Widodo Signs Coal Price Revision for the Domestic Market Obligation

The newly signed Regulation No. 8/2018 is a revision of Government Regulation No. 1/2017 on the Implementation of Mineral and Coal Mining Business Activities. However, only one Article in the old regulation - namely Article 85 - has actually been changed.

The old Article 85 stated that the DMO price is determined by the market mechanism, hence being in line with domestic and global coal prices. The revised Article 85, however, states that in the context of meeting domestic coal demand for the nation's interests, the Minister of Energy and Mineral Resources will determine a specific DMO price.

Ignasius Jonan, Minister of Energy and Mineral Resources, will soon issue a Ministerial Regulation through which the exact DMO price will be set. This regulation is expected to be issued somewhere in mid-March 2018. Local coal mining companies will - rather shakily - await for this exact price.

Energy and Mineral Resources Ministry official Andy Sommeng added that the DMO price only applies to coal that is sold to local coal-fired power plants. These coal-fired power plants are the biggest domestic coal consumer in Indonesia and they account for nearly 60 percent of the nation's total power generation capacity.

Discussions about a special DMO price started in early 2017 when Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN), the country's biggest coal consumer, complained that it is plagued by an increasing financial burden. Since mid-2016 coal prices have been surging across the world thus resulting in rising production costs for electricity. However, PLN could not pass on these costs to the end-user because electricity tariffs are set by the government at a subsidized rate that is below the current market price (in an effort to boost people's purchasing power). A lower DMO price would relieve the company's financial burden. For local coal mining companies, however, the looming DMO price is a disappointment as it means they will profit less from domestic sales. After experiencing several tough years (amid plunging coal prices between mid-2012 and mid-2016) they were hoping to make as much profit as possible.

Timeline DMO Price Discussions:

Period	Development
Early 2017	Debates start about the introduction of a DMO price mechanism to relieve financial burden of PLN
Mid 2017	The last meeting is held between PLN, coal mining stakeholders and the Energy and Mineral Resource Ministry. They fail to reach an agreement
August-September 2017	PLN is increasingly urging for a low DMO price mechanism amid the rapidly rising coal price
September 2017	Energy Minister Jonan rejects a cost + margin mechanism because he feels it is outdated
October 2017	The Energy Ministry says it is studying the possibility of using two separate price indexes; one specific for coal that is sold domestically to coal-fired power plants
February 2018	PLN urges Widodo to step in and take decisions as coal prices continue to soar
March 2018	Widodo signs Government Regulation No. 8/2018 on the Implementation of Mineral and Coal Mining Business Activities
Mid March 2018	Energy Minister Jonan is expected to issue a regulation to determine the exact coal price under the DMO mechanism

The local coal miners hope to see a price of around USD $85 per metric ton. PLN, however, recommends the government to set the DMO price range between USD $55 - $70 per metric ton.

Indonesia's benchmark thermal coal price (Harga Batubara Acuan, or HBA) touched a multi-year high of USD $101.86 per metric ton in March 2018. The HBA, which is determined by the Energy and Mineral Resources Ministry on a monthly basis, is based on several global and domestic coal price indexes.

Indonesia's coal-fired power plants require about 80-90 million metric tons per year, or roughly 80 percent of locally-mined coal that is allocated for the domestic market under the DMO scheme.

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month	2017	2018
January	86.23↓	95.54↑
February	83.32↓	100.69↑
March	81.90↓	101.86↑
April	82.51↑
May	83.81↑
June	75.46↓
July	78.95↑
August	83.97↑
September	92.03↑
October	93.99↑
November	94.84↑
December	94.04↓
Average	85.9↑

 

Month	2012	2013	2014	2015	2016
January	109.29	87.55	81.90	63.84	53.20
February	111.58	88.35	80.44	62.92	50.92
March	112.87	90.09	77.01	67.76	51.62
April	105.61	88.56	74.81	64.48	52.32
May	102.12	85.33	73.60	61.08	51.20
June	96.65	84.87	73.64	59.59	51.87
July	87.56	81.69	72.45	59.16	53.00
August	84.65	76.70	70.29	59.14	58.37
September	86.21	76.89	69.69	58.21	63.93
October	86.04	76.61	67.26	57.39	69.07
November	81.44	78.13	65.70	54.43	84.89
December	81.75	80.31	69.23	53.51	101.69
Average	95.5	82.9	72.6	60.1	61.8

^{in USD/ton
Source: Ministry of Energy and Mineral Resources}

Indonesian Production, Export, Consumption & Price of Coal:

	2014	2015	2016	2017	2018	2019
Production (in million ton)	458	461	456	461	485¹	400¹
Export (in million ton)	382	375	365	364	311¹	160¹
Domestic (in million ton)	76	76	91	97	121¹	240¹
Price (HBA) (in USD/ton)	72.6	60.1	61.8	85.9	-	-

 

	2008	2009	2010	2011	2012	2013
Production (in million ton)	240	254	275	353	412	474
Export (in million ton)	191	198	210	287	345	402
Domestic (in million ton)	49	56	65	66	67	72
Price (HBA) (in USD/ton)	n.a	70.7	91.7	118.4	95.5	82.9

^{¹ government target
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources}

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