The government introduced the DMO policy in January, requiring coal miners to sell up to 25 percent of their total production to PLN.

Two months later, the government issued a regulation capping the coal sold to PLN at US$70 per ton. The price is far lower than the government’s coal reference price at $104 for September or $112 according to Bloomberg report.

For this year, the government set the national coal production at 485 million tons. Some 20 million tons were added last month in an attempt to boost exports. This means PLN could obtain 121 million tons of coal with a controlled price of $70 per ton. The privilege was set to help the operation of PLN, whose power plants are mostly coal-based.

“From early September, the [DMO] policy has appeared to be effective in terms of supply. Now, it’s merely an issue of delivering it into our stocks and that will take some time,” PLN strategic procurement director Supangkat Iwan Santoso said on Tuesday.

“Thanks to the supply of coal, our stock is estimated to last beyond 10 days. The ideal standard is 15 to 20 days.”

Previously, PLN voiced its concerns over the ineffectiveness of the DMO policy, as not all miners had fulfilled their obligation. For coal miners, the policy is uneconomical, especially at times of high coal prices. Meanwhile, not all the coal produced by miners is suitable for PLN’s power plants.

Four months after the DMO was implemented in January, the realization of DMO for coal only reached 32.6 million tons, or 34 percent of the total target of 92 million tons for PLN, according to data from the Energy and Mineral Resources Ministry.

The slow policy implementation might have been one of the major damages to PLN’s financial performance in the first half of 2018, when it posted a loss of Rp 5.3 trillion ($357.118 million). Its loss from foreign exchange alone reached Rp 11 trillion.

Meanwhile, in its research publication, international energy think tank Institute for Energy Economics and Financial Analysis (IEEFA) stated that PLN’s loss was attributed to the incomplete DMO implementation.

“Since the policy only took effect in March, PLN still suffered in the first quarter for generating its power plants. Beside, there is no DMO policy on gas. PLN spent Rp 26 trillion for gas in the first semester, while coal was Rp 23 trillion,” Jakarta-based IEEFA analyst Elrika Hamdi said.

Coal is the backbone of PLN’s power plant, contributing 62 percent from its total electricity generation in 2018. It will stay the same until 2027, before gradually decreasing to only 29 percent.

However, Supangkat from PLN believes that the positive development of the DMO on coal policy will help the firm’s financial performance until year-end because of the availability of domestic coal.

However, PLN faces yet another challenge as on Monday, the House of Representatives decided to slash a state capital injection (PMN) for the company in the draft 2019 state budget. The proposed capital injection was cut to Rp 6.5 billion from the initial Rp 10 trillion.

“Our funding scheme is 30 percent from internal cash and 70 percent from debt, so we are really pinning our hopes on the PMN as we failed to earn a profit,” Supangkat said.

Previously, PLN director of corporate planning Syofvi Roekman said the Rp 10 trillion capital injection would be prioritized for electricity development in villages as the government aimed to increase Indonesia’s electrification ratio to 99 percent by next year.

Popular

To my horror, it’s just a movie!

RI, Australia strengthen partnership on taxing crypto assets

Pentagon chief congratulates Prabowo on being elected President