In September 2021, the Indonesian company Bayan Resources was trading at around 14,500 rupiah per share on the Indonesia Stock Exchange. For many other companies, like Singapore’s Sea, the end of 2021 was a high-point for its stock, before the Federal Reserve’s interest rate hikes put the screws on equities and stocks began falling back to earth.
Not so for Bayan, which has defied the overall market trajectory in 2022 and hit 78,800 rupiah per share on July 1. It is now one of the most valuable companies listed on the Indonesian exchange by market cap. How can we account for this meteoric rise when most other stocks are going down? Simple. Bayan is a coal company.
Bayan, which holds several lucrative mining concessions on Kalimantan, did not have a great year in 2020, as global coal prices were depressed due to the pandemic. The firm booked a net operating profit of $296.7 million on $1.4 billion in revenue – which just goes to show, even in a down year coal still has good margins. But as economic activity around the globe lurched back to life in 2021, the price of coal skyrocketed. And so did Bayan’s earnings.
In 2021, the firm’s operating profit jumped to $1.7 billion on $2.85 billion in revenue. And the vast majority of that came on the export market. From 2020 to 2021, export revenue increased 116 percent from $1.2 billion to $2.6 billion. Domestic sales over the same period increased a modest 23 percent, from $172 million to $212 million.
As a result of surging profits, the firm paid shareholders more than $300 million in dividends in 2021 and investors rushed into the stock. With coal prices staying high in 2022 (though likely to cool off soon), Bayan remains an attractive stock even as equities more generally have been shedding value.
Bayan’s financial performance illustrates a couple of things about energy markets in Indonesia, and elsewhere. One, it helps us to better understand why the Indonesian government banned coal exports earlier this year. I previously discussed the logic behind that move, but this puts some numbers on it. If coal companies, like Bayan, can make big profits chasing high prices on export markets why would they supply the domestic market at an artificially low price? They wouldn’t, unless the government forced them to (which it did). Looking at Bayan’s export revenue vs its domestic revenue tells that story pretty clearly.
The company’s recent financial performance also shows that, like it or not, coal plays a major role in the Indonesian economy. Coal, especially during this post-pandemic price boom, is profitable. In purely financial terms, it’s a good investment and Indonesian policymakers want large, profitable companies that pay big dividends listed on the domestic exchange. It’s also been good for state finances. Last year Bayan paid $164.7 million in royalties from its coal mining concessions, almost triple what it paid in 2020. Coal exports are likewise helping generate surpluses in Indonesia’s current account which is one reason the rupiah has held up pretty well despite months of volatility in currency markets.
Coal may not be good for the climate, but in Indonesia it plays an important and often profitable role in the larger economy, as Bayan Resources demonstrates. Climate policies that ignore this reality are going to struggle to gain traction or be effective. Realistic plans to alter the economic calculus at play here will need to go beyond better ESG disclosure requirements or a better pricing mechanism on green bonds. It will take more than aspirational commitments announced at global summits. Ultimately it is going to require difficult political trade-offs that engage with the actual structures that govern the supply and distribution of energy, and that starts with acknowledging the true role of coal in Indonesia’s political economy.