Through Energy and Mineral Resource Ministry Regulation No. 19/2018 on the Procedures for Determining Benchmark Prices of Metal and Coal Sales as well as through Energy and Mineral Resource Ministry Regulation No. 1395 K/30/MEM/2018 on the Selling Price of Coal for the Electricity Supply for the Public Interest the Indonesian government had imposed a new set of rules in the coal mining sector, specifically regarding coal that is sold domestically under the DMO.

Under the DMO program, the Indonesian government forces local coal miners to supply 25 percent of their coal output to the domestic market, specifically to coal-fired power plants (PLN being the biggest domestic buyer), as there exist a need for an increase in Indonesia's electricity supply.

One important and controversial new regulation was the price cap on coal that is sold under the DMO. The price cap, which differs per coal type (see table below), ranges between USD $37 - USD $70 per metric ton. The aim of this cap is to provide cheap coal to Indonesian power plant operators. PLN had been complaining that the rapidly rising coal price (currently above USD $100 per metric ton) severely burdens the company's corporate earnings. After all, subsidized electricity rates in Indonesia cannot be adjusted in times of high coal prices because they are set by the central government.

Price Cap Mechanism Under DMO Scheme:

Coal Type
(kcal/kg GAR)
Price Cap
(USD/ton)
Coal Consumed by PLN
(% of PLN's total demand)
>6,000      70                 0.8
4,500 - 6,000      43                63.1
<4,500      37                36.1

Source: Bisnis Indonesia

While the price cap is positive for Indonesian power plants, local coal miners are very unhappy about the cap. After several years of low coal prices (which manage to kill plenty of smaller Indonesian coal miners), they finally saw their revenue and profit rising on the back of the strengthening coal price. However, under the DMO scheme they are forced to sell 25 percent of their coal output at home at rather uncompetitive prices, thus limiting their revenue and income.

Arcandra Tahar, Deputy Minister at Indonesia's Energy and Mineral Resources Ministry, stated on Friday (27/07) that the Energy ministry would seek a new formula for the coal price in the DMO program, implying the existing price cap would be scrapped. Main reason being that state revenue is negatively affected by the price cap as the selling price of coal (sold under the DMO) is lower than the market price.

It is expected that the government will introduce a new levy on coal in a bid to generate fresh funds that will be used to subsidize PLN (to cover part of the costs of electricity generation). This levy would be very similar to the palm oil export levies that were introduced by the Indonesian government in mid-2015. Back then the government imposed a USD $50 per metric ton levy on crude palm oil (CPO) exports, and a USD $30 per metric ton levy on exports of processed palm oil products. Proceeds from these levies are (partly) used to finance the government's ambitious biodiesel subsidy program.

Tahar said it is likely that a USD $2 - $3 per metric ton levy will be imposed on coal. He added that it would generate up to USD $1.6 billion per year in new funds, which is more than enough to cover for PLN's electricity subsidies. Contrary to the palm oil levies (which apply to exports), in the case of coal each ton of production is planned to be levied. Tahar added that the new formula would give a boost to state income from non-tax mining revenue and the government's foreign exchange reserves.

Hendra Sinadia, Deputy Executive Director of the Indonesian Coal Mining Association (APBI), is positive about the revision and added that his institution had already proposed such concept.

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month  2017  2018
January  86.23  95.54
February  83.32 100.69
March  81.90 101.86
April  82.51  94.75
May  83.81  89.53
June  75.46  96.61
July  78.95 104.65
August  83.97
September  92.03
October  93.99
November  94.84
December  94.04
Average  85.9

 

Month  2012  2013  2014  2015
 2016
January 109.29  87.55  81.90  63.84  53.20
February 111.58  88.35  80.44  62.92  50.92
March 112.87  90.09  77.01  67.76  51.62
April 105.61  88.56  74.81  64.48  52.32
May 102.12  85.33  73.60  61.08  51.20
June  96.65  84.87  73.64  59.59  51.87
July  87.56  81.69  72.45  59.16  53.00
August  84.65  76.70  70.29  59.14  58.37
September  86.21  76.89  69.69  58.21  63.93
October  86.04  76.61  67.26  57.39  69.07
November  81.44  78.13  65.70  54.43  84.89
December  81.75  80.31  69.23  53.51 101.69
Average  95.5  82.9  72.6  60.1  61.8

in USD/ton
Source: Ministry of Energy and Mineral Resources

Indonesian Production, Export, Consumption & Price of Coal:

  2014 2015 2016 2017 2018 2019
Production
(in million ton)
 458  461  456  461  485¹  400¹
Export
(in million ton)
 382  375  365  364  311¹  160¹
Domestic
(in million ton)
  76   76   91   97  121¹  240¹
Price (HBA)
(in USD/ton)
 72.6  60.1  61.8  85.9     -     -

 

  2008 2009 2010 2011 2012 2013
Production
(in million ton)
 240  254  275  353  412  474
Export
(in million ton)
 191  198  210  287  345  402
Domestic
(in million ton)
  49   56   65   66   67   72
Price (HBA)
(in USD/ton)
  n.a  70.7  91.7 118.4  95.5  82.9

¹ government target
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

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