Indonesia lawmakers call for tougher rules to avert another coal crisis

12th August 2022 By: Reuters

JAKARTA - Indonesian legislators on Tuesday pressed the government to tighten rules on domestic coal sales, amid concern that miners will choose to pay fines instead of meeting a requirement to sell a quarter of their output to local power generators.

The parliamentary energy committee met during recess on Tuesday, fearing the world's biggest thermal coal exporter was headed for a repeat of a domestic supply crisis late last year that saw exports banned for a few weeks in January, triggering panic among foreign buyers. 

Indonesia imposes a so-called Domestic Market Obligation (DMO) where miners must sell 25% of their output onshore, at prices capped at $70 per tonne for power generators and $90 per tonne for local industry.

Though the coal inventory of state power utility Perusahaan Listrik Negara (PLN) was above the secure level of 4.5 million tonnes, supplies were declining as power demand rises, its chief executive Darmawan Prasodjo told the hearing.

"If this continues, we may see a crisis again," Darmawan said.

Energy minister Arifin Tasrif accepted there were risks of local supply issues due to the big gap between the capped domestic prices and the prices paid by offshore buyers.

"There are tendencies of avoiding contracts with domestic industries," Arifin told the committee.

Indonesia coal benchmark price COAL-HBA-ID has stayed above $70 per tonne level since January 2021 but surged to a record $321.59 per tonne this month, as the war in Ukraine exacerbated the energy supply crunch.

Lawmakers urged authorities to review the size of fines imposed for failing to meet the DMO and create an agency to help PLN secure coal supplies and collect levies. 

"We need to review why businesses would rather pay fines than meet their obligation, there must be something wrong here," said legislator Diah Nurwitasari.

PLN's declining inventory was a warning for the government to act fast, said other lawmaker, Dony Maryadi Oekon.

Contacted by Reuters, Hendra Sinadia, an official at Indonesia Coal Miners Association, said members with contracts with PLN were committed to meet requirements, and the association could not comment on PLN's overall coal stocks.