Only a few months after imposing a price cap on coal supplied to the domestic sector, the Indonesian government is now considering to scrap the decision and place a new regulation in place.
Media reports from Indonesia have informed that a high level meeting is scheduled on 31 Jul’18, where the decision regarding the price cap regulation would be discussed.
Indonesian Energy and Mineral Resource had imposed a new set of rules in coal mining sector, especially regarding coal that was sold domestically under DMO.
Under the Domestic Mining Obligation (DMO), the Indonesian government compels the local coal miners to supply 25% of their coal production to the domestic market, specifically to the coal fired power plants, as there exist need to increase coal supply for power generation.
The most important and controversial regulation was to put a price cap on coal that was sold to the coal-fired power plants. The price cap which varies between USD 37-70/MT on different coal grades was aimed to supply cheaper coal to power plant operators.
| Coal Grades | Price Cap | Coal Consumed by PLN (% share in total demand) |
| Greater than 6000 GAR | 70 | 0.8 |
| Between 4500 – 6000 GAR | 43 | 63.1 |
| Less than 4500 GAR | 37 | 36.1 |
Source: Bisnis Indonesia
Price in USD/MT
The price cap on coal came out as a boon for Indonesian utility PLN (Perusahaan Listrik Negara) , which has been complaining about the fall in earnings as a result of the rising coal prices. Besides, it was also difficult for the company to adjust subsidised electricity rates in times of high coal prices as they were set by the government.
However, local coal miners were rather unhappy with the decision, as they had only saw their revenue and profit growing on the back of the strengthening coal prices. But, due to the imposed price cap they were forced to sell coal at uncompetitive prices.
Alternative to Price Cap:
According to media reports, an official from the Indonesian Energy and Mineral Resource has stated that the ministry would seek a new formula for coal pricing under DMO program, which would mean that the existing price cap would be scrapped.
Main reason behind removing the price cap has been cited as the decline in state revenue as the selling price of coal to the domestic sector was lower than the actual market price.
It is expected that the government might introduce new levy on coal, similar to levies imposed on the palm oil exports in mid-2015.
The levy on coal is also set to generate funds up to USD 1.6 Billion per year which would be enough to subsidise PLN (to cover part of the cost of electricity generation) and will also boost income coming from non-tax mining revenue and government’s foreign exchange reserved.
Leave a Reply