President Joko Widodo lead a limited cabinet meeting at the Bogor Palace (31/07) - Photo by President Office

JAKARTA (TheInsiderStories)–Indonesia’s President Joko Widodo canceled a plan to revoke domestic market obligation (DMO) policy for coals, said one senior official on Tuesday (31/07). DMO is a mandate of Law No.4 of 2009 on Minerals and Coal.

According to Minister of Energy and Mineral Resources (MEMR) Ignasius Jonan, this decision was taken in a limited meeting with 17 state officials in Bogor Palace. The meeting was aimed to discuss the foreign exchange reserve, of which discussed the continuation of DMO policy for coals, bio diesel and domestic component level.

“President was decided to kept the policy. There is no DMO removal,” Jonan told reporters after the limited meeting.

A plan to revoke DMO policy for coal was first stated by Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan. He said the government will revoke DMO policy for coal in attempts to boost export and chase foreign reserve exchange.

If the government applies a policy to revoke DMO for coal, analysts estimates could harm PT Perusahaan Listrik Negara (PLN)’s financial condition and consumers cause there is potential for electricity prices to rise.

Last March, the EMR ministry has decided to cap ceiling price of coal for DMO at US$70 per ton, for 6,322 calorie coal, or price is set based on the benchmark Indonesia Coal Price if the coal price moves to below US$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 minister 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 levels, 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 the 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 ($1.02 billion) due to coal price hike.

Reported by Linda Silaen, Email: fauzulmuna@theinsiderstories.com