CMEA Luhut Binsar Panjaitan - Photo by CMEA Office

JAKARTA (TheInsiderStories) – Indonesian government’s consider to ease domestic market obligation policy for coal miners to boost export, said one senior official last week. Currently, the government imposes 25 percent quota of coal output for domestic consumption with a special price of US$70 per ton for electricity producer PT Perusahaan Listrik Negara (PLN).

If the government applies this policy, analysts estimates could harm PLN’s financial condition and consumers cause there is potential for electricity prices to rise.

Last March, the Energy and Mineral Resources Ministry (EMR) has decided to cap ceiling price of coal for DMO at $70 per ton, for 6,322 calorie coal, or price is set based on the benchmark Indonesia Coal Price (HBA) if the coal price moves to below $70 per ton within two years period.

The EMR Ministry’s decree – Number 1395K/30/MEM/2018 on the Price of Coal Used in the Power Plants for the Public Interest – also sets the maximum volume of coal to be purchased to generate coal-fired power plants at 100 million tons per year, or in accordance with the coal needs of the power plants.

The ministry said, the Government lowered the coal price for DMO to keep electricity tariffs unchanged until 2019. The cap on thermal coal for power is intended to shield the state-owned power producer from price fluctuations.

“The decision to cap the coal sale price to generate coal-fired power plants are aimed at ensuring electricity price is kept, in order to guard the purchasing power of the society and industries’ competitiveness,” the EMR Minister Ignasius Jonan said on March 8.

The coal price applies for the period of Jan. 1, 2018 until December 2019. This means that the price of coal for the ongoing contracts that have been applied from Jan. 1, will be adjusted with the new regulation.

The energy ministry’s decision takes into account the Government Regulation Number 8, 2018 on the Fifth Amendment of the Government Regulation Number 1, 2014 on Coal and Mineral Resources Mining Business and the Energy and Mineral Resources Ministry Number 19, 2018 on the Second Amendment of the Energy Ministerial Decree Number 7 2017 on the Formulation of Sale Price of Minerals and Coal.

The ministry also said that as for coal with other calorie level, its price is converted into coal with 6,322 calorie level based on applicable formulation. It added, that the coal producers that are selling coal to the power plants will be allowed to add production by up to 10 per cent, if meeting the government’s requirements.

The above government decision on capping the coal price for domestic power sector has triggered heated public debate over the past few months. The debate was initially sparked by the demand of PLN, requiring the government to set floor and ceiling price of coal to be purchased by the electricity company, as the coal price continues to spike.

The reason is that PLN could not pass on the coal price hike as the government has decided to keep the electricity price unchanged until March 2019. As a result, PLN has suffered additional burden of around Rp 14 trillion (US$1.02 billion) due to coal price hike.

Eliminated DMO Policy

Last week, after met President Joko Widodo in Bogor Palace, Coordinating Minister for Maritime Affairs (CMEA) Luhut Binsar Pandjaitan told reporters, the government wants to see higher export from the commodity and is mulling to repeat the levy policy on palm oil exports in coal.

In palm oil, every ton of export on a specific price is charged with additional levies which will then be funneled to support biodiesel production. In coal, Pandjaitan said, the levies would be funneled to PLN. The new policy will be discussed on a cabinet meeting on Tuesday (31/07), he said.

Vice Minister for EMR Arcandra Tahar added, his ministry offer other mechanism to replace the DMO policy. But he denied to explain more on the details of the plan.
Commenting on this plan, Tulus Abadi from Indonesian Consumers Foundation give some critical notes. First, he said, if viewed from the side of public policy is a setback. If this discourse is applied then it means the government is more pro to coal producers rather than the interests of the electricity consumers.

Second, he said, that the formulation initiated by the CMEA should be aborted cause has potential make PLN’s finance could be bleeding, and then adversely affect the service and reliability of the company to electricity consumers. At the end, he urged the CMEA proposal to be rejected by President Joko Widodo.

Based on data from the EMR ministry, total coal production in 2018 is estimated at 425 million metric tons and the market price of coal in July 2018 of $104.65 per metric ton. If the DMO policy remove is estimating to boost the coal producer’s revenues around $11.12 billion. But if using the DMO price of $70 per metric ton, their revenues down to $7.44 billion.

Panjaitan statement, if the government revoked the DMO price is possible to boost export is not make sense cause the coal producers must fulfill its obligation to PLN. This mean there will be no additional foreign exchange from export revenue, but the additional revenue of coal producers from PLN, which comes from the increase of selling price from $70 up to $104.65 per metric ton.

Furthermore, the government plan to levy $1-3 dollar of coal export to cover the additional cost of PLN will not be sufficient to cover the cost of PLN on the DMO price cancellation. The additional cost of PLN is estimated at $3.68 billion, while the contribution from businessman only accumulate $1.28 billion.

In addition, the use of subsidized funds will occur time lag between the cancellation of DMO price with the collection process of funds, let alone still waiting for the establishment of collecting agencies, which will further extend the time lag, thereby extending the burden of costs to be borne by PLN.

Amid the rise in primary energy prices used by power plants: fuel, diesel, gas, coal, PLN expenses in running Public Service Obligation not to raise electricity tariff until 2019 and government assignment in achieving 100 percent electrification and the 35,000 megawatts project will cause PLN’s burden to increase in weight due to DMO cancellation of coal price.

Moreover, PLN has suffered losses in the first half of 2018 of Rp6.49 trillion, compared to the same period in 2017, PLN still recorded a net income of Rp 510.17 billion.

DMO cancellation of that price will further increase the PLN’s prolonged losses. If PLN’s losses are allowed to drag on, then it is possible that PLN is threatened with bankruptcy. If the only stun Plant in Indonesia is completely bankrupt, it can not be denied

US$1: Rp14,300

Email: linda.silaen@theinsiderstories.com

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The Insider Stories Founder Linda Silaen has a solid, proven history, established over more than a decade as a journalist with a leading internasional news organization, of being the first with the biggest economic news stories in Indonesia. Specializing in corporate news, Linda is also a veteran of some of the biggest macroeconomic and general news stories as Indonesia rapidly transforms into a major market economy. One of the founders of the original blog from which this company developed, Linda’s knowledge of investors’ information communications and data us developed from unrivaled networking skills that make her a well-known name among CEOs, bankers, government officials and private equity investors both in Indonesia and other countries.

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