Coal mining (Image credit : APBI-ICMA)

JAKARTA (TheInsiderStories) – The Energy and Mineral Resources Ministry is soon expected to issue a regulation that will set a floor and upper ceiling price for coal to be purchased by state electricity company PT Perusahaan Listrik Negara (PLN) for its power generation plants, under the Domestic Market Obligation (DMO) scheme.

The issuance of the ruling is currently on hold, pending the conclusion of a public hearing between the Energy and Mineral Resources (EMR) Ministry and representatives of national coal producers.

Over the last few weeks, there have been intensive talks between representatives of national coal producers and the Energy and Mineral Resources Ministry; however, it appears that they are still far apart on a final agreement.

Andy Noorsaman Sommeng, Director General for Electricity at the EMR Ministry, said last week that the coal price formula has been set by the ministry and should, therefore, be issued in the next week or so.

Bambang Gatot Ariyno, Director General for Minerals and Coal at the EMR Ministry, said that his ministry will consider all aspects before issuing the regulation.

The EMR Ministry was reported to be setting the lower coal price to be purchased by PLN at US$60 per ton and a ceiling price at $70 per ton, which is far lower than the current global coal market price of around $100 per ton. Coal producers want the ceiling price to be higher than $70 per ton, in order to more closely reflect the current market price.

Director Executive of the Indonesian Coal Producers Association Hendra Sinadia said coal producers through the Association have proposed the government raise the ceiling price to $85 per ton, which is still lower than the current global market price.

The discussion was triggered by a price hike which has increased PLN’s expenses. The reason is that PLN buys coal from coal producers based on market price; however, PLN is prohibited from raising the tariff of electricity sold to consumers. As a result, PLN suffers an extra burden anytime the coal price surges – as is happening at the present.

PLN earlier requested the EMR Ministry to set the price of coal purchased by PLN under a DMO. However, the Ministry is yet to make a decision, pending results of discussions with all stakeholders, including coal producers.

In 2017, Indonesia produced 461 million tons (MT) of coal. Of this output, 97 MT of coal were supplied to the domestic market – in this case to PLN – to fuel its power generation plants, under a DMO scheme. The remaining 364 million tons were exported.

For this year, the government set a minimum DMO of 25 per cent of total production, which is estimated to reach 385 million tons.

PLN Director for Strategic Procurement Supangkat Iwan Santoso said the surge of coal prices has added Rp14 trillion ($1.07 billion) in extra expense for PLN coal-fired power plants, a burden which cannot be passed on to consumers, as electricity tariffs are set by the government.

The rise of the price of coal exerts a significant impact on PLN, since at present around 60 per cent of PLN’s power generation comes from coal.  The Indonesian Coal Price in February stood at $101.69 per ton, 20.8 per cent higher compared than the same month last year and 5.4 per cent up from January’s $95.54 per ton, driven by higher demand from key markets and weather disruption in coal-producing areas.

The February level was the highest since December 2016, when it stood at $101.69 per ton. The coal price in February was higher than the average coal price of $85.92 per ton in 2017, and an average of $61.84 per ton in 2016.

From the point of view of PLN, setting a price band for coal price is indispensable, given the increase in coal prices; otherwise; PLN would be forced to raise electricity tariffs, which would have a serious knock-on impact on the economy, including pushing up inflation and cutting into consumers’ purchasing power. For some, however, setting the price of coal under a DMO only serves the interests of PLN.

The public certainly hopes the government and coal producers will come up with a fair and balanced outcome, which will put the interest of the public as the highest priority.

US$1: Rp 13,500,-.

Email: roffien@theinsiderstories.com

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