miners affected by this ruling had invested in Indonesia on the understanding that they could freely ship their output to other countries.

While acknowledging that Indonesia faces a tough act to balance the health of the industry against the country’s domestic energy security, Fitch said it believes the government will take “a pragmatic approach” or face long-term “negative consequences”.

Fitch said the sector has been undergoing rapid capacity expansion and merger and acquisition activities, resulting in operators taking on increased operational and financial risks. It becomes even more imperative for the government to improve transparency and operating rules so that investors are able to properly and accurately assess risks associated with such high-cost projects.

Fitch said credit profiles of Indonesian coal miners remain sub-investment grade, owing to limited mine site diversification, evolving mining regulations, debt-funded expansion and, in some instances, corporate governance issues.