Govt promises coal for PLN despite price spikes

The government says state electricity company PT PLN will receive enough coal to fire its power plants, despite price fluctuations in the international market.

The director general of mineral and coal at the Energy and Mineral Resources Ministry, Bambang Setiawan, said last week that PLN’s suppliers had agreed to continue to supply it coal, pending ongoing price negotiations.

“We’re still negotiating with coal producers to reach an agreement on price. No deal has been made to date. But they’re committed to ensuring supplies for PLN,” he told reporters at his office in Jakarta.

In a meeting at the House of Representatives on Wednesday, Bambang said that suppliers had insisted on request rates above the coal reference prices set by the government due to soaring international market prices.

PLN primary energy director Nur Pamudji previously slammed the coal suppliers that had asked the firm to pay international market prices, saying it was unethical for domestic suppliers to benefit from the floods in Queensland, Australia, that have disturbed world coal distribution.

“The flood is in the neighboring country. Coal suppliers shouldn’t ask for higher prices because we’re not affected by the disaster,” he said.

Nur Pamudji said suppliers should set domestic prices using the 2010 ministerial decree that provides for a monthly coal reference price based on the average reference price from the previous three months.

According to the ministry, the official coal reference price in January was US$112 per ton, up 8.6 percent from $103 in December — but far lower than the current spot price in the international market. Analysts predict that global coal prices will hover between $120 and $130 in 2011.

Nur Pamudji said if suppliers held to international market prices the government would have to increase PLN’s subsidy from Rp 4 trillion and Rp 7 trillion. The 2011 state budget currently allocates Rp 40.7 trillion for PLN.

The director of the Indonesia Coal Society, Singgih Widagdo, who also works for the fifth-largest coal producer in Indonesia, PT Berau Coal, said that coal suppliers were committed to ensuring supplies for domestic customers, including PLN.

Singgih said coal suppliers were bound by a domestic market obligation (DMO).

“It’s our responsibility and obligation to sell 30 percent of our total production to the domestic market. We always prioritize our domestic customers,” he said.

On negotiations, Singgih said deals would be made in the first quarter of 2011. If the problem lingered it might hinder the growth of the nation’s electricity network, he added.

Berau Coal planned to supply around 5 million tons of coal to power plants in Paiton, East Java; Suralaya, Banten Province and Cilacap, Central Java, in 2011, Singgih said.