Indonesia Caps Coal Prices for Power at US$70

EMR Minister Ignasius Jonan (thrd from right) inaugurates a coal-fired power plant built by KPC (Image Credit : Special)

JAKARTA (TheInsiderStories) – The Indonesian Government has decided to cap ceiling price of coal for domestic market obligation (DMO) at US$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 US$70 per ton within two years period, Energy and Mineral Resources Ministry (EMR) said in a press statement on Thursday (08/03).

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 state-owned power producer PT Perusahaan Listrik Negara (PLN) 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.

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 Government will issue Presidential Decree, Ministerial Decree as well as Ministry Stipulation in the immediate future that will give a mandate to the energy ministry to determine the floor and ceiling price of coal.

The energy ministry’s decision takes into account the Government Regulation Number 8, 2018 on the Fifth Amendement 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 EMR Ministry announced on March 7, that the Indonesian Coal Reference Price for March has been set at $101.86 per ton, up from $100.96 per ton in February. The price hike was driven by higher demand for coal from Indonesia’s key export markets, in particular, China.

The heavy rain in the first two months of the year which has disrupted coal production has also pushed up coal price. The March coal price is the highest in the last five years, the energy ministry said.

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.

Earlier, 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.

He said the coal producers will adhere to the government ruling on the coal price band, however, the price limit should take into consideration the interest of producers as well. “The coal producers have suffered until two years ago after coal price dropped sharply. The coal producers just start to gain benefit from coal price hike after suffering low price for two-three years,” he said.

US$1: Rp13,700