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View all search resultsThe energy-nationalism dilemma
When populist price caps collide with soaring global markets, resource nationalism doesn't protect the public—it just leaves them in the dark.
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A technician from state electricity company PLN stands atop a transmission tower during regular maintenance work on Dec. 27, 2023, in Palu, Central Sulawesi.
(Antara/Basri Marzuki)
I
ndonesia, the world's largest coal exporter, currently finds itself in a striking paradox: rolling electricity blackouts are hitting Java, the nation's economic heartland, following disruptions at two major coal-fired power plants.
While the government and state electricity monopoly PLN have rejected any direct link between these blackouts and coal supply constraints, reality on the ground suggests otherwise, raising uncomfortable questions about the resilience of the national energy system.
Since 2018, Indonesia has required coal miners to allocate at least 25 percent of their output to the domestic market under the domestic market obligation (DMO) policy. In practice, this means producers can export only up to three-quarters of their annual production quota, with the remainder reserved for local buyers like PLN and mineral smelters.
The policy perfectly embodies Jakarta's resource-nationalism agenda. By reserving a fixed portion of coal output for domestic consumption, the government aims to safeguard energy security from the volatility of global commodity markets, where soaring prices frequently tempt producers to prioritize lucrative overseas buyers over domestic needs.
However, a critical problem arises because coal supplied to PLN under the DMO scheme is subject to a government-imposed price cap of just US$70 per tonne, far below the prevailing global market price of around $120 per tonne. As a result, PLN often struggles to secure its share. Coal producers have little commercial incentive to sell to the state utility when they can instead fulfill their DMO quotas by supplying other designated domestic buyers, such as mineral smelters, at full market prices.
Nor can PLN simply choose to pay more. Raising procurement prices would drive up electricity generation costs, forcing the government to either increase subsidies from the state budget or pass higher tariffs on to consumers, both of which are politically and fiscally painful choices. The structural deficit is real: Energy and Mineral Resources Minister Bahlil Lahadalia recently acknowledged that PLN is still short of roughly 20 million tonnes of medium-grade coal needed to secure its operations for the year.
On the other hand, coal miners cannot be entirely blamed for sidestepping the national agenda. They are operating under mounting cost pressures, including rising stripping ratios (SR), a key operational metric measuring how much overburden rock must be removed to extract a single tonne of coal.
At the same time, production quotas have been tightened this year, further squeezing total output. With less coal available to sell to foreign buyers at premium global prices, miners have fewer opportunities to offset the losses incurred from supplying discounted DMO coal to PLN. This financial squeeze only reinforces their incentive to seek alternative domestic buyers who satisfy the DMO law but offer better prices.
Indonesia has increasingly infused resource nationalism into key commercial sectors, from coal mining to SME financing. The intention is clear: to prevent unfettered, profit-driven market forces from pushing the prices of essential goods beyond the reach of ordinary consumers.
Yet, there is a delicate balance to strike. While safeguarding affordability is a legitimate policy goal, private businesses must still be given sufficient room to operate sustainably. Without that operational breathing room, particularly in an era of global cost shocks and supply chain disruptions, the very sectors the state relies on to deliver public goods risk being gradually undermined.
Recognizing this friction, the government has announced plans to adjust DMO coal prices upward and relax annual production quotas. This marks a clear departure from its earlier hardline stance on resource nationalism, offering producers some much-needed relief. Yet, whether these adjustments will arrive in time to prevent further blackouts remains an open question.
Nevertheless, Article 33 of the 1945 Constitution does not merely mandate state control over key commodities; it also enshrines the principle that the national economy must be run on the basis of togetherness, efficiency, fairness, and sustainability. The recent blackouts serve as a stark reminder that when market realities are pushed past the breaking point in the name of nationalism, the country itself risks being left in the dark.
