A requirement for coal producers to sell a certain part of their production to the local market, known as the domestic market obligation (DMO), could not be implemented this year as planned because of the need for a stronger legal basis.

"We first considered stipulating the DMO in a ministerial regulation,

"But later on, after we consulted with legal experts, it's better to include the DMO in a government regulation," Bambang Setiawan, director general for mineral, coal, and geothermal at the energy and mineral resources ministry, said Wednesday.

Under Indonesia's legal hierarchy, government regulations signed by the president have stronger legal foundations than ministerial regulations, which are signed by ministers.

Earlier, the government said that it would begin imposing the DMO for coal producers this year. Under the DMO provisions coal producers should set aside at least 20 percent of their production for the domestic market, Bambang Gatot Ariyono, director for coal and mineral development at the ministry said in November.

Bambang Gatot said the government would impose sanctions on coal producers if they failed to comply with the DMO regulation. He said sanctions would be in the form of a reduction in allowable production quotas.

Coal producers are required to seek government approval for their production target annually.

Bambang Gatot said that if the coal producers did not fulfill the DMO requirement, their production target for the following year would be reduced by as much as their unfulfilled obligation in the current year.

Although the coal DMO will not be implemented this year, Bambang Setiawan said the government would secure coal supplies for the domestic market by using the existing mechanism.

"Actually our coal contracts have sort of mentioned about the domestic market obligation. Coal producers are required to give the first priority to the domestic market. We will calculate the domestic demands for coal and we will distribute the quotas to all coal producers."

Earlier Bambang Setiawan said that Indonesia might produce 250,000 tons of coal in 2009. But, he quickly added, if demand decreased significantly due to the global crisis, the 2009 production target would be reduced to 230,000 tons or roughly the same amount as for last year's production.

Domestic demand for coal is forecast to increase to 66,000 tons this year from 57,000 tons in 2008.

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