The Energy and Mineral Resources (ESDM) Ministry Decree No. 139/2021 requires coal producers to allocate a minimum of 25 percent of their annual-production target for domestic use, priced at a maximum of US$70 per metric ton for coal used to produce electricity for the public. For those who fail to meet their obligation, they will have to pay fines and compensations according to the ESDM Ministerial Decree No. 13/2022.

However, coal price hit a record high this year, hovering around $400 per t for the past few months, which is over five times the DMO price. Therefore, due to the stark-price difference, coal producers prefer to pay the fines and compensation rather than not exporting.

This profit-seeking action had led PLN to suffer critically low coal-supply levels early this year, putting 10 million households and businesses across Java and Bali at risk of blackout. The company suffered a deficit of 6.1 million t of coal in January, 5.1 t of which should have been fulfilled by the DMO.

Due to the direness of the situation, the government threw down a coal-export ban that sent shockwave across the global supply chain. After securing domestic supply, added with pressures from its major coal-trading partners, the government lifted the ban after a month. (Read: RI gradually relaxes coal export ban after securing domestic supply)

PLN believes that an entity that collects coal levies would give more incentives for coal producers to comply with the DMO policy, therefore helping them to secure coal supply. The levies will cover the difference between DMO prices, which are $70 per t for electricity and $90 per t for cement and fertilizers, and market prices.

ESDM Minister Arifin Tasrif said the government is still discussing over the legal status of the entity. "The initiative has not received approval at this time because there is still a debate over the legal basis, [whether it will be] in the form of a Government Regulation or Presidential Regulation," he said on Tuesday in a working meeting with House of Representatives Commission VII, which oversees energy and mining resources.

Coal producers are waiting for the BLU to be established before they start sending supply to meet their DMO. However, PLN’s coal supply is only secure for the next 15 operating days (HOP). If the government is not quick to take action, PLN will suffer another critical supply.

What’s more

The government has previously set up a similar entity, which is the Palm Oil Support Fund Agency (BPDPKS) formed in 2015. The fund managed to collect $10 billion by the end of 2021 but only 5 percent of the fund reached smallholders, while more than 80 percent went to subsidizing biodiesel, which is produced by big palm oil companies. Although the BLU will be a different type of entity, there are concerns that the fund in the entity will also go to big companies.

Some hold the view that the coal levies should go to the state instead and the compensation for coal producers should be decided through budgeting. This way, both the government and coal producers can enjoy the benefit of the increasing coal price.

Furthermore, PLN should also solve its management issues by improving efficiency in its supply chain. Previously, the government had found that PLN Batubara, a subsidiary of PLN that is responsible for the coal trade, often signed coal-purchasing contracts via traders, instead of straight from the coal producers, causing inefficiency in PLN’s costs as the price from traders is usually higher. However, some argued that the company’s role was to secure types of coal required by PLN and sell other types overseas, so they have performed their duty as a coal-trading company well.

What we’ve heard

A number of sources said that it is increasingly difficult for PLN to increase its coal stock because it has to compete with smelter owners as well as the fertilizer and cement industries, all of which need coal.

One source said that apart from being allocated for export, coal producers prefer to sell their coal to nickel-processing plants rather than PLN. While still being able to fulfil their DMO obligations, they can sell coal at market prices. Meanwhile, sales of coal for the cement and fertilizer industries are priced at US$90 per metric ton.

In the midst of the threat of PLN's coal deficit, a tug of war took place between the Energy and Mineral Resources Ministry and the Finance Ministry. A source in the government said that the Finance Ministry wanted the BLU for coal to be established via a government regulation. Meanwhile, the Energy and Mineral Resources Ministry wants the coal BLU to be formed via a presidential regulation. The latter’s reasoning is that the preparation of presidential regulations can be faster than the that of government regulations.

So that the problem does not drag on, the Energy and Mineral Resources Ministry has assigned a number of coal companies to meet PLN's coal needs with varying tonnage amounts. If they do not comply with the assignment, the ministry threatens to disable the company's export feature on the Minerba Online Monitoring System (MOMS) application.

Disclaimer

This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:

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